Myanmar Beneficiaries

By OSK Research
12 Apr 2012

Fortune Favors The Bold

While Malaysian companies are only just jumping on the Myanmar bandwagon, we believe
that opportunities abound although the risks remain. There appears to be opportunities in
the areas of agriculture, O&G, power, tourism and telecoms. Malaysian companies such
as AirAsia, Axiata, Felda, Cypark and Tan Chong  which  are exploring opportunities in
Myanmar would  still have to tread cautiously in the coming months before their efforts
bear fruit. Nonetheless, given the  keen  interest in the country,  investors should keep a
close eye on these companies as sanctions are lifted and the pace of reforms picks up.
Malaysian companies with potential in Myanmar.
 Despite having lobbied for Myanmar’s entry into Asean in 1997, Malaysian companies have been somewhat slow in leveraging on the goodwill  generated from this gesture. As such, there does not appear to be any direct exposure to Myanmar via the listed companies in Malaysia, unlike in Singapore where our OSK-DMG office has identified 3 listed companies with a Myanmar presence, namely Super Group (30% of Myanmar’s instant coffee mix market), Interra Resources (O&G) and Yoma Strategic (property development). Nonetheless, Malaysian companies are now jumping on the Myanmar bandwagon to  capitalize on the  opportunities. We are highlighting a number of these companies below and advise investors to watch this space closely in the coming months. While there is no certainty that the reforms initiated so far will continue, there is nonetheless hope given the potential of the US and EU easing sanctions on the country.

AirAsia (BUY, FV: RM4.57):  Since opening up its aviation  sector in 2010 and  given  the recent political stability, there has been an influx of interest from air carriers  seeking  to land in Yangon, which is currently directly connected to 17 destinations ranging from London to Osaka. Tourism is still at its infancy, with the number of tourists arrivals totaling only 313,127 (5% growth) in 2010 due to its uncertain political  climate. Both MAS and AirAsia  have been  flying once  daily  from Kuala Lumpur since 2010. AirAsia also flies to Yangon daily from Bangkok. Thailand commands the largest market share in terms of tourist arrivals, with a 23% share, followed by China and France at 10.6% and 6.2% respectively, while Malaysia is 6th with a market share of 6.1%. As Thailand and Malaysia comprise a combined market share of 29% and with the sizable number of Myanmar foreign workers in these two countries; we believe AirAsia stands to benefit from the Myanmar theme.

Axiata (BUY, FV: RM5.80): One of the front-runners for the 4 mobile licences that are up for grabs in Myanmar. There are tremendous growth opportunities in the market given the low mobile penetration of just 3%. We believe management will exercise discretion on its potential foray in view
of the stiff competition from other major telecom operators vying for a licence.

Cypark Resources (Not Rated): The company has signed a MoU with First Myanmar Investment Co
Ltd  to  cooperate  in the areas of waste management and renewable energy.  Note that Cypark
chairman Tan Sri Razali bin Ismail was previously the United Nations Secretary-General’s Special
Envoy to Myanmar.

Felda Global  Ventures (Yet to be  listed):  Keen to explore opportunities in Myanmar to develop
plantations and related downstream businesses. Felda’s products, especially cooking oil, are being
sold in Myanmar.

SapuraCrest Petroleum (Not Rated): In 2011, the company secured a USD32m contract to provide
transportation and installation services for offshore facilities relating  to the Yetagun gas field
development from a Petronas-led consortium.

Scomi Group (Not Rated):  The company  is  providing  its services and drilling  fluids as well as
chemicals to operations in Myanmar out of its Thai office.

Tan Chong (SELL, FV: RM4.00):  Myanmar’s automobile industry  has lagged significantly behind
those in other Asian countries. Recognising this potential, Tan Chong established a motor workshop
service in Myanmar in 2011 in  which it has a 90% stake in partnership  with a local businessman.
Although relatively small with a capital contribution of RM0.9m, we see this as a start  towards
establishing a bigger presence in this country. However, we reckon that the Government would still be
quite restrictive with regard to opening up the automotive sector to foreign parties in the near term due
to the fact that it derives sizeable tax revenue from vehicle sales. Note that Tan Chong Group’s senior
adviser, Dato’ Cheah Sam Kip, was previously ambassador to Myanmar.

[Full report/ resource]