Yoma and Interra gain from Myanmar fever
Both see share prices soar due to exposure to country but
some analysts cautious
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Both see share prices soar due to exposure to country but some analysts cautious
By FELDA CHAY
10 April 2012
Myanmar fever has sparked a rally in the stocks of Yoma Strategic Holdings and Interra Resources.
The two Singapore-listed companies with high exposure to Myanmar have seen their share prices soar as the country becomes a market favourite following sweeping changes over the past month in its political and economic climate that include the managed float of its currency and landmark by-elections where democratic leader Aung San Suu Kyi emerged victorious.
In the last month, the stock of Yoma - a mainboard-listed company engaged in property development, construction and piling services, project management and design services in Myanmar - has soared 43 per cent. Yesterday alone, the stock bucked the broad market retreat to close trading 12.15 per cent up at 60 cents, more than eight times the price of just 7.1 cents six months ago.
Interra, a Catalist-listed oil and gas sector player, has also caught investors’ attention. Its shares have climbed 18 per cent in a month, and yesterday closed 5.9 per cent up at 36 cents, more than treble the 11 cents it closed at six months ago.
The surge in the two counters comes amid news that the United States is easing some sanctions on Myanmar, and that France will be urging the European Union to ease bans - all moves that are good for businesses with exposure to the country. Last week, US Secretary of State Hillary Clinton said that some sanctions would be lifted, including a ban on US firms investing in or offering financial services to Myanmar, to recognise the country’s fledgling democratic transition.
The US will also seek to name an ambassador to Myanmar after an absence of two decades, she said, but stressed that Washington wanted to move cautiously as Myanmar still has a long way to go before it can unshackle itself from decades of military rule.
Said Simon Kahn, chairman of The American Chamber of Commerce in Singapore: ‘AmCham is glad to see progress being made on the diplomatic front and to see political reforms that could open future business opportunities.
‘Our members see great potential in Myanmar. In a recent member survey, Myanmar was ranked as the top destination for an AmCham-led mission to explore trade opportunities.’
Myanmar is the fourth most populated country in Asean, with about 54 million people and GDP that is projected to double to US$124 billion by 2020 according to IHS Global Insight, noted DMG & Partners Research in a note last week. This means that the country could see its economy grow an average of 6 per cent per year.
‘The lifting of sanctions could boost regional growth and intra-Asean trade and investment. In addition, the domestic consumer market is expected to grow rapidly, creating a fast-growing market for exports of goods and services,’ said DMG. It added that stocks such as Yoma and Interra ‘could continue to arouse investors’ interest despite their recent stellar performance’.
Besides property-related activities, Yoma is also in the agriculture and automobile dealership business in Myanmar and China. For its fiscal first nine months ended Dec 31, 2011, revenue was S$23 million, up from S$3.6 million a year earlier, noted DMG, of which more than 90 per cent came from Myanmar. The firm’s China assets do not contribute materially to its bottom line, and its recently hired CEO Andrew Rickards, a former investment banker who has worked for Goldman Sachs, was quoted in a news report as saying that Yoma may turn into a pure Myanmar play to ride on the massive interest in the country.
In February, Yoma said that it was acquiring 70 per cent of a housing project that is near the Thilawa Sea Port - one of three expected to be classified as a special economic zone by the Myanmar government.
The company also has 100,000 acres of agricultural land to play with, of which a small portion has been used to grow a plant called jatropha - which can be used to make biodiesel.
Interra, a petroleum exploration and production firm, saw its FY2011 net profit up five-fold at US$9 million from US$1.71 million on a 67 per cent jump in revenue to US$25 million. Its geographical revenue mix sees Myanmar dominating at 64 per cent, while the rest comes from Indonesia, noted DMG.
Still, lots remain unsettled in Myanmar, and it’s best to play the stocks with caution.
Said Simon Tay, chairman of Singapore Institute of International Affairs (SIIA): ‘The by-elections in Myanmar can be the best possible step forward to a cleaner and more open political process. The opening should be further encouraged. Asean has rightly called for the West to unwind sanctions, and the US move is the right step to reward reformers and encourage further reform.
‘Businesses can and should look at Myanmar afresh and Asean as a whole can gain from this. But even if political reform continues, there are more basic economic questions that investors must look at and issues with the ethnic minorities remain to be settled.’
One risk it faces is that of currency depreciation following the unification of its multiple currency system. Said Joseph Tan, SIIA council member and former chief economist at Credit Suisse Private Bank in a note last week: ‘First, with the black market in Myanmar trading its currency at a much weaker level than the official exchange rate, the two markets will converge upon liberalisation, and this will likely have a major impact on the currency...
‘Second, with a likely depreciation of the currency, reserves will be drained if authorities seek to defend the currency. As Myanmar’s foreign exchange reserves are only about US$7 billion it can ill afford to do any intervention. Without intervention, a sudden depreciation in the currency will lead to economic instability and inflation. It would be better for Myanmar to stagger its free float as recommended by the International Monetary Fund, rather than liberalising all at once.’
Myanmar must therefore have stringent capital controls in place, said Mr Tan. This will ‘limit inflows and outflows as it cannot afford to intervene in the foreign exchange markets. Otherwise, there is a high risk of a free fall, like that seen in some Asian countries during the last regional crisis in 1997’.