Singapore Myanmar Investco - OCBC Investment 2017-11-16: Work In Progress

SINGAPORE MYANMAR INVESTCO LTD Y45.SI

SINGAPORE MYANMAR INVESTCO - Work In Progress

Singapore Myanmar Investco (SMI) reported its 1HFY18 results on Tuesday.
Gross profit increased 52.5% YoY to US$3.1m, supported by an increase in gross profit margin from 21.1% in 1HFY17 to 26.6%.
The group recorded a net loss of US$2.1m from continuing operations, vs. a net loss of US$1.6m in 1HFY17. Part of the increase in net loss was due to positive one-off items in the previous half-year including a US$300k write-back of over-accrual of bonus and a US$137k writeback of over-accrual of corporate secretarial costs in 1HFY17.
Notably, Duty Free & Fashion Retail and Construction Services made up 59.4% of 1HFY18 revenue, with profit (before unallocated expenses) increasing 60% YoY to US$2.1m – though that increase was more than offset by the increase in the group’s head office expenses and finance charges.
Looking ahead to 2HFY18, management expects to post a YoY increase in revenue, along with reduced operational costs.

Foreign arrivals at Yangon International Airport reached 0.75m for the first 8 months of 2017, up 14% YoY. We do note that one key risk to our FY19 forecasts is any continuation of the Rakhine state atrocities, which may deter visitors from signing on tour packages next year and put a damper on arrivals.
Nonetheless, the long-term growth story is still intact. We believe that SMI’s positioning in the profitable airport duty-free retail space in a developing country – that is still at a low base in terms of economic indicators relative to neighbouring countries – offers investors a unique opportunity to participate in the country’s growth.
The Asian Development Bank projects a 7.7% GDP growth rate for Myanmar in 2017 and 8.0% growth in 2018.
We highlight three factors in SMI’s favor –
1. the current low base that revenue is at,
2. the high gross profit margins of the Duty Free & Fashion Retail segment, coupled with
3. the less-than-proportional increase in fixed costs we project going forward.
With a change in analyst, after adjusting for the placement and tweaking our assumptions for FY19F, our fair value decreases from S$0.97 to S$0.665 (16x FY19F; year ending Mar 2019), which implies a healthy 48% upside from yesterday’s closing price of S$0.45.
Maintain BUY.

Deborah Ong OCBC Investment | http://www.ocbcresearch.com/ 2017-11-16

OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 0.665 Down 0.970