business research report for myanmar
DESCRIPTION
overview of business in MyanmarTRANSCRIPT
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1Target Price 9,326Downside (%) 22.28Valuation SOP (RNAV/DCF)Close (June 13) 12,000Market Cap 144.45 bnSector Real Estate52 Week High/Low 12,000 / 2,400Avg. Volume (30 Day) 16,681Shares Outstanding 12,038,197 No. of Shareholders ~ 6,000 Cash Dividend 100Last Dividend 01 Dec 2012
FY to Mar 31 2011A 2012A 2013F 2014F
Revenue 1,177 1,745 3,142 4,712EBITDA 839 1,360 2,293 3,440Reported profit 827 1,200 2,195 3,293Core profit 836 1,474 2,195 3,293Core EPS 113 190 182 235DPS 100 100 150 200 P/E, core 15.4 52.5 56.3 43.7EPS growth (%) 3.0 40.0 (4.0) 22.5 ROE (%) 5.8 8.9 8.0 6.7Div. yield (%) 5.7 1.0 1.3 1.5EV/EBITDA 47.1 29.1 49.0 32.6mates
Analyst
Jeremy RathjenVice President, Research
+95(0) 1-654731 (ext.262)
(Myanmar Kyats, except share data)
Price Performance (LTM)
Earnings Fundamentals(Myanmar Kyats, millions except share data)
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Equity Research
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COMPANY OVERVIEW
First Myanmar Investment (FMI)Research Report
JUNE 13, 2013
FMI: Riding Myanmars TailwindsAccess to foreign capital, an increasingly diversified portfolio and high property prices make FMI a solid investment looking forward, but its current price is a reason for caution.
The sweeping changes now occur-ring in Myanmar have been highly beneficial for FMI. In 2012 its subsid-iary Yoma Bank regained its banking license, allowing it to engage in a full range of banking activities that had previously been limited.
The incredible rise in the share price of Yoma Strategic Holdings, FMIs sis-ter company listed in Singapore, has given FMI enviable access to foreign capital, and its carefully marketed international reputation has made it an attractive partner for joint ven-tures.
FMIs property development busi-ness, which accounted for 87% of its revenues in 2012, has been bolstered by a buoyant real estate market and high interest in its Star City project in Thanlyin. Yet even with all of these positives, FMIs share price reflects a steep valuation. We derive a fair val-ue of KS 9,326 based on a sum-of-the-parts (SOP) analysis.
Key Points Initiate with a Hold rating
based on 22% downside to fair value at KS 9,326
New joint ventures in retail, tourism and automobiles expected to contribute to upside in coming years
Reemergent player in the banking sector with strong potential for a foreign JV
Property demand remains strong and the Star City development expected to contribute significantly to future revenues
Potential price upturn if bid for telecoms operating license is successful
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2We value FMIs real estate assets using the RNAV (Revalued Net Asset Value) method, and its other business segments using a Discounted Cash Flow (DCF) analysis. Our DCF valuation reflects an optimistic 2 year average CAGR of 75%, based largely on Yoma Banks potential. Our Hold rating is based on a wait-and-see approach to FMIs newly inked joint ventures, which have the potential to push FMIs earnings up to justifiable levels. We also see many opportunities for FMIs automotive businesses, and the fact that the company owns 100,000 acres of agricultural land at a time when foreign agribusinesses are seriously considering large projects in Myanmar is also a great advantage.
New ventures offer diversification and cash flowDuring the past 18 months, FMI has entered into some important joint ventures which will help it to further diversify its asset base and enter high growth industries in Myanmar. The success of these JVs will determine FMIs attractiveness moving forward.
Parkson Myanmar International CorporationFMI has taken a 10% stake in a joint venture with Parkson Retail Asia, an operator of department stores throughout the region. The big box retail sector in Myanmar is still underdeveloped, and this venture will help put FMI in a good position for future expansion in the sector. FMI has recently finished renovating the lower floors of the FMI Centre building to accommodate
Real Estate87%
Automobiles11%
Others2%
Real Estate31%
Automobiles20%
Banking10%
Services35%
Agriculture4%
Income contribution by sector (2012) Asset allocation (2012)
Parkson Retail Asia Net Profit 2010-2014E (SGD millions)
Source: DMG Research
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3Parksons first store. Because FMIs share of this venture is only 10%, it is not expected to contribute meaningful revenue in the next two years, but if Parkson is successful in growing its business in Myanmar, the retail industry may become an important source of income for FMI in FY2015.
A risk to this venture is that under current plans, the FMI Centre building will be demolished to make room for the Landmark Development project. After establishing a presence at FMI Centre, Parkson will be forced to move to another building. The substantial costs incurred while renovating the current store will have to be written off, potentially affecting the companys short term profitability. If Parksons first store at FMI Centre is successful, we see other locations in Mandalay and Naypyidaw as possibilities.
Chindwin Holdings FMI and Yoma Strategic jointly set up Chindwin Holdings in early 2013 to serve as a subsidiary for tourism-related ventures in Myanmar. FMI has a 30% stake in the venture with Yoma owning the remaining 70%. Chindwin has already made some important acquisitions in unique tourism-related businesses. The most important, and costly, is a 75% stake (22.5% of which represents FMIs share) in Shwe Lay Ta Gun for $US 10.7 million. Shwe Lay Ta Gun is
Typical Parkson department stores in Malaysia
Tourist Arrivals in Myanmar (Millions)
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4the operator of Balloons Over Bagan, a popular hot air balloon tour company based in Bagan. The acquisition price for Shwe Lay Ta Gun represents a forward multiple of ~5 times earnings, which we view as reasonable considering the steady increase in visitors to Bagan, and the proprietary nature of the business. The deal contains contingencies to ensure that Balloons Over Bagan hits minimum sales numbers, but we think this shouldnt be a problem for the company.
Another of Chindwins acquisitions is a 75% stake in a 21.16 acre property in Bagan for $US 3.76 million. The property is likely to serve as the site of a future luxury hotel. Accommodation shortages remain a problem in Myanmar, and depending on how quickly the hotel is built, this project could see high occupancy rates and consistent revenue over the next 10 years. We expect the finished hotel to be in line with La Residence dAngkor, or similar hotels in the region.
YSH FinanceYSH Finance is a new entity created by FMI and Yoma for the purpose of competing in the upcoming telecoms tender in Myanmar. YSH Finance has entered into an agreement with global telecoms giant Digicel and George Soros Quantum Fund to bid for one of two telecoms
FMI now owns a 30% stake in Balloons Over Bagan
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5licenses to be offered in June of this year. The consortium passed the pre-qualification stage on April 11th, and is now in competition with 10 other firms for a license.
YSH Finances exact stake in this consortium is unknown, but a 20% share is possible. If this is the case, then FMIs share of the telecoms license would amount to 4%, as it has a 20% stake in YSH Finance. Although this stake is relatively small, the telecoms market in Myanmar has the potential for exponential growth. Licenses include a charter to set up mobile networks and ISPs, and with some of the lowest mobile penetration in the world, the Myanmar market could prove to be immensely profitable.
If YSH Finances consortium is successful, we would expect FMI to issue new shares, most likely a rights issue, to help finance the telecoms infrastructure. A successful bid in the telecoms tender would also likely result in an upturn in FMIs share price. Management guides that even if the tender is unsuccessful, YSH will continue to partner with Digicel, perhaps in telecoms infrastructure or technical assistance projects in Myanmar.
Myanmar Motors Pte. LtdYoma Strategic and FMI established this venture in February 2013 to service Mitsubishi brand vehicles in Myanmar. FMI has taken a 30% stake, with Yoma Strategic taking the remaining share. FMI has long been involved in similar ventures through subsidiaries like SPA Motors. FMIs car businesses, including the assembly of Suzuki vehicles in Myanmar, have been successful in the past, but this has recently changed due to the relaxation of import regulations on vehicles.
Due to a large volume of imports, car prices in Myanmar have seen a dramatic drop and domestic assembly or manufacture of vehicles is no longer cost effective. In response, FMI has largely switched over to a service-based business. Myanmar Motors continues this trend, and although it is a relatively new company, it has recently made an acquisition of its own a 100% buyout of German Car Industries Company Limited (GCI), a Yangon-based European car
Registered Vehicles in Myanmar (Millions)
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6servicing business. The acquisition of GCI for $US 700,000 (US$210, 000 of which represents FMIs stake) seems aimed more at acquiring its management than its assets, as Michael Rudenmark, the founder of GCI, has recently signed on to run Yoma Strategics automotive businesses. Although the European car market in Yangon is growing, it is still dwarfed by Japanese-made vehicles, and were unsure about the future of this venture, even factoring in an acquisition price that represents a small premium over GCIs total assets.
FMI Air Charter FMI Air Charter began in September 2012 and offers customers scheduled flights between Yangon and Naypyidaw with other destinations available on a chartered basis. The company uses small older planes leased from Myanma Airways, namely an ATR-42 and a Beech 1900-D which can carry 40 and 16 passengers respectively. FMI Air Charter aims to cater to the upper class and also offers car shuttle services to its passengers. With the increasing frequency of travel to Naypyidaw by investors, diplomats, and companies, this business does have potential, but at the moment passengers are few, with most people still choosing to drive the five hours to the capital from Yangon. Larger airlines like AirAsia are also looking to move into domestic flights in Myanmar, so FMI Air Charter will be in for stiff competition in the coming years. In order to compete in this market, FMI may link its air service with its tourism businesses, offering package tours that includes airfare and hotel accommodation. For the time being, we expect this business to have a negligible effect on FMIs revenues.
The Riverside Residential Development ProjectThe Riverside Residential Development Project is a 12 acre site that sits on the bank of the Hlaing River in Yangons Hlaing Thayar Township, just beside FMI City. While plans for the site are still being finalized, we expect to see a condominium development that is slightly more upmarket than Star City, containing communal green spaces interspersed with residential blocks. Because Yoma Strategic, who will partner with FMI on the project, is flush with cash from recent rights issues and a share placement, we expect funding for the development to proceed quickly. If the project is approved soon, we could see pre-sales
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7of units within 12 months, with a first phase being completed in 18 months. As Yangon continues to expand outward, property prices in Hlaing Thayar are on the rise, which bodes well for the future of the development. Management guides that FMI will take a 47.5% stake in the venture, which will likely be completed by FMI Garden Development Co., the developer of FMI City. A joint venture with a foreign construction firm is also a distinct possibility.
Business Sector Overview
FMI is an investment holding company whose revenues are the dividends generated by its subsidiaries. The annual performance of these subsidiaries determines the amount of dividends paid out to FMI. Although not a majority stake holder in many of these subsidiaries, FMI holds a considerable amount of managerial discretion. The managing agent of FMI, Serge Pun and Associates (SPA) takes an annual fee of 1% on paid up capital, and the managers and directors of FMI are entitled to a 10% share of the net profit.
Real EstateReal Estate is FMIs main business. Although FMIs real estate assets only accounted for 31% of total assets in 2012, the real estate sector contributed to 87% of revenue. Because mortgages are not used for property transactions in Myanmar, FMI generates uneven cash flows from its real estate businesses, but is able to collect full payment in a relatively short
Agriculture
Myanmar Agritech-
30%
Myanmar Agritech Carbon
Capital- 30%
Agribusiness & Rural
Development Consultants- 55%
Automotive
SPA Motors-100%
Convenience Prosperity
Co., Ltd- 40%
SPA Motorcycle Ltd- 100%
Myanmar Motors- 30%
Seven Golden Gates- 20%
Successful Goal Trading-
30%
Yoma Yarzar-90%
Hino Motors -12%
Financial Services
Yoma Bank-35%
FMI Trading Center- 100%
YSH FInance-20%
Services
Pun Hlaing Hospital -
35%
Shine Laundry -
35%
SPA Elevators - 20%
FMI Air Charter - 50%
Retail
Parkson -10%
Tourism
Chindwin Holdings -
30%
Real Estate
FMI Syndication -
70%
FMI Garden Development
- 47.5%
Pun Hlaing Landscaping-
42%
Pun Hlaing Links - 30%
Thanlyin Estate Development -
30%
First Myanmar Investment (FMI)
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8time period, freeing up cash for use in other projects. Three properties contribute the bulk of FMIs real estate revenue currently: FMI City, Star City, and FMI Centre.
FMI CityFMI holds a 47.5% stake in FMI City, which was developed throughout the 1990s and covers a total of 465 acres in Hlaing Thayar township, across the Hlaing River from Central Yangon. It is estimated that about 5,000 people live in FMI city, and only a few plots remain undeveloped. FMI began by selling a mix of LDRs (Land Development Rights, basically blank land plots) and fully built houses. Recently it has moved away from selling LDRs, as they are less profitable, and into building more exclusive properties. Sales of properties in FMI City, mostly from the Fontana Gardens Project, Lake View Villas, and homes along Cherry Avenue were up 87% Y-o-Y from 2011, and the dividend paid to FMI from FMI city was over 1 billion kyats in 2012 representing 58.5% of total revenues.
Revenue generated from FMI City, however, will not continue indefinitely as the development is virtually complete. FMI may find creative ways to bring more plots to the market, but these plots will contribute a negligible amount to FMIs income. Future profits from the real estate sector will depend on other properties.
Star CityFMI owns a 30% stake in Star City, a 135 acre development across the Bago River, southeast of downtown Yangon. Unlike FMI City, which has been around for close to 20 years, Star City is a new development, having been launched in 2011. Star City will eventually house 9,000 apartments aimed at middle class Myanmar, with apartment prices starting at Ks. 70 million. Cash generated from the sale of apartments in Star City is expected to contribute significantly to future revenues.
Star City offers financing to prospective home buyers, a rare occurrence in Myanmar. For pre-construction sales, buyers put 5% down at signing and then pay incrementally over the next 16 months, with a final payment due at handover. This financing plan drives demand for apartments and ensures that FMI receives cash flows during the capital intensive construction period, but FMI also incurs additional costs, as it had to issue Ks. 227 million in preference shares to help finance Star City home buyers. These preference shares carry annual interest rates of 14%, and are the only long term liabilities held by the company.
Interest in Star City has been boosted by the Thilawa Port Development which lies about 13km south of Star City, in an area with few housing options. When the port project is finished it could drive demand for accommodation in Star City from managers and expatriates working at Thilawa.
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9In order to continue construction of the next phase of Star City, Yoma Strategic has entered into a JV agreement with Dragages, an international property developer, to build 1,043 apartments. FMI will not be involved in the construction costs of these new units, but will continue to enjoy a 30% stake in the proceeds generated by sales of the apartments to the public.
FMI CentreOccupying one of the best locations in Yangon, FMI Centre is an 11 story tower that generates rental revenues for FMI. FMI Centre houses FMIs headquarters as well FMI Trading Centre and Pun Hlaing Clinic, a branch of Pun Hlaing Hospital.
Prices for Class A office space in Yangon have exploded over the past two years due to an acute shortage of supply, and booming demand from foreign companies, with prices reaching US$60/sqm for office space in FMI Centre in 2013. Although developers are quickening the pace of construction, it will still be many years before supply catches up with demand. These market conditions have boosted rental income at FMI Centre, although many of the offices within the tower are occupied by FMI-related companies.
The joint venture with Parkson, which occupies the bottom four floors of the Centre will also help generate steady cash flows, and we expect FMI Centre to continue to pay dividends to the company during the next few years.
The Landmark DevelopmentThe Landmark Development is one of the most important real estate projects in Yangon. When finished, it will encompass 10 acres in the middle of downtown. The project will see
the old Burma Railway Company building transformed into a 5-star boutique hotel and the current Grand Meeyahta building torn down to make way for an office/residential complex.
The current Landmark Project site, and an artists impression of its future development.
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The construction of the project will be carried out through a joint venture between Yoma Strategic and Meeyahta International Hotel Limited (MIHL), a subsidiary of SPA. FMI will take a 10% stake in the development and also contribute its building, FMI Centre, which is known as site 2 in the development. The Yoma/MIHL JV will acquire site 2 and then re-lease it to FMI Syndication, the owner of FMI Centre. Construction on site 2 will take place only after the first phase of the project is complete, which means that FMI Centre will continue to stand for at least another few years. When redevelopment begins on site 2, FMI Centre will be demolished to make room for another building.
AutomotiveFMIs automotive businesses have consistently performed well in the past, but this segment has run into some difficulties over the past two years with changing market conditions. Income from the automotive sector represented 11% of total income in 2012, down from 56% in 2008. Yet FMIs manufacturing experience in this sector may bode well for future joint ventures with foreign car markers, who are currently looking at Myanmar as a potential manufacturing base if infrastructure is improved. SPA MotorsSPA Motors is in the business of servicing Nissan, Suzuki and other Japanese made vehicles in Myanmar. FMI has a 100% stake in the company. With the relaxation of import restrictions on vehicle imports, a flood of used cars has entered the Myanmar market, most of which come from Japan. This influx has increased the demand for service operations, and SPA Motors stands to benefit from its history and experience in the market. The company was able to declare a Ks. 200 million dividend to FMI in FY2012, and expectations for FY2013 remain high.
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Successful Goal Trading FMI has a 30% interest in Successful Goal Trading which is the sole distributor of Dongfeng trucks in Myanmar. Dongfeng is a huge state-owned Chinese car manufacturer, which produced over 3 million vehicles in 2012. Successful Goal is a relatively new venture, having begun operations in 2010, but we see this venture as having a lot of potential due to the increasing need for light trucks in rural areas. As Myanmar becomes more connected to the global marketplace, vehicles to transport goods for export will be in demand. We also see customers looking to replace worn-down trucks with newer models which will also benefit this business. It remains too early to tell if Successful Goal will generate solid dividends for FMI, but its outlook is positive.
Convenience Prosperity Company Convenience Prosperity was set up in 2012 to import and distribute New Holland tractors in Myanmar. FMI holds a 40% stake in the company. In order to further develop the agricultural sector, Myanmar needs to make the transition from manual to mechanized labor. With this in mind, we see a sustained demand for tractors and other farming equipment in the coming years, as long as commodity prices remain high and farmers make enough income to reinvest in their farms. We see an initial demand for farm equipment from entrepreneurs who will then rent the equipment out to farmers who cannot afford the equipment themselves. In countries throughout the region, governments offer payment plans and subsidies for the purchase of farm equipment. While the Myanmar governments current budget doesnt allow for this, it remains a possibility in the future, which would drive sales of New Holland if Convenience Prosperity can establish a solid brand in the meantime.
Yoma Yarzar ManufacturingFMI owns 90% of Yoma Yarzar which manufactures and distributes Dayang brand motorcycles in Myanmar. In previous years, Yoma Yarzar was one of the best companies in FMIs portfolio, delivering solid dividends. FMI decided to increase its interest in Yoma Yarzar in 2008 from 50% to 90% based on its good performance. This situation changed drastically in 2012, when taxes on Chinese built motorcycles were reduced, leaving Yoma Yarzar unable to compete with a flood of cheap imports. The company was forced to sell off its inventory of 2,000 units at a discount, and production was suspended. The once bright future of Yoma Yarzar is now in jeopardy as the company switches from manufacturing motorcycles to simply importing them, a business with much smaller margins. We feel it is unlikely that Myanmars government will revert to its old tax regimen, which means that a liquidation of Yoma Yarzar is possible in the next two years.
Hino Motors FMI signed an MoU with Japans Hino Motors in August 2012 to open Hino service stations in Myanmar. FMI will take a 12% stake in the venture. The first station will be opened in the
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FMI/SPA dominated area of Hlaing Thayar. Although the initial agreement will only involve vehicle servicing, we expect to see FMI involved in the sale of Hino vehicles within the next few years. FMIs strategy seems to be to capture the higher end of the commercial vehicle market with this venture, while its Dongfeng venture will service the lower end.
The growth of this venture will depend on demand from three key industries: logistics, tourism and public transportation. A new wave of investment in Myanmar will mean fresh demand for commercial trucks to transport agricultural produce, construction materials and finished goods. Much of this market will gravitate towards lower cost vehicles, but Hino would stand to benefit if it can establish a reputation for reliability and quality. Demand for buses to transport incoming tourists will also remain strong, and the Yangon City Development Committee (YCDC) has announced plans to upgrade the citys buses from their current dilapidated condition. If Hino can capture a portion of these markets, were optimistic about its future.
AgricultureFMI owns a 30% stake in Myanmar Agri-Tech Ltd. (MAGT) which holds the rights to develop the Maw Tin estate, a 100,000 acre plantation near Pathein in Ayerwaddy Division. MAGT acquired the plantation in 2006 and started planting Jatropha curcas, but has since diversified into black pepper, with a coffee plantation still in the planning stages. MAGT has employed agricultural experts to conduct feasibility studies for planting other crops in Maw Tin but the current area under cultivation remains small.
Despite MAGTs team of agriculture experts, we see greater potential in leasing tracks of the Maw Tin Estate to international agribusiness firms. The fertility of Myanmars soil is second to none, but a general lack of technology and research leaves it with low productivity per acre. Seeing this situation, many agricultural companies have expressed interest in leasing large tracts of land in Myanmar to set up plantation operations. Allowing international companies into Myanmars agriculture sector remains a politically sensitive issue, but should the government permit such ventures, FMI would certainly stand to benefit, as the Maw Tin estate is one of the largest contiguous land tracts in the country not directly under government control.
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FMI also owns a 30% stake in another interesting agriculture venture, Myanmar Agri-Tech Carbon Capital (MAGT-CC), a company that implements Clean Development Mechanism (CDM) projects. Under the Kyoto protocol, a country who wishes to reduce its emissions can implement an emissions-reduction project in another country through a CDM.
MAGT-CC would start an environmentally friendly project in Myanmar, which would then be certified and issued a Certified Emissions Reductions (CER), which is the equivalent of reducing carbon dioxide emissions by one ton. These CERs would then be sold to countries who have promised to reduce emissions under the Kyoto Protocol. Because of international sanctions, MAGT-CC hasnt been able to implement any CDM projects to date, but now that sanctions have been generally lifted, this is a business segment to keep an eye on.
BankingFMI owns a 35.6% interest in Yoma Bank which was established in 1993. Yoma Bank (not to be confused with Yoma Strategic Holdings) currently has 49 branches throughout the country, but it has been restricted to domestic money transfer services for the past 9 years. In FMIs early years, banking was an important source of revenue, but that revenue has fallen due to the restrictions placed on the company after the Myanmar banking crisis in 2003.
In a critical development, the companys full banking license was reinstated in 2012, allowing it to accept deposits and issue loans. What Yoma Bank does in the next two years will determine its future, as competition in the banking sector is set to increase. Many international banks have opened representative offices in Myanmar and are awaiting a green light from the Central Bank to begin banking services. This competition poses a threat to Yoma Bank, as it must ramp up its operations before these international banks enter the market. Currently foreign banks cannot engage in banking activities and only serve a ceremonial purpose, but a revised version of the Central Bank Law will likely open up the banking sector to international banks in stages.
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Yoma Banks capital before the banking crisis 1994-2002 (Kyat Millions)
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We see Yoma Bank as having two options here: use its connection to capital markets to raise money for its banking activities, or form a joint venture with a reputable international bank. The former option would allow Yoma to retain its independence, but could put a burden on FMIs shareholders, who would likely be asked to purchase rights issues to fund the banks expansion. The latter option is a reasonable choice, although Yoma Bank runs the risk of being sidestepped by its partner if legislation allowing 100% foreign owned banks is passed.
We also expect Yoma Bank to be a player in the Yangon Stock Exchange, which is scheduled to open in October 2015. Because FMIs management team has more experience in capital markets and securities than most other local firms, we see Yoma Bank as being well positioned to run a securities company in Myanmar. Along with its retail banking operations, Yoma Banks securities arm could significantly contribute to future revenues if there is enough volume on the new exchange.
Although the bank hasnt been able to declare large dividends to FMI during the past decade, we expect it to be a major provider of income over the next three years. Depending on what happens with Myanmars legal framework, banking could even surpass real estate as FMIs top earner, with an enormous pent-up demand for mortgages, business loans, payment processing and other financial services driving growth.
ServicesLooking at FMIs investments, one would expect to see solid revenues from its services sector, as it represents 35% of the companys total book assets. Yet none of the businesses in this sector paid dividends to FMI in FY2012. Indeed, the services sector has been a major disappointment for FMI over the last 5 years, consistently underperforming.
Pun Hlaing International Hospital
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Pun Hlaing International HospitalFMI holds a 35% interest in Pun Hlaing Hospital, which opened in 2005 on the Pun Hlaing Golf Estate in Hlaing Thayar Township. The hospital was built with the idea that upper-class Myanmar would visit an international standard hospital inside the country instead of travelling abroad to Singapore or Thailand to seek treatment. Unfortunately, this thesis has not panned out the way FMI had hoped. After years of cutting costs and shutting down unused wings of the hospital, it is now cash positive, but still has yet to turn a profit, 7 years after its inauguration.
We see the hospital as occupying a difficult position its too expensive for ordinary Myanmar citizens who prefer to visit local clinics in their neighborhoods, and its not trusted by the wealthy class who continue to travel to other countries in the region for medical care. Realizing the potential of Myanmar medical tourism, international hospitals have stepped up their marketing campaigns, enticing customers with package deals with similar prices to Pun Hlaings offerings. As more international airlines move into Myanmar, the cost of travelling abroad is likely to decrease, creating an even more precarious position for the hospital.
FMIs Advantages
Access to foreign capitalThere is no other firm in Myanmar that can rival FMIs access to foreign capital markets. Because FMI and Singapore-listed Yoma Strategic Holdings are both nominally controlled by Serge Pun, FMI has benefited directly from the rise in Yomas share price over the past year. Yoma enters into joint ventures with FMI for virtually all of its projects, and this cooperation is only expected to increase in coming years.
FMIs access to foreign capital gives it a competitive advantage over other companies in Myanmar who are still struggling with the remnants of financial sanctions. FMI is able to
Yoma Strategics share price over the last year
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raise money for large development projects with far greater ease than other local companies. Because of the success of the FMI/Yoma model, more Myanmar companies are expected to list on the SGX in Singapore or other exchanges through reverse takeovers, but this is a lengthy process that will probably take years to come to fruition. A recent bid by Max Myanmar to take over SGX-listed Aussino was rejected by Singaporean regulators, proving the difficulty of the process.
FMIs real estate business will be well served by this access to capital, and it could also prove crucial if FMI moves into infrastructure projects. The company is already involved in building a bridge in western Yangon, and with increased capital inflows it could possibly move into larger infrastructure projects such as roads and ports. With the assistance of Yomas capital, FMI has also shown its entrepreneurial flair, moving aggressively into new business sectors, a trend that we expect to continue as more capital is raised by both FMI and Yoma.
Competent managementThere are no other public companies in Myanmar that can match FMI in terms of the experience and skill of its management team. FMIs Chairman Serge Pun is highly capable and serves an important role as a bridge between Myanmar and international capital markets and companies.
While Mr. Pun is certainly the driving force behind the company, he has surrounded himself with other competent managers who have shown their ability to steer FMI through difficult times. Starting around 2003, FMI fell out of favor with the previous government, which stripped Yoma Bank of its banking license and generally made operating in Myanmar difficult for the company. Yet FMIs management proved it resourcefulness by keeping the company profitable and adapting to the challenges, mostly by diversifying into industries with friendlier business climates. As FMI has continued to grow, it has increasingly attracted international talent to its management teams. This bodes well for its future, as rising competition in Myanmar means that firms must look for the most competent managers and staff, regardless of nationality. We also see FMI moving towards more transparency and better corporate governance, and in this regard it is very much ahead of the curve in Myanmar.
Solid reputation attracts big playersMultinational companies and large investors looking to enter the Myanmar market have a problem: they cant find many local companies with a reputation for ethical business practices. FMI has its detractors, but overall it enjoys a solid reputation in Myanmar, which
FMI Chairman Serge Pun
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has helped it to attract foreign companies looking for partnerships. FMIs Chairman Serge Pun has shrewdly embarked on a PR and marketing campaign to position himself as Mr. Clean which has further bolstered FMIs name. As political and economic reforms have continued to advance, global conglomerates have dropped their skepticism and started to look for opportunities in Myanmar. This means an increasing demand for local partners, a demand that leaves FMI in a strong position. After years of difficulty, FMI can now afford to be selective in its choice of JV partners, negotiating favorable terms with the companies lining up at its doorstep.
RisksPolitical RisksTalk of political risk in Myanmar has shifted from concerns about President Thein Seins government to concerns about what will happen after he retires. The President, widely respected in business circles, has announced that he will not stand for re-election in 2015 because of his age (currently 68). If he doesnt contest the election, many are unsure if his reforms will last.
There is growing support for an amendment to the constitution which would allow Daw Aung San Suu Kyi to run for president in 2015. If an amendment is passed, The Lady would likely be elected, but it is unclear what her policies would be in regards to business. Suu Kyi was a major champion of the disastrous financial sanctions imposed on Myanmar, but has recently shown a willingness to protect foreign investment even when it is unpopular to do so.
Suu Kyi chaired a committee that investigated a confrontation at Letpadaung copper mine, where police had dispersed protesters unhappy with the Chinese-run project. Suu Kyis committee won compensation for the protesters, but declared that the Chinese firms right to the project should be respected. If Suu Kyi is unable to run, the field would be open to candidates such as Thura U Shwe Mann, a former general and current speaker of the Pyithu Hluttaw (lower house of Parliament). The result of the 2015 election will determine how
59(f) shall he himself, one of the parents, the spouse, one of the legitimate children or their spouses not owe allegiance to a foreign power, not be subject of a foreign power or citizen of a foreign country. They shall not be persons entitled to enjoy the rights and privileges of a subject of a foreign government or citizen of a foreign country;
(Article 59 of Myanmars 2008 Constitution which prohibits the President from hav-
ing a foreign spouse or children, disqualifying Suu Kyi)
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18
attractive FMI is as a long term investment. If Thein Sein continues as President, we see a continuing expansion of the economy and better political institutions. Suu Kyi and other leaders are largely untested in an executive capacity, and they present more risk to investors. On top of the political risks surrounding the next election, ethnic conflicts in Myanmar also present a risk for investors. Although FMIs interests primarily lie in and around Yangon, ethnic conflicts on Myanmars borders have the potential to disrupt future business ventures.
For example, tourism-related businesses in Putao, Kachin State were shut down due to the fighting between the Kachin Independence Army and government troops. Because FMI plans to expand into tourism, and already has bank branches in far-flung towns, the risk associated with border conflicts should be a considered a distant, but possible risk.
The recent religious fighting between Buddhists and Muslims in Myanmar also serves as an indirect risk to FMI. Increasing violence in Myanmar could serve to hurt the general air of optimism in the country, driving investors to other countries in the region. In a worst case scenario, religious violence could see the military back in power, justified by the need to quell the violence. While this is unlikely to happen, and religious violence remains contained to particular communities, it is a possibility that investors should consider.
Shareholder DilutionFMI has been issuing new shares at a frantic pace recently, increasing its shares outstanding by 155% in a single year. In June 2012 the company issued 1,000,000 new shares under a 5-1 rights issue scheme, allowing current shareholders to expand their holdings at a substantial
Estimated No. of Fully Diluted Shares Outstanding
0
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
14,000,000
16,000,000
2009 2010 2011 2012 2013 2014
3 potential candidates for president in 2015 (from L to R) Thura U Shwe Mann, President U Thein Sein, and Daw Aung San Suu Kyi
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19
discount to the prevailing market price (the rights issue shares were offered for Ks. 3,500 per share). Then in November, FMI issued a further 1,957, 570 bonus shares, followed by an 8-1 rights issue in December which resulted in 1,335,827 shares coming onto the market. Given that FMI is in the middle of an aggressive acquisition campaign, we expect it to continue to issue new shares, which presents a very real dilution risk for current shareholders.
Share LiquidityFMI sells unclaimed rights issues at FMI Trading Centre, but does not repurchase shares, meaning sell-side transactions can only occur through brokers who arrange meetings where actual share certificates are exchanged. If a transaction does occur, FMI charges an additional 1% commission to transfer the shares to the new owner. There is only one broker actively trading FMIs shares at the moment, and he charges an exorbitant 10% commission on each share. Thus liquidity is a problem for investors in FMI.
There is much uncertainty about the future of OTC share transactions in Myanmar. A securities law is expected before the end of 2013, which will contain a regulatory framework for share transactions, but it is likely that companies of FMIs size will need to list on the Yangon Stock Exchange when it comes online in 2015. If FMI does list, it would largely negate this liquidity issue, but in the near term FMI remains unattractive as a short-term play.
Poor Investment DecisionsDespite FMIs record of success in many industries, it also has a history of picking poor investments. The decision by Myanmar Agri-Tech (MAGT), of which FMI holds a 30% stake, to plant Jatropha curcas on 1,160 acres in the Maw Tin estate is one such questionable decision. Once lauded as a revolutionary source of bio-fuel, Jatropha has failed to live up to expectations and many countries like China, India, and Tanzania have scaled back or discontinued cultivation. A study by the World Agroforestry Centre for example, found that a five year investment in Jatropha plantations in Northern Tanzania resulted in a net loss of US
0
2,000
4,000
6,000
8,000
10,000
12,000
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
Apr May Jun Jul Aug Sep Oct Nov Jan Feb Mar
Volume 35,042 4,330 19,700 11,169 17,039 12,436 30,220 5,576 24,801 6,993 16,190
Minimum Price 2,400 2,800 3,100 3,200 3,300 3,500 4,300 4,500 6,500 5,500 7,000
Maximum Price 2,800 3,600 3,600 3,600 4,000 4,500 4,500 7,000 8,000 8,500 10,000
PriceVolumeFMI Trading Centre Share Price & Volume 2012-2013
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20
$65/hectare on low-yielding soil and only a slight profit on fertile soil. FMIs decision to invest in Jatropha on a large scale was surely influenced by the former governments national Jatropha planting campaign which commenced in 2006. MAGT acquired the rights to the 100,000 acre Maw Tin estate during this period, and it is likely that an agreement was reached with the government whereby FMI promised to grow the crop. But the future of the investment remains perilous, as the global market for Jatropha seeds and oil is still underdeveloped. Because FMI has already invested so many resources into the Jatropha project, it is likely to continue, despite its bleak prospects.
Other investments have also lost money. Myanmar Wood Technology Industries, a loss-making FMI subsidiary involved in teak wood products was recently disposed of by the company, which took a loss of 127 million kyats on the venture. Pun Hlaing Hospital, too, while arguably providing an essential public service, is still not profitable and has been half closed at times. FMIs 35% interest in the hospital has cost over 5 billion Kyats.
Tax reformsDividends are not subject to taxes in Myanmar, and FMIs only revenues are dividends from its various investments. Therefore, the only time FMI needs to pay tax is when it sells off an investment, and is then subject to a 10% capital gains tax. This is a very favorable tax structure for the company and has allowed to it grow without the use of debt. But there is a prevailing sentiment in Myanmar that large companies routinely evade taxes. If the Parliament decides to crack down on companies and impose stricter regulations, FMI would be affected. As the government is trying to encourage the growth of capital markets in Myanmar, we dont see a tax on dividends as likely during the next few years, but investors should look to any signal from the government that it will begin taxing dividends as a bad sign for FMI.
Rows of Jatropha Curcas on the Maw Tin estate
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21
Key management personnel
Serge Pun, ChairmanAlong with being the Chairman of FMI, Serge Pun is also the Executive Chairman of Yoma Strategic Holdings, and the Chairman of the SPA group. Mr. Pun was born in Myanmar but spent many years abroad in Hong Kong as a GP for real estate development. He also has business experience in Taiwan, Malaysia, Thailand, Singapore, Western Europe, North and America.
U Kyaw Paing, Managing Director U Kyaw Paing has been with FMI since its inception and was formerly a lawyer. He also holds positions as the Managing Director of SPA and Chairman of Yoma Bank. Born in Yangon, U Kyaw Paing has an in-depth knowledge of Myanmar corporate and financial Law. He received his Bachelor of Arts in Law in 1973 from the University of Yangon and a Bachelor of Law in 1974. U Kyaw Paing is also a former national golf player who has represented Myanmar
around the region.
Melvyn Pun, CEO of SPAPrior to joining SPA Myanmar, Melvyn Pun spent 12 years at Goldman Sachs in Hong Kong, where he was most recently Managing Director, Head of Asia Ex-Japan Corporate Solutions Group. Melvyn had extensive experience in serving corporations and nonprofit organizations in Asia for financial services including fund raising, investments and risk management. Melvyn holds a First Class Honours degree in Master of Engineering from Cambridge University.
U Tun Tun , CFOU Tun Tun is an Associate of Chartered Secretaries. He joined SPA/FMI Group in December, 1998. Currently, he is Executive Director of Meeyahta International Hotel Ltd., Myanmar Agri-Tech Ltd., Pun Hlaing Golf Estate, SPA and is the Chief Financial Officer of FMI.
U Linn Myaing, COOU Linn Myaing is a retired Director General from the Ministry of Foreign Affairs. Prior to this assignment he also served as Myanmar Ambassador to the United States, France, Netherlands, Belgium, Switzerland, EU, UNESCO and Deputy Permanent Representative to the UN in Geneva. He joined SPA in 2006 as Advisor to the Board and currently heads the Myanmar Agri-Tech Carbon Capital Ltd., Group Public Relations and Protocol Department in addition to his post as Chief Operating Officer.
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22
Financial Valuation and AnalysisFMIs share price has skyrocketed 257% in the LTM on widespread optimism about Myanmars prospects and FMIs key role in its economic transition. This rise has pushed its share price to a level that is out of sync with its earnings, but we issue a Hold rating based on the companys large potential. We derive a 2013 fair value for FMI of 9,326 Kyat based on a sum-of-the-parts analysis which reflects the value of FMIs large land bank in Yangon as well as the potential of its other business segments.
Investment ThesisOur investment thesis for FMI has four key tenants:
1. The general growth of the Myanmar economy as investors rush in to capitalize on a multitude of opportunities
2. The high demand for properties in Star City, FMI City, and new developments partially driven by the introduction of mortgages and the passage of a Condominium Act in Parliament. 3. The resumption of Yoma Banks activities 4. FMIs ability to attract key joint venture partners
Sum-Of-The-Parts ValuationWeve adopted a sum-of-the-parts methodology to value FMI, which allows us to capture the considerable appreciation of its real estate assets with an RNAV, while also accounting for other business segments that are expected to contribute substantially to future revenues using the DCF methodology.
RNAV Valuation of Real Estate BusinessesThe Revalued Net Asset Value (RNAV) method takes the net present value of future profits from real estate developments and adds them to the assets current book value. FMI holds its real estate assets at cost on its books, which doesnt accurately reflect their true value.
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
FMI
Yoma
Yomas Share Price Vs. FMIs Share Price (Relative)
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23
reasonable given that many large developments run into bureaucratic issues which can slow them down considerably. Weve used a discount rate of 14% which is deemed suitable for the Myanmar market, and is also the interest rate that FMI pays on its own preference shares.
We have also included the book value of two new investments, the Landmark Development and the Riverside Residential Development based on our estimates of surrounding property values as well as discussions with FMIs management.
DCF Valuation of Other BusinessesWeve valued FMIs automotive, services, banking and other businesses using a discounted cash flow (DCF) analysis. Our analysis incorporates the fact that some of FMIs subsidiaries choose to reinvest their profits rather than declaring dividends to the company, which means that revenue numbers can often be skewed depending on capital needs.
We expect top line earnings in these sectors to expand markedly in FY2013 because Yoma Bank will likely begin declaring larger dividends based on the resumption of its full banking activities. We expect to see a top line CAGR of 80% in FY2013 due to these dividends as well as solid performance from the automotive division. Further upside from Yoma Bank is expected into FY2015, and we also expect FMIs JVs to show visible earnings in the midterm starting around the same year.
Our RNAV valuation looks at the future profits of Star City and FMI City based on three categories: ongoing projects, unsold land, and future projects. FMIs future profits for these projects are calculated based on average selling prices (ASP), number of unsold units and projections for future construction which are based on site visits and discussions with management. Our NPV calculation is based on a 7 year time-schedule which we view as
Development Stake Total Profit FMI's Profits Realized Profit Future Profits NPV of FMI's ProfitsFMI CityCurrent Housing 47.5% 7,752,000,000 3,682,200,000 2,319,786,000 1,362,414,000 834,635,221 Unsold Land Plots 47.5% 4,680,000,000 2,223,000,000 - 2,223,000,000 1,361,843,094 Future Housing 47.5% 2,912,000,000 1,383,200,000 - 1,383,200,000 847,369,036
Star CityCurrent Housing 30.0% 3,168,000,000 950,400,000 47,520,000 902,880,000 553,117,810 Unsold Land Plots 30.0% 29,023,500,000 8,707,050,000 - 8,707,050,000 5,334,069,236 Future Apartments 30.0% 253,440,000,000 76,032,000,000 - 76,032,000,000 46,578,341,932 Future Housing 30.0% 2,790,000,000 837,000,000 - 837,000,000 512,758,736
Stake FMI's Book Value NPV of Land Assets 56,022,135,065 Property Valued at Cost Book Value of Land Assets 30,831,033,668
Riverside Residential Project (Est) 47.5% 17,860,000,000 Total Land Assets 86,853,168,733 Landmark Development 10.0% 9,400,000,000 DCF derived Equity Value of Other Businesses 25,418,545,658
112,271,714,391 Current Property AssetsFMI Syndication 70.0% 2,749,017,848 FMI Garden Development 47.5% 122,450,000 Shares Outstanding 12,038,197 Thanlyin Estate Development 30.0% 699,565,820
30,831,033,668 Implied Share Price 9,326
RNAV calculation (Myanmar Kyats)
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24
WACC has been assigned at 16.9%. Due to a thinly traded OTC-only market, beta calculations for the Myanmar market are estimates. We have calculated FMIs cost of equity at 16.9% largely due to a risk free rate assumption of 8.75% which is the current yield for 2-year Myanmar treasury bonds. With recent changes to monetary policy and a freely floated Kyat, a risk free rate derived from treasury bonds is deemed appropriate. Although FMI carries a low amount of debt, its cost of debt is 13.9% due to low tax rates and a 14% interest rate on its preference shares. The market risk premium is set at 5% with an additional size premium of 3% based on Ibbotson Valuation Yearbook data.
We havent included the value of a telecoms license in our analysis because of the uncertainty of the bidding process. Should FMIs consortium win the upcoming tender, we would expect an immediate share price push followed by capital raising activities from both FMI and Yoma Strategic. The consortium has announced plans to invest US $9 billion if it wins, and we
expect the full network to be functional within 18 months, with larger cities being brought on first. Massive up-front spending on infrastructure means that FMI wont see earnings from its 20% stake in YSH Finance in the near term, but could see revenues in FY2016 depending on the consortiums ability to gain market share as well as increased purchasing power from Myanmar consumers.
Dividend yields remain low. FMIs history of paying 10-12.5% dividends on par value has become an issue because of its rising share price. At the current 12,000 level, FY2012 dividend yields are under 1%. These dividends pale in comparison to other public companies in Myanmar which currently pay 15-30% dividends. With more rights issues expected in the future, dividend levels are not expected to increase substantially our FY2014 estimated DPS is 200, which is double FY2012s dividend, but still just 2% of the current share price.
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
2009 2010 2011 2012 2013 2014 2015
Net Profit 2009-2015E (Kyat Millions)
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25
DCF calculation for non-real estate businesses (Myanmar Kyats)
Firs
t Mya
nmar
Inve
stm
ent C
o, L
td.
Dis
coun
ted
Cash
Flo
w A
naly
sis
(Mya
nmar
Kya
ts, f
isca
l yea
r end
ing
Mar
ch 3
1)O
pera
ting
Scen
ario
Base
Ope
ratin
g Sc
enar
io
1
Mid
-Yea
r Con
vent
ion
YHi
stor
ical
Per
iod
CAGR
CAGR
2009
2010
2011
('09
- '11
)20
1220
1320
1420
1520
1620
17('1
3- '1
7)
Divi
dend
Inco
me
$1,1
12,4
40,1
54.0
44
5,77
3,88
8.8
$470
,965
,689
.2
-34.
9%$6
98,1
29,0
00.0
$1
,256
,632
,200
.0
$2,1
36,2
74,7
40.0
$3,4
18,0
39,5
84.0
$4
,785
,255
,417
.6
$6,2
20,8
32,0
42.9
54.9
%
%
gro
wth
NA
(59.
9%)
5.7%
48.2
%
80
.0%
70
.0%
60.0
%
40.0
%
30.0
%
COGS
15
5,45
0,30
7.0
164,
019,
504.
0
16
4,97
7,96
3.0
20
9,40
2,50
7.0
188,
494,
830.
0
320,
441,
211.
0
51
2,70
5,93
7.6
71
7,78
8,31
2.6
93
3,12
4,80
6.4
Gros
s Pr
ofit
$956
,989
,847
.0
28
1754
384.
8$1
,012
,436
,260
.0
2.
9%$4
88,7
26,4
93.0
$1
,068
,137
,370
.0
$1,8
15,8
33,5
29.0
$2,9
05,3
33,6
46.4
$4
,067
,467
,105
.0
$5,2
87,7
07,2
36.4
61.0
%
%
mar
gin
86.0
%
63
.2%
215.
0%
70.0
%
85
.0%
85
.0%
85.0
%
85.0
%
85.0
%
SG&
A14
7,96
5,45
7.0
137,
315,
650.
0
17
3,84
6,07
1.0
17
6,22
9,35
4.0
150,
795,
864.
0
256,
352,
968.
8
41
0,16
4,75
0.1
57
4,23
0,65
0.1
74
6,49
9,84
5.1
EBIT
DA$8
09,0
24,3
90.0
$144
,438
,734
.8
$838
,590
,189
.0
1.8%
$312
,497
,139
.0
$917
,341
,506
.0
$1
,559
,480
,560
.2
$2
,495
,168
,896
.3
$3,4
93,2
36,4
54.8
$4
,541
,207
,391
.3
70
.8%
%
mar
gin
72.7
%
32
.4%
178.
1%
44.8
%
73
.0%
73
.0%
73.0
%
73.0
%
73.0
%
Dep
reci
atio
n &
Am
ortiz
atio
n1,
551,
474.
0
1,
551,
474.
0
2,41
5,56
5.0
4,
030,
963.
0
2,51
3,26
4.4
4,27
2,54
9.5
6,83
6,07
9.2
9,57
0,51
0.8
12,4
41,6
64.1
EBIT
$807
,472
,916
.0
$1
42,8
87,2
60.8
$8
36,1
74,6
24.0
1.
8%30
8,46
6,17
6.0
$914
,828
,241
.6
$1
,555
,208
,010
.7
$2
,488
,332
,817
.2
$3,4
83,6
65,9
44.0
$4
,528
,765
,727
.2
71
.1%
%
mar
gin
72.6
%
32
.1%
177.
5%
44.2
%
72
.8%
72
.8%
72.8
%
72.8
%
72.8
%
Taxe
s36
,613
,347
.0
52,7
82,7
89.0
-
-
36,5
93,1
29.7
62
,208
,320
.4
99,5
33,3
12.7
13
9,34
6,63
7.8
18
1,15
0,62
9.1
NO
PAT
$770
,859
,569
.0
$9
0,10
4,47
1.8
$836
,174
,624
.0
4.2%
$308
,466
,176
.0
$878
,235
,111
.9
$1
,492
,999
,690
.3
$2
,388
,799
,504
.5
$3,3
44,3
19,3
06.3
$4
,347
,615
,098
.1
69
.7%
Plus
: Dep
reci
atio
n &
Am
ortiz
atio
n1,
551,
474.
0
1,
551,
474.
0
2,41
5,56
5.0
4,
030,
963.
0
2,51
3,26
4.4
4,27
2,54
9.5
6,83
6,07
9.2
9,57
0,51
0.8
12,4
41,6
64.1
Less
: Cap
ital E
xpen
ditu
res
397,
962.
0
5,
124,
998.
0
4,31
7,08
1.0
41
,839
,992
.0
25,1
32,6
44.0
42
,725
,494
.8
68,3
60,7
91.7
95
,705
,108
.4
12
4,41
6,64
0.9
Less
: Inc
reas
e in
Net
Wor
king
Cap
ital
590,
403,
844.
6
7,22
9,93
8.7
10,5
35,0
53.5
11
,237
,390
.4
11
,799
,259
.9
Unle
vere
d Fr
ee C
ash
Flow
$1,4
96,2
84,8
64.9
$1
,547
,227
,673
.3
$2
,474
,531
,428
.8
$3,4
60,8
32,3
15.9
$4
,496
,272
,663
.0
W
ACC
16.
9%
D
isco
unt P
erio
d0.
5
1.
5
2.
5
3.
5
4.5
D
isco
unt F
acto
r0.
92
0.
79
0.68
0.58
0.50
Pr
esen
t Val
ue o
f Fre
e Ca
sh F
low
$1,3
83,8
97,4
42.7
$1
,224
,117
,469
.3
$1
,674
,715
,704
.6
$2,0
03,5
85,7
01.6
$2
,226
,687
,410
.7
Ente
rpris
e Va
lue
Impl
ied
Perp
etui
ty G
row
th R
ate
Cum
ulat
ive
Pres
ent V
alue
of F
CF$8
,513
,003
,728
.9
Ente
rpris
e Va
lue
$25,
153,
166,
135.
8
Te
rmin
al Y
ear F
ree
Cash
Flo
w (2
017E
)$4
,496
,272
,663
.0
Less
: Tot
al D
ebt
31,8
68,1
16.0
W
ACC
16.9
%
Less
: Pre
ferr
ed S
ecur
ities
227,
000,
000.
0
Term
inal
Val
ue$3
6,32
9,65
9,13
0.4
Term
inal
Yea
r EBI
TDA
(201
7E)
$4,5
41,2
07,3
91.3
Le
ss: N
onco
ntro
lling
Inte
rest
-
Exit
Mul
tiple
8
.0x
Plus
: Cas
h an
d Ca
sh E
quiv
alen
ts6,
511,
406.
0
Im
plie
d Pe
rpet
uity
Gro
wth
Rat
e
3.1%
Te
rmin
al V
alue
$36,
329,
659,
130.
4
Dis
coun
t Fac
tor
0.46
Impl
ied
Equi
ty V
alue
$25,
418,
545,
657.
8
Im
plie
d EV
/EBI
TDA
Pr
esen
t Val
ue o
f Ter
min
al V
alue
$16,
640,
162,
406.
9
En
terp
rise
Valu
e$2
5,15
3,16
6,13
5.8
%
of E
nter
pris
e Va
lue
66.2
%
Shar
es O
utst
andi
ng12
,038
,197
.0
LTM
3/3
1/20
12 E
BITD
A1,
359,
690,
639.
0
En
terp
rise
Valu
e$2
5,15
3,16
6,13
5.8
Im
plie
d Sh
are
Pric
e$2
,111
.49
Im
plie
d EV
/EBI
TDA
18.
5x
Proj
ectio
n Pe
riod
Impl
ied
Equi
ty V
alue
and
Sha
re P
rice
Term
inal
Val
ue
-
26
Income Statements Myanmar Kyats, millions
Actual Estimated ProjectedFiscal 2011 2012 2013 2014 2015
RevenueDividend Income 1,005.3 1,711.3 3,080.3 4,620.4 6,468.6Net Income from Sale of Investments 161.1 0.0 0.0 0.0 0.0Interest Income 11.0 34.1 36.0 38.1 40.1
Total Revenue 1,177.4 1,745.3 3,116.3 4,658.5 6,508.7COGS (165.0) (209.4) (471.2) (706.9) (989.6)
Gross Profit 1,012.4 1,535.9 2,645.1 3,951.6 5,519.1Operating, SG&A Expenses (185.8) (208.1) (377.0) (565.5) (791.7)
Pre-tax Income 826.7 1,327.8 2,268.1 3,386.1 4,727.4Gain/(Loss) on Asset Disposal (0.1) 0.0 (90.7) 0 (192.1)Loss on Sales of Investments 0.0 (127.4) 0.0 (137.2) 0.0
Net Income 826.6 1,200.4 2,177.3 3,248.9 4,535.3
Diluted Shares Outstanding (Millions) 7.4 7.7 10.3 12.0 12.0
Diluted Earnings per Share 112 155 212 271 378
EBITDA 829.1 1,331.8 2,274.3 3,395.6 4,740.6
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Balance SheetsMyanmar Kyats, millions
Actual Estimated ProjectedFiscal 2011 2012 2013 2014 2015
ASSETSCurrent Assets
Cash & Equivalents 1.9 6.5 788.3 625.8 776.7Receivables 227.0 827.6 853.8 1,276.3 1,783.2Prepaid Expenses and Other 0.8 4.8 8.6 12.8 17.9
Total Current Assets 229.7 838.9 1,650.7 1,914.9 2,577.7
Net PPE 8.6 47.5 41.2 31.8 18.6Investments 16,596.8 16,258.8 18,697.7 27,950.9 39,052.1
TOTAL ASSETS 16,835.2 17,145.2 20,389.6 29,897.6 41,648.4
LIABILITIESCurrent Liabilities
Unclaimed Dividends 84.7 96.8 130.8 156.0 96.0Dividend Provision 995.8 0.0 1,544.1 2,400.0 2,400.0Interest Payable 11.9 12.5 13.0 13.6 14.2Accounts Payable 922.2 101.9 207.0 310.5 434.6Accrued Expenses 36.9 47.7 85.3 127.4 178.1Provision for Tax 17.9 0.0 10.0 10.0 10.0
Total Current Liabilities 2,069.4 258.9 1,990.1 3,017.5 3,132.9
Long-Term Debt 227.0 227.0 227.0 227.0 227.0TOTAL LIABILITIES 2,296.4 485.9 2,217.1 3,244.5 3,359.9
EQUITYPaid Up Captial 7,376.0 7,744.8 10,466.2 12,489.7 12,489.7Share Premium 7,136.9 7,690.1 5,848.6 11,456.7 20,956.9Retained Earnings 25.8 1,224.5 1,857.7 2,706.7 4,841.9
TOTAL EQUITY 14,538.7 16,659.4 18,172.5 26,653.0 38,288.5
TOTAL LIABILITIES & EQUITY 16,835.2 17,145.2 20,389.6 29,897.6 41,648.4
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Cash Flow StatementsMyanmar Kyats, millions
Estimated ProjectedFiscal 2011 2012 2013 2014 2015
Cash From Operating Activities:Net Income 844.5 1,200.4 2,177.3 3,248.9 4,535.3Depreciation & Amortization 2.4 4.0 6.3 9.4 13.2Loss /(Gain) on Asset Disposal 0.1 (0.0) 90.7 0.0 192.1Interest Income (11.0) (34.1) (0.3) (34.1) (34.1)Loss/(Gain) on sale of investments (179.0) 127.4 0.0 150.0 0.0Dividend Income (1,005.3) (1,711.3) (2,591.8) (3,867.4) (5,398.6)
Operating Profit Before Working Capital Changes (348.3) (413.5) (317.8) (493.1) (692.1)
Changes in Working Capital:(Increase)/Decrease in Receivables (123.8) (0.6) (26.1) (422.5) (506.9)(Increase)/Decrease in Prepaid Expenses and Other 31.9 (4.0) (3.8) (4.2) (5.1)Increase/(Decrease) in Accrued Expenses 16.8 11.4 (37.5) (42.2) (50.6)Increase/(Decrease) in Accounts Payable 919.8 (820.3) (105.1) (103.5) (124.2)
Total Change in Working Capital 844.8 (813.5) (172.5) (572.4) (686.8)
Total Cash From Operating Activities 496.4 (1,227.0) (490.3) (1,065.5) (1,378.8)Income Taxes (42.3) (19.7) (20.0) (25.0) (20.0)
Net Operating Cash 454.1 (1,246.7) (510.3) (1,090.5) (1,398.8)Cash From Investing Activities:
Net Investments (1,736.2) 210.7 (2,438.9) (9,253.2) (11,101.2)Change in PPE (5.3) 43.2 (6.3) (9.4) (13.2)Interest Recieved 11.0 34.1 40.1 42.0 44.1Dividends Recieved 1,974.0 1,111.3 2,500.0 10,500.0 15,000.0
Total Cash From Investing Activities 243.6 1,313.0 94.8 1,279.4 3,929.7Net D in PPECash From Financing Activities:
Issuance of Stock 227.0 922.0 2,721.4 2,023.6 0.0Dividends Paid (925.4) (983.7) (1,544.1) (2,400.0) (2,400.0)
Total Cash From Financing Activities (698.4) (61.7) 1,177.3 (376.4) (2,400.0)
Cash Available / (Required) Before Debt 41.7 24.2 781.8 (162.5) 150.9Debt Borrowing / (Repayment) (11.9) (31.8) (31.8) (31.8) (31.8)
Beginning Cash Balance 2.6 1.9 6.5 788.3 625.8Change in Cash (0.7) 4.5 781.8 (162.5) 150.9
Ending Cash Balance 1.9 6.4 788.3 625.8 776.7Average Cash Balance 2.2 4.1 397.4 707.1 701.2
Actual
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