First Myanmar Investment (FMI)

Transcription

1 First Myanmar Investment (FMI) Company Report Close Kyat 23,000 (OTC) Diversified Conglomerate (Financial Services, Real Estate and Healthcare) January 6, 2016 Streamlining its focus toward investments with good potential A diversified conglomerate First Myanmar Investment Co., Ltd. (FMI) is a diversified conglomerate that has been investing in various key sectors in Myanmar for over 20 years. It is one among a few public companies in Myanmar that is involved in joint ventures with leading international firms. The company had streamlined its businesses in FY14/15 and now has strategic investments in three key sectors, i.e., financial services, real estate and healthcare. Share data Paid up Shares (mn) Par (USD/Kyat) / 1,000 Market cap (US$ mn /Kyat bn) / 415,880 URL Strong growth in banking business Yoma Bank, the biggest investment in terms of asset size, is a high potential business that should significantly increase its weighting with respect to FMI s net profit in the next few years. It ranked seventh in terms of asset size among private banks in Myanmar despite just resuming its lending for the first full year in FY14/15. The new mobile banking service that is being jointly developed with Telenor should expand fee based income in the next few years. Real estate should bring a good return in the long term The real estate business has been a key profit contributor to FMI for many years despite the fact that the company holds only minority stakes and recognizes shared profits and dividends from joint developments with its sister companies. This business should slow down in the short term due to buyers concerns during the political transition. However, all projects are in prime locations and we thus believe they will bring a good return for FMI in the future. Healthcare: revitalizing business to capture the growing demand The core operation of healthcare has continued to make a loss, but we expect its revitalization and expansion to be able to capture the growing private healthcare demand in the country and turn this business profitable in the next few years. Risks & Concerns Political risk remains a concern affecting the sentiment of real estate and tourism businesses. Regarding banks, concerns relate to capital adequacy due to rapid lending expansion and success in obtaining approvals for the full launch of mobile banking service. Meanwhile, lower than expected patient volume/acceptance could be a risk for the healthcare business. Financials and Valuation Stand alone Consolidated FY Ended 31 Dec FY12/13 FY13/14 FY14/15 FY13/14 FY14/15 Revenues (Btmn) 2,050 3,648 2,835 11,128 33,319 Net profit (Btmn) 1,455 2,840 3,384 12,499 74,655 EPS (Bt) , EPS growth (%) n.a. 27.6% 2.4% n.a % Dividend (Bt) BV (Bt) 2, , , , , FY Ended 31 Dec FY12/13 FY13/14 FY14/15 FY13/14 FY14/15 PER (x) Pornsawat Jirajarus EV/EBITDA (x) , Analyst no PBV (x) Dividend yield (%) Pornsawatj@ktzmico.com ROE (%) 4.7% 5.5% 4.0% 15.2% 48.6% 66 (0) Net gearing (%) Cash Cash 0.3% Cash 327.1% REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 1 of 22

2 Investment Highlights Streamlining its focus toward investments with good potential First Myanmar Investment Co., Ltd. (FMI) is a diversified conglomerate that has been investing in various key sectors in Myanmar for over 20 years. It is one of a few public companies in Myanmar that is involved in joint ventures with leading international firms such as Mitsubishi, the International Finance Corporation, the Asian Development Bank, Telenor, the Lippo Group of Indonesia and Parkson Retail Asia. The company has streamlined its businesses in FY14/15 (ended 31 March) and now has strategic investments in three key sectors, i.e., financial services, real estate and healthcare. Yoma Bank, the biggest investment in terms of asset size, is a high potential business that should significantly increase its weighting with respect to FMI s net profit in the next few years. It ranked seventh in terms of asset size among private banks in Myanmar (August 2014) despite just resuming its lending for the first full year in FY14/15. The real estate business, which has been a key profit contributor for many years, may slow down in the short term, but all projects are in prime locations that should bring a good return in the future. Meanwhile, regarding its hospital business, although the core operation has continued to make a loss, we expect its revitalized operation and expansion to be able to capture the growing private healthcare demand in the country and turn this business profitable in the next few years. Based on the latest OTC price of Kyat23,000 per share on 6 January 2016 (+87% YoY, information), FMI s market capitalization was USD398mn and the stock was traded at trailing PE of 25x to its weighted basic EPS and trailing P/BV of 2.9x in FY14/15. FMI is one of six public companies in Myanmar selected to be in the first batch listing on the Yangon Stock Exchange, which is expected to start trading activity in 1H16. Although the company does not yet plan to sell any new shares in the early stage of listing, in past years FMI periodically financed its investments with capital raising; we thus believe the company is highly likely to issue new shares to support its investments in the coming years. Note that at this point, Myanmar law does not yet allow foreign investors to trade shares of Myanmar companies (but it does allow foreign investors to jointly invest in the start up of projects). However, we expect the law to be amended to allow foreign investors to participate in stock trading. Figure 1: FMI s historical share price (MM Kyat) 20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 Vol. (shrs) Price (KYT) (Shares) 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 Oct 14 Nov 14 Dec 14 Jan 15 Feb 15 Mar 15 Apr 15 May 15 Jun 15 Jul 15 Aug 15 Sep 15 Oct 15 Nov 15 Dec 15 Source: information REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 2 of 22

3 Company background A diversified conglomerate First Myanmar Investment Co., Ltd. (FMI), established in 1992, is the flagship company of the SPA Group (Serge Pun & Associates Ltd. and Mr. U Theim Wai, also known as Serge Pun). It has joint investments in many projects with its sister company Yoma Strategic Holding (Bloomberg code YSH:SP, SGD 0.475) a listed conglomerate with market capitalization of around USD588mn in the Singapore Stock Exchange. During FY14/15, FMI restructured its investments by divesting a number of businesses. The net result of these divestments provided proceeds of 13.9bn Kyat for reinvesting in selected core businesses. The company now has strategic investments in three key sectors, i.e., financial services, real estate and healthcare, and minority investments in tourism (air charter and balloons), retail (department store), agriculture (coffee plantation) and industrial estates. The company has over 6,800 shareholders currently. About 25% of FMI s shares are free floated. In general, shares of public companies in Myanmar have been traded over the counter (OTC) at the company offices. FMI has paid dividends every year since inception and it declared a cash dividend of 120 Kyat per share for the FY14/15 performance (a payout ratio of 19% from basic EPS at end FY14/15). Figure 2: FMI s core businesses and investments Source: FMI Financial services Net profit from financial services was 2.37bn Kyat in FY14/15, up 474% YoY and accounting for 16% of FMI s net profit from operating activities in FY14/15. Yoma Bank Ltd. Yoma Bank Ltd., established in 1993, is one of Myanmar s reputable private banks (Figure 3: ranked #7 in terms of asset size and #5 in terms of branches as of August 2014). The bank regained a full banking license in 2013 after being restricted to domestic remittance services since the Myanmar banking crisis in The bank has undergone a transition over the past two years by upgrading management, facilities, IT, and the banking management system. At present, Yoma Bank has 57 branches covering 25 major cities nationwide. REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 3 of 22

4 Figure 3: Ten largest private banks in Myanmar as of August 2014 Assets (Ks bn) # of branches # of ATM 1. Kanbawza Bank 4, Ayayarwaddy Bank 1, Co operative Bank 1, Myawaddy Bank 1, Myanmar Apex Bank Global Treasure Bank Yoma Bank United Amara Bank Asia Green Development Bank Myanmar Oriental Bank , Source: Myanmar s Financial Sector, Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH report dated February 2015 FMI consolidated Yoma Bank into its financial statements in the last quarter of FY14/15 (ended 31 March) after raising its stake in the bank from 35.4% to 51% on 30 December The bank s loan portfolio had expanded rapidly by nearly 4x YoY to 415bn Kyat, against deposits of 689bn Kyat, at the end of FY14/15. Net profit after tax rose 363% YoY, contributing shared profit of 2bn Kyat to FMI in FY14/15 (accounting for 14% of FMI s net profit from operating activities). The bank has received assistance from the German Government s International Development Organization (GIZ) for ongoing training programs to develop its staff. The International Finance Corporation (IFC) has also provided convertible loans and advice in regard to improving risk management since Its database infrastructure has been revitalized with the implementation of the London based MISYS banking system in FY14/15. Yoma Bank also has a partnership with Telenor in developing a mobile banking service called Wave Money, which was soft launched in November The service is a non bank led mobile banking model (a bank led model has already been operated by other banks since 2014), which will focus on delivering low cost electronic payments to virtually all citizens, including customers of every mobile network operator. Regulatory approval for a full launch from the central bank is expected in 1H16. This project should help Yoma Bank expand its feebased income at lower CAPEX when compared with opening a new branch. Yoma Bank focuses mainly on small and medium sized enterprises (SMEs), with over 70% of loans being made to SMEs at an average loan size of 175mn Kyat or USD 0.135mn. Given that Myanmar s banking industry is expected to grow exponentially with catalysts from the country s favorable economic growth and the low penetration rate of banking services, we expect profit from Yoma Bank to continue increasing its weight in FMI s earnings in the coming years. This subsidiary also has high potential for listing in the YSX in light of the increasing capital requirement from growing lending assets. REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 4 of 22

5 Figure 4: Yoma Bank Atmosphere at the bank s counter services Promotional campaign of Wave Money mobile banking service that Yoma Bank has jointly developed with Telenor - Wave Account allows the customer to securely store and transfer money, anywhere, anytime. - The customer has to go to a Wave Shop to deposit or withdraw cash from a Wave Account. All other services can be accessed from mobile phones. - All transactions are secured by the customer s secret PIN. - The customer can send and receive money through a Wave Shop, even if the recipient does not possess a Wave Account. Source: FMI, Yoma Thitsar Commercial Yoma Thitsar Commercial Co., Ltd. has operated the FMI Trading Center since March The center provides an electronic trading system for shareholders to trade FMI shares over thecounter at its office in the FMI Center building. REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 5 of 22

6 Real Estate Real estate has been the key profit driver for FMI in recent years. Due to the highly capital intensive nature of the business, FMI holds minority stakes in joint investments with its sister companies in the development of many projects, while YSH normally holds majority stakes as the firm can raise funding from international investors in the SGX. The contribution from this business to FMI has been in the form of shared profits from affiliates. Net profit from the real estate business was 12.6bn Kyat in FY14/15, up 6% YoY and accounting for 87% of FMI s net profit from operating activities in FY14/15. Thanlyin Estate Development Thanlyin Estate Development, a 30%/70% joint venture between FMI and its sister company YSH in the SGX, is the developer of the Star City project on riverside land area of 135 acres in Thanlyin, across the Bago River, southeast of downtown Yangon. The project, targeting the middle to upper income market segment, was launched in 2010, and is separated into five phases. When all the phases are completed, it will consist of a total of about 9,000 residential units. Sales of the first two phases, Zone A and B, were the main profit engine for FMI in recent years. Thanlyin Estate has launched a new phase (Zone C, called Galaxy Towers, comprised of six towers totaling 954 units) in 1H15. Star City is aimed to serve increasing residential demand from the Thilawa Special Economic Zone, which is located about 14 km south of the project. Figure 5: The Star City project \ Galaxy Tower Thilawa SEZ Source: FMI REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 6 of 22

7 KrisPlaza Nay Pyitaw Condominium JV FMI LS (KrisPlaza Nay Pyitaw Condominium) is a 50/50 joint venture between FMI and Lighting Specialist Co., Ltd (LSC who has a partnership with Singapore s Krislite Pte. in lighting systems for projects in Myanmar). KrisPlaza is a modern mixed use project in Nay Pyitaw. The project, comprised of two 10 storey towers accommodating 114 luxury condominiums, a commercial retail center and Yoma Bank s regional headquarters, is expected to be completed in late Figure 6: KrisPlaza Nay Pyitaw Source: FMI, krisplazanaypyitaw.com Meeyahta International Hotel Limited Meeyahta International Hotel Limited (MIHL) is a 20%/80% joint venture between FMI and its sister company YSH in the SGX. MIHL is the developer of The Landmark Development, a mixed use complex on a 10 acre land plot in Pabedan, downtown Yangon. This project will cost more than USD450mn, comprising luxury hotels, condominiums, serviced apartments, office buildings and a retail podium. The project site is comprised of a few land plots, including the current locations of 1) a heritage Burma Railways building, which will be redeveloped into a Peninsula hotel 2) the Grand Meeyahta Hotel and 3) an 11 storey office building, FMI Center. FMI will stop recording rental revenue from the FMI Center in FY15/16, as in February 2015 the company exchanged its entire 90% stake in FMI Syndication (owner of FMI Center) for a 10% stake in MIHL. FMI currently has 20% shareholding in MIHL. Figure 7: The Landmark Development Source: FMI, YSH s annual report 2015 REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 7 of 22

8 Figure 7: The Landmark Development (continued) Project site before the development Redevelopment of the heritage building into the Yangon (FMI Center is on the left) Peninsula Hotel, picture taken 15/11/2015 Source: FMI, Railway Office Redevelopment FMI Center will continue its operations in the next few years as its location will be site 2 of the Landmark Development, which will start construction after the first phase of the project is completed. FMI Garden Development FMI Garden Development Ltd, its 47.5% affiliate, is the developer of FMI City, a housing project on 465 acres nine miles northwest of downtown Yangon. This project, which has been developed throughout the 1990 s and comprises a total of over 2,000 properties, is in its final phase with a few plots of land still to be sold. Figure 8: FMI City Source: FMI REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 8 of 22

9 Pun Hlaing Links Services Pun Hlaing Links Services is a 30% affiliate, which owns and operates the nine hole Pun Hlaing Links golf course adjacent to Star City. This golf course is expected to be officially opened before the end of FY16/17. Healthcare The healthcare business has contributed a loss from the core operation since inception. However, it turned to a profit of 1.8bn Kyat in FY14/15, accounting for 12% of FMI s net profit from operating activities, due to extra gain from land sales in 1H14/15. Pun Hlaing Siloam Hospital (PHSH) Pun Hlaing Siloam Hospital (PHSH), opened in 2005, is one of the leading hospitals in Myanmar. The hospital is located on land area of 5.5 acres in Pun Hlaing Golf Estate, Hlaing Thayar (a newly developed town 13 miles northwest of downtown Yangon, consisting of industrial parks and wealthy communities). It provides primary to tertiary medical services, targeting to serve upper class Myanmar people. Currently, the hospital has 174 inpatient beds, with six operating theatres, 24/7 emergency services, an ICU section and four clinics. In 3Q14, FMI increased its stake in PHSH from 35% to 75%. Later, in 2Q15, the company reduced its shareholding to 60% upon entering into a partnership with Indonesia s conglomerate, the Lippo Group (who is also the largest hospital chain operator, operating 20 hospitals with >4,800 beds across Indonesia). The Lippo Group injected USD10mn into PHSH and holds the remaining 40% share stake. It has also sent executives to help manage PHSH. The hospital has revitalized operations, with a number of Myanmar specialists returning home from Hong Kong, Singapore, the USA, Malaysia, the UK and Australia. It has implemented a different pricing model in order to serve a wider range of market segments and invested in modern medical equipment, e.g., Cardiac Catheterization Laboratory, 1.5 Tesla MRI, 128 Slice CT Scanner, Digital X ray, 4D Ultrasound Machines and a filmless Tele radiology system. Over the next seven years, PHSH plans to establish a nationwide network with two hospital formats to be built: 1) General Hospitals with around 300 beds and 2) smaller format Express Hospitals with beds. FMI expects that PHSH will add 2 3 more hospitals, including in Mandalay and Bagan, in the next 6 8 months and sees this subsidiary reaching its EBITDA breakeven this year. Figure 9: Pun Hlaing Siloam Hospital Source: FMI REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 9 of 22

10 Other investments Chindwin Holdings (Balloons Over Bagan) Chindwin Holdings Pte. Ltd. is incorporated in Singapore and invests in Myanmar s tourism industry. Chindwin is a 30/70 joint venture between FMI and its sister company YSH. Its key investment was the acquisition of a 75% interest in Balloons Over Bagan in June 2013 (hot air balloons that usually operate from October April each year). This balloon business has operated in Myanmar with an unblemished safety record for over 15 years. Chindwin will seek to develop further tourism related services, including the ongoing development of a boutique resort hotel in Bagan. Chindwin shared a loss of 265mn Kyat to FMI in FY14/15 (vs. shared profit of 1.14bn Kyat in FY13/14). Figure 10: Balloons Over Bagan Source: FMI, travelagent.com Myanmar Agri Tech Myanmar Agri Tech Ltd. (MAGT), FMI s 30% affiliate, owns the planting rights on 100,000 acres of land at the Maw Tin estate in Ayeyarwaddy Region. MAGT has partnered with ED&F Man Holdings, Switzerland based soft commodities traders, to grow 3,700 acres of lowland Robusta coffee at the estate. Figure 11: Myanmar Agri Tech Source: agri tech REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 10 of 22

11 FMI Air FMI Air is a leading local airline, operating three Bombardier CRJ 200 jet aircraft. The airline has a leading position on the Yangon Naypyitaw route, while also flying to Mandalay and Sittwe, and other destinations being developed. FMI reduced its stake in FMI Air from 50% to 10% in June 2015, citing the reason that the airline is still in the nascent stage. Airline services made a loss of 3.1bn Kyat to FMI in FY14/15. Figure 12: FMI Air Source: air Parkson Myanmar FMI holds a 10% stake in Parkson Myanmar, a subsidiary of Parkson Retail Asia Ltd. a Malaysian retailer who operates department stores throughout Southeast Asia and China. Parkson s first branch in Myanmar opened in May 2013 in the bottom three floors of FMI Center. Figure 13: Parkson Department Store Yangon Source: air REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 11 of 22

12 Myanmar Thilawa Special Economic Zone FMI owns 5% of shares in Myanmar Thilawa SEZ Holdings (MTSH), which is a public company involved in the marketing and development of the Thilawa Special Economic Zone. The Thilawa SEZ is an industrial park and port development located 14 miles from downtown Yangon. The first phase of the project, called Class A, covers approximately 400 hectares and is currently under construction. When the SEZ begins full operations it is expected to generate around 50,000 jobs. MTSH is also one of the first six companies selected to be traded in the YSX. Figure 14: Thilawa Special Economic Zone Source: mmbiztoday.com/articles/myanmar s manufacturing sector offers promising growth prospects REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 12 of 22

13 Financial performance Extra profit boosted net profit FMI changed its financial reporting from a standalone basis to consolidated financial statements in FY14/15. The FY14/15 consolidated net profit was 74.6bn Kyat, up 497% YoY, but this resulted largely from extra profit of 60.5bn Kyat from non operating activities (mainly gains from disposal of investments). Profit from operating activities increased 13% YoY in FY14/15 Excluding the aforesaid profit from non operating activities, the consolidated profit from operating activities (including share of profit from associates) was 14.2bn Kyat, up 13% YoY in FY14/15, which was driven by: 1) strong growth in financial services, which raised profit from this segment by 474% YoY to 2.4bn Kyat 2) the turnaround of the healthcare business from contributing a shared loss of 236mn Kyat in FY13/14 to a profit of 1.8bn Kyat in FY14/15 (combining a shared profit of 3.3bn Kyat from its 35% stake before consolidation and a loss of 1.5bn Kyat from its 60% stake after consolidation). However, this resulted largely from extra gain from the sale of unused land before the consolidation (amount not disclosed), while the core operation made a loss. 3) an increase in shared profit from the real estate business (+6% YoY to 12.6bn Kyat). This was the key profit maker for FMI as shared profit from real estate made up around 80% of core profit from operating activities. Two key revenue sources were sales of property in Thanlyin Estate (FMI holds 30%) and rental income from FMI Center (FMI held 90% in FY14/15 but later exchanged this investment for MIHL s shares). Figure 15: Breakdown of profits from operating activities Kyats bn FY13/14 FY14/15 Kyats bn Net profits from operating activities, excluding sharing profits from associates Rental income from FMI Center After consolidations FY13/14 FY14/ Kyats bn Sharing profits from associates Note: including shared profits from associates Before taking controlling stakes FY13/ FY14/ Source: REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 13 of 22

14 Revenue jumped from business consolidation Consolidated revenue rose 199% YoY in FY14/15, resulting mainly from consolidations of Yoma Bank and Pun Hlaing International Hospital after taking controlling stakes in these two subsidiaries. Figure 16: Consolidated revenue breakdown Kyats bn 20,000 15,000 10,000 5,000 FY13/14 FY14/15 Services Automotive Services Air charter Services Agri consulting Services Financial Services Healthcare Rental income Sales Automobile Source: Lofty D/E due to high weighting of banking business FMI s D/E ratio at the end of FY14/15 was 4.2x, rather high as deposits from the banking business are highly weighted in its balance sheet. The loan to deposit ratio was 60%, slightly higher than the 55% average of the Myanmar banking sector at year end While there are no disclosures of the bank s asset quality and capital adequacy structure, FMI s management believes its non performing loan ratio should be well maintained below the average of private banks (e.g., non performing loan ratio of around 2%) as it just resumed its lending business and bank lending must be collateralized in Myanmar. Bank debts in FY15/16 should decline significantly Interest bearing debts in businesses other than banking at the end of FY14/15 totaled 17.7bn Kyat, comprising 12.4bn for the airline business and convertible loans of 4.8bn Kyat from IFC to Yoma Bank. However, debts in FY15/16 should decline significantly from divestment of the airline business in June Cash dividend of 120 Kyat from FY14/15 performance FMI declared a cash dividend of 120 Kyat per share for the FY14/15 performance (a payout ratio of 19% from basic EPS at end FY14/15), implying a dividend yield of 0.9% from the stock s closing price at the end of FY14/15 (March 2015). REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 14 of 22

15 Outlook for performance in FY15/16 We expect profit to decline significantly in FY15/16 FMI s profit is likely to decline significantly in FY15/16 as deteriorating profit from the property business and an increasing loss in the early stage of the expansion of the hospital business will dampen the performance. Meanwhile, although we expect to see strong profit growth from Yoma Bank, this should not be sufficient to offset the negative impacts from the aforesaid two businesses. Property business While shared profit from real estate has been a key earnings driver for FMI in recent years, profit from this segment should decline significantly due to concerns over political risk during the political transition in The trend of shared profit from the property business should be indicated by YSH s performance (Bloomberg stock code YSH:SP, holds 70% in Thanlyin Estate and property sales accounted for >80% of FY14/15 revenue), whose 1H15/16 net profit declined 76% YoY due mainly to slowing property sales. Myanmar s property market should remain weak in the coming quarters due to the wait and see sentiment during the political transition. Revenue of Thanlyin Estate should remain weak in 2H14/15, although it may show some improvement HoH from increasing revenue recognition based on the percentage of work completion. Figure 17: Quarterly performance of Yoma Strategic Holding SGD mn 15 YSH's net profit Q13/14 1Q14/15 2Q14/15 3Q14/15 4Q14/15 1Q15/16 2Q15/16 Source: We expect the outlook to improve in FY16/17 after the confidence of potential buyers increases upon formation of the new government in 1H16. In addition, the openings of factories in the Thilawa SEZ (only 5 out of 50 companies in the 1st phase had started manufacturing operations in December 2015; we expect more to gradually begin production in 2016) should gradually raise residential demand for Star City, which is the only large scale residential project in the SEZ s vicinity. Note that FMI has stopped recording rental income from FMI Center (around 3bn Kyat per year or 9% of revenue in FY14/15) after swapping this investment for a stake in MIHL. Meanwhile, the Landmark project of MIHL is still in the early stage of development. REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 15 of 22

16 Banking business Profit from Yoma Bank should increase its weighting in FMI s bottom line in the following years. This will result from both 1) increasing the shareholding stake from 35% to 51%, enabling FMI to consolidate the bank s financial statements and 2) the ramp up from a low base, as FY14/15 was its first full year of resuming lending. We expect the bank s net profit to continue its strong growth of at least 30 40% YoY in FY15/16 (vs. +363% YoY in FY14/15). Yoma Bank s focus on expanding its lending to small and medium sized enterprises (SMEs) should enable its loan portfolio to maintain a high growth rate in the coming years, as lending to Myanmar s SME segment is still underserved. Its services offered at an international standard have attracted clients both on the deposit and lending sides; meanwhile, mobile banking, if obtaining approval for a full launch, would also help fuel the growth. Its sound risk management with the IFC s assistance should also enable the bank to maintain good asset quality. Myanmar s financial system remains in the early stage of development, with less than 20% of the population having access to banking services and credit to the private sector accounting for merely 16% of the country s GDP (as of February 2015). Competition from foreign banks is still limited in Myanmar, with just nine players being granted restricted licenses to do wholesale banking since October Representative offices of foreign banks cannot conduct any commercial banking business and offer only liaison support to clients whose offshore parent banks provide project financing in Myanmar. Figure 18: Myanmar s interest spread vs. regional banks Figure 19: Capital Adequacy of Private Banks Source: Central Bank of Myanmar, World Bank, IMF Source: Central Bank of Myanmar, IMF Capital adequacy may become a concern for Yoma Bank as the rapid expansion of its loan portfolio could lower the capital adequacy ratio; the Central Bank of Myanmar has set the minimum at 10% for private banks vs. the average ratio of private banks of over 20% at the end of FY14/15. (There is no disclosure of Yoma Bank s capital adequacy ratio in FMI s financial statements). REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 16 of 22

17 Healthcare business Pun Hlaing Siloam Hospital (PHSH) should extend its trend of losses from the core operation in FY15/16, after profit in FY14/15 resulting from extra gain from land sales (amount not disclosed). Although its revenue should continue increasing as a result of its facilities upgrade and a new pricing model, which could attract a wider range of patients, we expect increasing expenses from expansion/revitalizing of the operation, e.g., depreciation and medical staff costs, to hinder profitability and potentially accelerate the losses in the early stage of expansion. The long term outlook of the hospital business in Myanmar is interesting if PHSH is able to gain more popularity from patients in the high end market, as a considerable number of people travel abroad each year, e.g., Thailand (>100,000 cases per year), Singapore and India, for medical checkups and treatments. PHSH s different pricing levels should also attract more patients in the middle class, which is the key segment fueling Myanmar s economy. Healthcare services in Myanmar are underserved, especially in rural areas. Although the government has allocated more budget to increase public services, i.e., opening 12 more rural health centers and 33 sub centers in , public hospitals, including private ones in downtown Yangon, are mostly overcrowded. This, together with the rising purchasing power of the middle class and the country s liberalizing economy, has significantly raised outflow of medical travel to neighboring countries in recent years. The growth potential of healthcare in Myanmar has attracted many international players. Apart from the Lippo Group, hospitals from Thailand and India also have exposure in this market. In Yangon, Bangkok Dusit Medical Services (BDMS:TB) now has a referral office and Bumrungrad Hospital (BH:TB) will open a primary care clinic in 2Q16. Thonburi Hospital Group (Thai non listed) has joined with a local investor (GMP group) to develop two hospitals with a combined capacity of 400 beds in Yangon and Mandalay. Figure 20: Health expenditures per capita 3,000 USD Health expenditure per capita 2,500 2,000 1,500 1, Source: REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 17 of 22

18 FY Ended 31 March Stand alone Consolidated PROFIT & LOSS (Ks mn) FY12/13 FY13/14 FY14/15 FY13/14 FY14/15 Revenues 2,050 3,648 2,835 11,128 33,319 Cost of sales and service (6,706) (20,401) Gross profit 2,050 3,648 2,835 4,422 12,918 SG&A (552) (851) (1,188) (2,880) (14,007) EBITDA 1,512 2,840 1,690 1, Depreciation & amortization (14) (43) (43) (255) (1,605) EBIT 1,498 2,797 1,647 1,542 (1,089) Interest expense (32) (32) (32) (40) (624) Gain (loss) from affiliates ,431 15,453 Extra Items (11) 378 1, ,491 EBT 1,455 3,143 3,595 13,252 74,231 Corporate tax 0 (303) (211) (704) (1,107) Net profit 1,455 2,840 3,384 12,499 74,655 Reported EPS , Core net profit 1,466 2,462 1,404 12,499 14,165 Core EPS Dividend (Ks) FY Ended 31 March Stand alone Consolidated BALANCE SHEET (Ks mn) FY12/13 FY13/14 FY14/15 FY13/14 FY14/15 Cash and equivalents , ,014 Accounts receivable 6,538 26, ,728 2,835 Inventories PP&E net 1, , ,339 Other assets 21,852 34,143 94,992 39, ,265 Total assets 33,209 73,416 98,466 86, ,515 ST debt & current portion ,282 Long term debt ,917 Total liabilities 2,339 1,669 1,468 4, ,558 Paid up shares 12,038 18,418 22,480 18,418 22,480 Shareholder equity 30,869 71,747 96,998 81, ,534 Total liab. & shareholder equity 33,209 73,416 98,466 86, ,091 FY Ended 31 March Stand alone Consolidated CASH FLOW (Ks mn) FY12/13 FY13/14 FY14/15 FY13/14 FY14/15 Net income 1,455 2,840 3,384 12,499 74,655 Forex and other extraordinary adjustments Depreciation & amortization ,605 Change in working capital (6,941) (16,096) 26,004 (20,445) 72,875 Cash flow from operations 7,522 15,929 25,394 18,722 72,873 Capex (Invest)/Divest (5,563) (21,539) (48,246) (17,607) 19,152 Cash flow from investing (5,563) (21,539) (48,246) (17,607) 19,152 Debt financing (repayment) ,856 Equity financing 13,529 39,246 25,551 39,246 25,551 Dividend payment 798 1,196 (3,597) 1,306 3,597 Others Cash flow from financing 12,732 38,050 21,954 37,915 35,810 Net change in cash (353) 582 (898) 1, ,835 Free cash flow (13,085) (37,468) (22,852) (36,329) 92,025 FCF per share (Ks) (1,087) (2,034) (1,017) (1,972) 4,094 FY Ended 31 March Stand alone Consolidated PROFITABILITY FY12/13 FY13/14 FY14/15 FY13/14 FY14/15 Revenue growth (%) n.a (22.3) n.a EBITDA growth (%) n.a (40.5) n.a. (71.3) EPS growth (%) n.a (2.37) n.a Gross margin (%) EBITDA margin (%) Operating margin (%) (3.3) Net margin (%) Core profit margin (%) Effective tax rate (%) REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 18 of 22

19 Appendices Profiles of associated companies Surge Pun & Associates (SPA) SPA is a private investment holding company, fully owned by Mr. Serge Pun. All the investments of SPA were made through its two flagship public investment holding companies: First Myanmar Investment Co., Ltd. and Yoma Strategic Holdings Ltd. (YSH), which was incorporated in Singapore and operates in Myanmar. SPA, FMI and YSH are strategically affiliated through their common shareholder, Mr. Serge Pun, and have investments in eight business sectors in Myanmar as follows: Figure 21: SPA Group s structure Note 1: disclosure of shareholding in FMI is subject to the completion of Yangon Stock Exchange Source: myanmar.com Figure 22: Investments of SPA Businesses joined with FMI Financial Service Yoma Bank Real Estate Star City FMI City Pun Hlaing Golf Estate (FMI City) Landmark project, FMI Center (office building) Pun Hlaing Link Service (Star City) Healthcare Pun Hlaing International Hospital Agriculture Myanmar Agri Tech (coffee plantation) Tourism Balloon over Bagan, Eastern Safaris (offering exclusive and luxurious adventure packages in Myanmar and Bhutan) Aviation FMI Air Businesses not joined with FMI Automotive SPA Motor, New Holland (agricultural equipment), Volkswagen, Mitsubishi Motor, Hino Motor Source: myanmar.com REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 19 of 22

20 Yoma Strategic Holding Ltd. (YSH: SP) Yoma Strategic Holding, listed on the mainboard of the Singapore Exchange (SGX) since 2006, has been one of the leading real estate developers in Myanmar. The company has diversified its business into the consumer, automotive, agriculture and logistics and tourism businesses. Its revenues in FY14/15 were derived mainly from real estate (81%), automobile services (8%), tourism services (7%), construction related services (2.7%) and property rental (1.4%). Figure 23: YSH s performance Figure 24: YSH s share price Source: Bloomberg (Point) (SGD) 3,600 STI Index (LHS) ,400 YOMA SP (RHS) , , , , , Jan 10 May 10 Sep 10 Jan 11 May 11 Sep 11 Jan 12 May 12 Sep 12 Jan 13 May 13 Sep 13 Jan 14 May 14 Sep 14 Jan 15 May 15 Sep 15 Jan 16 Figure 25: Investments of YSH Businesses joined with FMI Businesses not joined with FMI Real Estate Star City FMI City Landmark project, FMI Center (office building) Consumer Parkson Department Store Agriculture Myanmar Agri Tech (coffee plantation) Tourism Balloon over Bagan Education Pun Hliang International School, British College Yangon Consumer KFC Myanmar (quick service restaurant) Access Myanmar Distribution (distribute beverage and FMCG products) Automotive Mitsubishi Motor, Hino Motor, Volkswagen, New Holland (agricultural equipment), Bridgestone tyres, Yoma Fleet (vehicle operating lease &rental) Agriculture & Logistic Yoma Agriculture & Logistic Other investments Telecom tower, Airport operational control, elevator services Source: REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 20 of 22

21 Executive background Mr. Serge Pun Executive Chairman Mr. U Theim Wai, also known as Serge Pun, is a founder and the chairman of the SPA Group. He has over 40 years of international business and investment experience. Serge Pun founded Serge Pun & Associates Ltd. Hong Kong in 1983 and SPA Myanmar in 1991 when returning to Myanmar. Serge Pun has led many real estate investments as a general partner in real estate limited partnerships, including projects such as Stewart Terrace on the Peak in Hong Kong (1987 to 1988) and Village Gardens in Yau Yat Chuen, Kowloon (1988 to 1990). Some of Serge Pun s notable projects overseas were the Sand River Golf Club in Shenzhen ( ), Abdulrahim Place office building in Bangkok (1989 to 2000) and The Grand Central mixed use development in Dalian PRC. Mr. Pun was Honorary Business Representative of International Enterprise Singapore for Myanmar between 2004 and 2006 and was appointed as a member of Dalian s CPPCC in He is also a member of the World Economic Forum Global Agenda Council for Transparency and Anti Corruption for the term REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 21 of 22

22 Note: KT ZMICO is a partnership between KTB and ZMICO. An executive of KT ZMICO Securities is also a board member of BCP, BTC, CI, CPI, KBS, MAJOR, MK, PACE, PSL, SVH, VNG, ZMICO. A management member of KT ZMICO Securities is also a board member of BTC and NFC. KT ZMICO is a financial advisor for U, LOXLEY, SUTHA, ZMICO, MAKRO, CPALL, SAFARI, PACE, PLE, TPOLY, TFG. KT ZMICO is a co underwriter of SCI, SR, J, TKN. Anti corruption Progress Indicator Level 1 (Committed) : Organization s statement or board's resolution to work against corruption and to be in compliance with all relevant laws. Level 2 (Declared) : Public declaration statement to participate in Thailand's private sector Collective Action Coalition Against Corruption (CAC) or equivalent initiatives Level 3 (Established) : Public out preventive measures, risk assessment, communication and training for all employees, including consistent monitoring and review processes Level 4 (Certified) : Audit engagement by audit committee or auditors approved by the office of SEC, and receiving certification or assurance by independent external assurance providers (CAC etc.) Level 5 (Extended) : Extension of the anti corruption policy to business partners in the supply chain, and disclosure of any current investigations, prosecutions or closed cases Insufficient or not clearly defined policy Data not available / no policy DISCLAIMER This document is produced using open sources believed to be reliable. However, their accuracy and completeness cannot be guaranteed. The statements and opinions herein were formed after due and careful consideration for use as information for the purposes of investment. The opinions contained herein are subject to change without notice. This document is not, and should not be construed as, an offer or the solicitation of an offer to buy or sell any securities. The use of any information contained in this document shall be at the sole discretion and risk of the user. KT ZMICO RESEARCH RECOMMENDATION DEFINITIONS STOCK RECOMMENDATIONS BUY: Expecting positive total returns of 15% or more over the next 12 months OUTPERFORM: Expecting total returns between 10% to +15%; returns expected to exceed market returns over a six month period due to specific catalysts UNDERPERFORM: Expecting total returns between 10% to +15%; returns expected to be below market returns over a six month period due to specific catalysts SELL: Expecting negative total returns of 10% or more over the next 12 months SECTOR RECOMMENDATIONS OVERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to outperform the relevant primary market index by at least 10% over the next 12 months. NEUTRAL: The industry, as defined by the analyst's coverage universe, is expected to perform in line with the relevant primary market index over the next 12 months. UNDERWEIGHT: The industry, as defined by the analyst's coverage universe, is expected to underperform the relevant primary market index by 10% over the next 12 months. REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 22 of 22