I’m not buying shares anywhere right now because I would rather own commodities. I’m still skeptical of the world economy. If Myanmar opens a stock exchange – and they’re trying, I would buy shares there in a minute.…
Well, there are 80 million people (that are) disciplined (and) educated, and vast natural resources. There is India on the left and China on the right, It’s starting to open up – not according to the western press, but you know, it’s time (for them) to open up. It’s got enormous potential.
They don’t have to compete with Westerners because the Westerners are all boycotting. They don’t have to compete with Exxon because Exxon is not there, so it’s wonderful for anybody who’s there in business. They’re going to make a lot of money, because a lot of Westerners are not going there yet. — Jim Rogers in an interview with Forbes on 6 April, 2012.
The Fledgling Stock Market
Myanmar’s stock market is OTC and is extremely primitive. Little known even to local Myanmese, it is situated on the second floor of the Myanmar Economic Bank headquarters on Sule Pagoda Road in downtown Yangon.
Its official name is the Myanmar Securities Exchange Centre (MSEC). Formed in 1996, the stock exchange is a joint venture between Myanmar Economic Bank and Daiwa Institute of Research from Japan
Trades are recorded on a whiteboard in a one-room exchange. There are only 2 companies to buy there, Forest Products Joint Venture Corporation (FPJVC) and Myanmar Citizen’s Bank.
Locally listed companies
There are about a dozen or so public companies in Myanmar including FPJVC and Myanmar Citizen’s Bank. Most were formed in the early 1990s, after economic reforms that opened up the economy to investment were initiated by the government.
Since then however, growth stagnated until the point where most people now had forgotten that the market exists at all. Unlike elsewhere in the world where a listing brings prestige to the company, in Myanmar most state-owned enterprises and privately run businesses have shunned the option of listing. These companies view the transparency required with being public listed as incompatible with Myanmar’s business climate.
This is the reason there are few public listed companies in Myanmar.
Among the 2 companies that are listed on the exchange, Forest Products Joint Venture Corporation is a 55-45 joint venture of the Myanmar Timber Enterprise and private investors. It first sold shares to the public in 1993 at K7500 each.
Myanmar Citizen’s Bank is one of 19 banks in the country. Like all the companies based in Myanmar little information can be found on the bank.
If one were so inclined to venture further, there are other companies to invest that are public listed.
First Myanmar Investment (FMI) is one of the most well known. FMI was listed in an IPO in 1991. To buy shares, one needs to go to its office to buy and the company charges a 1% broker fee for the service. When FMI first listed in 1991, one share cost K1000.
There are also other public companies that one could buy shares of. First Private Bank, is another of these pioneering public companies, First Private Bank IPO at a price of K10,000 each, with a dividend in 2010 of 17%.
Generally, these public companies give very generous dividends, sometimes 20% or more.
Overseas Listed Companies with Exposure to Myanmar
All locally listed companies however, require one to be in Myanmar in order to be able to buy and sell shares. Hence there is a great interest in companies that are listed in more accessible overseas exchanges. Some of these overseas listed companies with exposure to Myanmar are listed below.
Italian-Thai Development (ITD)
This is a company listed in the Bangkok stock market (ITD.BK) and is arguably the company that has most to gain from the opening up of Myanmar. It has an investment in the Dawei project, which is a potential game-changer for the company.
The Dawei project is an (overly perhaps) ambitious project to transform nearly 100 sq miles of scrubland in southern Myanmar into Southeast Asia’s largest industrial complex by creating a land bridge linking Myanmar with Thailand and by extension to the entire Indochina up to Vietnam. The theory is that Dawei would provide a cheaper and quicker transport link to Indochina than passing through the Straits of Malacca and Singapore.
The plan is to build 2 deep sea ports, 3 large industrial complexes with adjoining residential zones and commercial areas. Eventually, there will also be oil and gas pipelines linking Dawei to Thailand.
The Myanmar government gave the Italian-Thai Development company (ITD) exclusive rights for 75 years to develop Dawei. While this looks good on paper, there are many doubts that ITD can undertake such a large project.
The total estimated cost for the Dawei project is more than USD$8 billion while ITD’s book value is just over a quarter billion USD.
More importantly, the road and rail links pass through ethnic Karen peoples’ land and fighting in the area had not yet settled. The main Karen insurgent group, the Karen National Liberation Army had also claimed that locals were not being compensated property. This could seriously undermine the project’s progress.
Somehow, I find it difficult to get too excited about this company. ITD has a history of making losses over the years and disclosure to investors had not been very good in my opinion. This makes the company highly speculative at best.
Like ITD, PTT Exploration & Production (PTTEP) is listed in Thailand. It has 2 large offshore gas fields in Myanmar, Yadana and Yetagun of which PTTEP owns 25.5% and 19.3% respectively.
There is another new gas field under development, Zawtika, which is 80% owned by PTTEP. Zawtika targets initiation of production at the end of 2013 with total daily production targeted at 300 mmscfd.
There are also other projects like the M3 Block and M11 Block in the Gulf of Maottama too which PTTEP could develop on its own or with foreign partners.
However, Myanmar accounts for relatively little (8%) of PTTEP’s revenues. In addition, it had been doing business in Myanmar for a very long time (more than 20 years), even when Myanmar was closed to the world. Hence, the Myanmar side of the business will only benefit marginally from further opening up of the economy.
PTT Public Company Limited
PTT is interested building a 4,000MW coal-fired power plant in Dawei if the project is to sell electricity to Thailand’s electricity generation authority. However, due to environmental concerns and local opposition, the plan had been put on hold. There is some talk of gas-based power plants instead (comparatively much cleaner than coal) but due to the lack of suitable gas (Myanmar’s gas is dry with no ethane or propane content), this seems unlikely.
There are also opportunities for PTT to invest in a CNG network in Myanmar as CNG is widely used in Myanmar.
However, like PTTEP, Myanmar accounts for very little of PTT’s revenues and cannot be consider a good proxy to Myanmar.
Yoma Strategic Holdings
This is a company listed in the Singapore Exchange (SGX) which is one of the better companies with exposure to Myanmar. However, in line with the exciting developments there, it seemed to have gone ahead of itself, with share prices going up more than 5 times (!) from a year ago.
Yoma Strategic is a real estate company with interests in a project called Star City, a 135 acre land area 6 miles southeast from Yangon. It has the first right of refusal to purchase this property from a company called Serge Pun and Associates. This piece of real estate has more than 9,000 apartment and houses, with both shopping and commercial areas.
In addition, the company announced a new joint venture development with First Myanmar Investment (FMI) to develop 45 new houses in FMI City.
Living up to the Hype
This year, Yoma reported a strong set of FY2012 results, with earnings of SGD $6 million, significantly higher than the SGD $2.8 million achieved in FY2011. This was due to improved sales of housing and Land Development Rights (LDRs) in Myanmar (222 plots of land were sold versus 35 plots in the previous year). MOre importantly, cash generated from operations (mainly from sales proceeds of LDRs) improved significantly to SGD 19m in FY12, pushing cash balances to SGD $ 20 million from SGD $ 2.5 million just a year ago.
Nevertheless, valuation looks stretched with price to book of 1.5x and Price to earnings ratio of 33x.
Barron’s recently ran an article on Myanmar and has this to say about Yoma which I agree with:
Yoma’s primary assets consist of land-development rights for parcels close to downtown Rangoon. It also has plans for a 70% economic interest in development rights related to Star City, a new residential and commercial development close to an area expected to be designated a special economic zone. Plans call for the interest to be funded by a rights issue of S$91 million (about U.S.$73 million).
While all of this sounds exciting, that excitement is well-reflected in the price: Since November, Yoma has jumped more than 500%, to 53 Singapore cents a share. That is equivalent to two times stated net asset value. The problem is, even a still zippy one-times NAV would require some rosy assumptions about the future.
As of the end of December 2011, remaining land development rights were carried at their 2005-06 historical cost of S$63.4 million. But the exact market value is hard to judge. Yoma doesn’t break out selling costs per square foot by development-rights plot and building, and as with all Burmese economic statistics, there is a paucity of data for comparisons.
With very generous assumptions, the land development rights’ value has doubled since 2005. This takes net asset value to almost S$200 million from its stated S$137 million.
Assume that all Western sanctions are dropped permanently, and that land prices grow at an impressive 15% annually until 2015. Without factoring in any central-bank tightening and assuming that the currency remains stable, this could take 2015 net asset value to S$290 million, suggesting a slight discount to NAV at current prices.
Of course, this doesn’t take into account the potential of Star City, which could be highly profitable. On the other hand, it also nearly doubles the existing share count.
yoma011909 : Phillip Securities Initiate Coverage, 19 Jan 2009.
Yoma6Feb12 : “Riding Myanmar’s Moment”, Kim Eng Securities, 6 Feb 2012.
Interra Resources is also a SGX listed company where the share price tripled with the sudden increase in interest in Myanmar. It operates in energy exploration and production (E&P) with assets in both Myanmar and Indonesia.
Currently, Interra Resources is the largest onshore oil producer in Myanmar with gross production of 2,500 barrels of oil per day being extracted from shallow and intermediate depth infill wells. Currently the company is using in-house rigs but will invest further in production by purchasing equipment to drill deeper wells.
However, valuation looks rich currently after the steep run-up in the price.
Interra19Aug11 : Standard and Poor’s Initiate Coverage, 19 Aug 2011.
interra11Nov11 : Standard and Poor’s Results Review, 11 Nov 2011.
interra28Feb12 : Standard and Poor’s FY2011 Results Review, 28 Feb 2012.
UPP Holdings (United Pulp & Paper)
Recently, the company announced that they were going to enter the Myanmar market by setting up a joint venture with Myanmar-based heavy machinery and equipment service provider Myan Shwe Pyi to buy quarry operations and engineering services companies.
uppjv : Company communications to shareholders on the proposed acquisition in Myanmar.
Under the tie-up, UPP will fork out US$14 million to own a 67 percent stake of the joint venture. To raise the money, UPP Holdings will pay US$8 million in cash and issue over 13 million new shares for the acquisition.
There are scant details on the joint venture. UPP Holdings is a marginal company listed in SGX and I am wondering if this new joint venture is a bid to attract attention to the company. Unless more details become available it will be difficult to know what is the potential of this new joint venture and what it means for the future of UPP Holdings.
Still Early Days …
There are probably other companies listed in other exchanges that have business exposure to Myanmar. However, even if these companies were reasonably priced, there are still many issues that make an investment into Myanmar very speculative.
Many social and economic structures, the judicial system and rule of law has yet been fully developed. If the opening up of Vietnam is any guide, it will be many years before the country as a whole matures as an investment destination.
In my next post, we will address these challenges that Myanmar faces.