Potential for Myanmar plays...
... but analysts say risks are high, and returns may take a while. MA XIANGYU and LIM JIA YING survey the prospects for sectors
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... but analysts say risks are high, and returns may take a while. MA XIANGYU and LIM JIA YING survey the prospects for sectors
20 March 2013
SINGAPORE investors looking to venture into Myanmar can still find reasonable value beyond the usual suspects, but analysts have cautioned that risks remain high and that returns may take a few years to realise.
A Business Times analysis of Singapore-listed companies found that, despite rallies in the stock prices of high-profile Myanmar plays such as property developer Yoma Strategic Holdings and oil-and-gas explorer Interra Resources, the rising tide has not lifted all boats equally.
Companies that have derived at least 10 per cent of their revenue from Myanmar have seen their share prices increase by anywhere between 25 per cent and 345 per cent in the past year.
The broader market, as measured by the Straits Times Index, rose just 9.06 per cent over the same period.
In terms of valuations, price-earnings multiples currently range between 14.2 and 146.4 times.
Yoma Strategic Holdings, the company with the largest exposure to Myanmar, makes all its sales in the country. But most of the other Myanmar plays, such as canned food maker Del Monte Pacific and mobile phone distributor mDR, are only making their first forays into the market and have yet to show results.
Carmen Lee, head of OCBC Investment Research, said: "Quite a few companies are trying to get in, but remain insignificant, as their Myanmar operations are really a small part of their business, and the total percentage of earnings is not impactful enough."
The Myanmar effect blossomed in earnest in late 2011, on the back of political and economic reforms in the country. But rapid price appreciations has led to concerns of overvaluation.
William Tng, the vice-president of research at CIMB, said: "Investors run the risk of over paying because of the scarcity premium, the limited ways to get exposure and the momentum feeding on itself."
Analysts noted an abundance of risks in Myanmar. Instability remains after the sweeping reforms, and ethnic insurgencies continue.
A Barron's report projected that the scarcity premium many stocks now command may diminish if Myanmar establishes its first stock exchange by 2015 as planned.
As Ms Lee put it: "(Myanmar) is a high-growth market, but it has to be moderated with problems you can expect there."
It may be some time before optimism comes up against reality. "In one to two years, we'll know if companies managed to mine the potential and translate it to earnings," she said.
Property
Beyond Yoma, most of the property companies with Myanmar exposure have so far produced more plans than results.
Eli Lee of OCBC said there is a dearth of real estate developers with a similar track record and the ability to develop large-scale projects.
Goodland Group has a 50:50 joint venture agreement to develop two condominium projects in Yangon; construction and development group Tee International has only a memorandum of understanding to develop a cement plant with a Myanmar partner.
Neither Goodland's nor Tee's projects will have material effect on net tangible assets or earnings per share in fiscal 2013.
The food and beverage space in Myanmar is a stew not done cooking, with eager newcomers threatening to challenge the handful of those who have dug in.
Food manufacturers Super Group and Viz Branz, the early birds, have been in the country for 20 and 15 years respectively. Candy Chng, the manager of corporate affairs and investor relations at Super Group, said the company reaped a hefty first-mover advantage afforded by years of building its brand and network in Myanmar.
Major international brands have thus yet to have an effect.
But the status quo may change. OSK-DMG analyst Goh Han Peng said that Viz Branz's results commentaries have indicated that it may face more competition in Myanmar as a result of the opening up of the country.
One major new player getting into the fray is Del Monte Pacific, which announced its entry into Myanmar in January, though a partnership with a Yangon-based distributor. Del Monte nevertheless expects bottomline contributions in fiscal 2013 to be minimal.
Oil and gas
High hopes and high risks describe this sector in resource-rich Myanmar. An official from the Myanmar Oil and Gas Enterprise said that 25 new offshore oil-and-gas exploration blocks will be up for auction by next month.
Interra, now the largest onshore oil producer in Myanmar, has a gross production of 2,500 barrels of oil per day.
Lorraine Tan, head of research at Standard and Poor's Capital IQ, said: "Because the energy sector is traditionally considered to be a cyclical sector, subject to swings in the global economy, Interra's share price is likely to be more volatile than defensive consumer staples or telecom names."
She also noted that Interra did not pay dividends and was still in the growth phase of its business, which means that it has the "typical attributes of being a higher beta play".
Swiber Holdings entered Myanmar in 2009 on a maiden project to lay gas pipelines. It has worked on projects amounting to approximately US$240 million to date.
What is notable about the sector, however, is the number of restructuring companies that have been drawn to it.
Former paper and pulp manufacturer UPP Holdings reformed its business last year to pursue new businesses, which include infrastructure and property; it has also begun to build a 50-megawatt power plant in Yangon.
Electronics distributor WE Holdings this month announced a joint venture with Myanmar businessman Nay Win Tun to acquire oil fields and begin drilling operations.
OCBC analyst Low Pei Han described the Myanmar oil-and-gas space as suited to investors with a "higher risk appetite".
Telecoms
Myanmar's telecommunications market offers potential, but it remains to be seen who will get to tap the upside of this growth market.
Estimates by Nomura early last year put the country's mobile penetration rate at just 2 to 4 per cent.
Foreign companies will get a chance to raise those figures.
BT understands from industry insiders that two foreign telco operator licences are expected to be issued by the end of the year.
Telecom infrastructure specialist Ntegrator International, there since 2002, estimated that a third of its fiscal 2012 turnover came from the country. Jason Leong, the regional general manager at Ntegrator, believes the company to be well-positioned. "The group has established a strong track record, built up local knowledge and developed close working relationships with the relevant authorities," he said.
Mobile phone distributor mDR has also inked agreements to work with local partners, and expects to play a crucial role in providing after-sales service for mobile devices, said Avinder Singh, who heads its Myanmar operations.
While mDR's current revenue attributable to Myanmar operations is negligible, the company expects this to change in a few years.
The offerings are more scattered in other industries.
In retail, Parkson Retail Asia recently joined Yoma to develop a 43,000 sq ft store slated to open at the end of this month. Plans have also been drawn up for a full-fledged department store taking up between 150,000 sq ft and 200,000 sq ft in three to four years.
In hospitality, the Pan Pacific Hotel Group has operated a branch of its Park Royal hotel chain in Yangon for 11 years, and is eyeing serviced apartments in the future.
In health care, Asiamedic has signed memoranda of understanding to set up private health care facilities.