Myanmar Thilawa SEZ Holdings (MTSH) - KTzRHMyanmar Thilawa SEZ Holdings Public Limited (MTSH) was...
Transcript of Myanmar Thilawa SEZ Holdings (MTSH) - KTzRHMyanmar Thilawa SEZ Holdings Public Limited (MTSH) was...
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Myanmar Thilawa SEZ Holdings (MTSH)
Non‐rated (16/17E TP Kyat 43,350) The Initial Listing Price Kyat40,500
Industrial Park Development May 19, 2016
The first SEZ in Myanmar with a high standard
Share data
Paid‐up Shares (shares) 3,892,915
No. of shareholders 16,720
Par (Kyat /US$) 10,000 / 8.54
Market cap (Kyat mn / US$ mn) 272,504 / 233
URL www.mtshmyanmar.com
Worarat Powpaka
Analyst, no. 17992
66 (0) 26246248
Investing in JVs that are the developers of first SEZ in MyanmarMyanmar Thilawa SEZ Holdings Public Limited (MTSH) invests 41% in a JV company, Myanmar Japan Thilawa Development Limited (MJTD), which is the developer of the Thilawa Special Economic Zone and invests 80% in Thilawa Property Development Limited (TPD), which is a JV company to develop the residential and commercial component of the Zone‐A project. Based on MTSH’s 2016/17E EPS forecast of Kyat3,940, we estimate its target price at Kyat43,350 based on 2016/17E PER of 11 (implying a 35% discount from the historical 2012‐15 PER of Asian Industrial Estate developers of 17X), given the company’s negative 2016/17E earnings growth of 15% YoY and soft growth of 4.7% in 2017/18E, compared with regional peers at average 2016‐17E earnings growth of 34.3% YoY and 27.6% YoY, respectively. Success with the first phase of Thilawa Zone‐A The Thilawa SEZ is being developed by Japan and the private and public sectors and is located on the outskirts of Yangon. It is the first Special Economic Zone (SEZ) to be built in Myanmar. The Thilawa SEZ Zone‐A was developed in three phases totaling 396 hectares. As of 12 Jan 2016, MTJD had signed reservations for 247.1 hectares or 76.5% of the total saleable area. Future Expansion Project: The Zone‐B development plan The Zone‐B project in is the expansion plan of MTSH. It includes the development of another industrial park in the Thilawa SEZ. The Zone‐B Project covers an area of about 500‐700 hectares. The Zone‐B Project development is planned to start by the end of 2016. FY2016/17E net profit to decline 15% YoY and to recover 4.7% YoY in FY2017/18E MTSH projects FY2016/17E net profit at Kyat15.3bn (‐15.0% YoY). This will mainly be from the reduction of MTSH’s revenue along with the decline of MTJD’s shared profit (‐30.0% YoY) on the reduction of land for sales of the Zone‐A project. Meanwhile, MTSH expects TPD revenue to rise 540.8% YoY as TPD will recognize revenue from projects on a percentage completion method. MTSH projects FY2017/18E net profit at Kyat16.1bn, improving 4.7% YoY. The earnings recovery is primarily from TPD’s performance, with MTSH expecting that TPD’s revenue will grow by 39.0% YoY; meanwhile, MTSH’s revenue is assumed to rise by 8.8% YoY with shared profit from MTJD to be reduced by 7.3% YoY as land sales have just started for the Zone‐B project. Upside risk/downside risk Myanmar’s economic liberalization may lead to more industrial parks being established in other strategic locations, which would result in high competition with the Thilawa SEZ in the future. Financials and Valuation
‐‐‐‐‐‐‐‐‐‐Prepared by MTSH‐‐‐‐‐‐‐‐‐‐‐FY Ended 31 Mar FY13/14 FY14/15 FY15/16E FY16/17E FY17/18ERevenues (Kyat mn) 0 1,992 8,852 40,749 56,167Net profit (Kyat mn) (464) 16,217 18,044 15,339 16,056 EPS (Kyat) (393.29) 4,165.67 4,635.08 3,940.20 4,124.38 EPS growth (%) n.a. n.a. 11.3 (15.0) 4.7 Dividend (Kyat) 0 0 2,000 0 0 BV (Kyat) 9,607 14,047 16,682 20,622 24,746 FY Ended 31 Mar FY13/14 FY14/15 FY15/16E FY16/17E FY17/18EPER (x) n.a. 16.8 15.1 17.8 17.0EV/EBITDA (x) n.a. 101.9 30.7 27.7 24.4PBV (x) 7.3 5.0 4.2 3.4 2.8Dividend yield (%) 0.0 0.0 2.9 0.0 0.0ROE (%) (8.2) 49.1 30.2 21.1 18.2Net gearing (%) Cash Cash n.a. n.a. n.a.
Company Report
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Investment Summary A holding company investing in JVs that are the developers of first SEZ in Myanmar Myanmar Thilawa SEZ Holdings Public Limited (MTSH) is a holding company. It was established by a Myanmar consortium comprising nine principal shareholders primarily (but not exclusively) for the purpose of participating in the Thilawa Special Economic Zone (Thilawa SEZ) Project. MTSH invests 41% in a joint venture company, Myanmar Japan Thilawa Development Limited (MJTD), which is the developer of the Thilawa Special Economic Zone and invests 80% in Thilawa Property Development Limited (TPD), which is a joint venture company between MTSH and Thilawa SEZ Management Committee Company Limited (TSMC), to develop the residential and commercial component of the Zone‐A project.
MTSH’s principal business activities are investment in MTJD, as well as marketing and sales of the Thilawa Zone‐A Properties, and also the development, construction, marketing, sales and operation of the residential and commercial component of the Zone‐A project via TPD. Hence, the company’s results are closely tied to the results of the operations of MTJD and TPD. To be specific, MTSH’s revenue is mainly derived from i) dividends distributed by MJTD and TPD from their respective real estate activities; (ii) any fees/commissions earned for the marketing and sale, lease and/or disposal of Zone‐A Properties; and (iii) the provision of management services to MJTD.
MTSH plans to invest in other property development projects in the Thilawa SEZ and in other areas in Myanmar, as may be allowed by its Memorandum and Articles of Association and Applicable Laws. The purpose is to expand its investment and ensure that the company will have recurring income for the long term.
MTSH went public in February 2014, with an offering size of 2.145mn shares, receiving Kyat21.45bn. Its share price rose from the IPO price of 10,000 Kyat to 15,000 Kyat after offering. The last over‐the‐counter closing price of MTSH on Feb‐16 was at Kyat70,000, implying 3.4X PBV and 17.8X PER based on the FY2016/17E earnings forecast. On 6 May 2016, the Yangon Stock Exchange (YSX) approved the Myanmar Thilawa SEZ Holdings Public Ltd. (MTSH) to be listed on the YSX on 20 May 2016. No shares will be allotted or issued in the listing; hence, there will be no change in the total number of issued and outstanding shares as a result of the listing. The listing shares total Kyat38,929,150,000 divided into 3,892,915 shares, with 45.0% or 1,755,900 shares held by the company’s principal shareholders and 55.0% or 2,137,015 shares held by public shareholders.
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Valuation Target price of Kyat43,350 based on 2016/17E PER of 11 Based on MTSH’s 2016/17E EPS forecast of Kyat3,940, we estimate its target price at Kyat43,350 based on 2016/17E PER of 11 (implying a 35% discount from the historical 2012‐15 PER of Asian Industrial Estate developers of 17X), given the company’s negative 2016/17E earnings growth of 15% YoY and soft growth of 4.7% in 2017/18E, compared with regional peers at average 2016‐17E earnings growth of 34.3% YoY and 27.6% YoY, respectively.
Figure 1: Peer comparison Ticker Mkt Cap PER (x) PBV (x) EV/EBITDA (x) YLD (%) ROE (%)
(US$Mn) 16E 17E 16E 17E 16E 17E 16E 17E 16E 17E
BEST IJ Equity 183 9.1 7.1 0.8 0.7 8.1 7.2 1.3 1.5 8.4 9.8
DMAS IJ Equity 772 11.3 11.1 1.4 1.2 10.1 9.7 2.7 2.7 13.5 11.6
LPCK IJ Equity 340 4.6 4.2 1.0 0.8 4.0 3.7 n.a. n.a. 23.1 21.0
KIJA IJ Equity 386 6.9 5.3 0.9 0.7 6.8 5.9 n.a. n.a. 14.0 14.8
SSIA IJ Equity 224 9.0 8.0 0.9 0.8 4.1 3.7 2.9 2.0 12.2 11.3
AVERAGE (Indonesia) 8.2 7.1 1.0 0.9 6.6 6.0 2.3 2.1 14.2 13.7
SCI SP Equity 3,625 9.4 8.8 0.8 0.7 11.0 10.5 3.9 4.1 8.6 8.4
AVERAGE (Singapore) 9.4 8.8 0.8 0.7 11.0 10.5 3.9 4.1 8.6 8.4
AMATA TB Equity 351 11.7 9.6 1.0 1.0 8.8 7.6 3.3 4.2 8.8 10.1
AMATAVN TB Equity 231 17.3 9.6 2.3 1.9 9.5 5.3 1.8 1.9 13.8 21.7
HEMRAJ TB Equity n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 18.4 26.0
ROJNA TB Equity 283 21.3 14.0 0.7 0.6 n.a. n.a. n.a. 3.3 n.a. 4.6
WHA TB EQUITY 1,271 12.3 10.8 2.0 1.8 18.7 18.2 2.4 2.6 19.8 18.3
AVERAGE (Thailand) 15.6 11.0 1.5 1.3 12.3 10.4 2.5 3.0 15.2 16.1
ITA VN Equity 169 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
IJC VN Equity 96 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
AVERAGE (Vietnam) n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
AVERAGE 11.3 8.8 1.2 1.0 9.0 8.0 2.6 2.8 14.0 14.3
Source: Bloomberg consensus
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Company Background Myanmar Thilawa SEZ Holdings Public Limited (MTSH) was incorporated on 3 May 2013 under the Myanmar Company Act as a public limited company. The company was established as a consortium of investors in the JV company to undertake the development of Zone‐A of Thilawa SEZ’s area. The principal shareholders are as follows:
First Myanmar Investment Company Limited Golden Land East Asia Development Limited Myanmar Agribusiness Public Corporation Limited Myanmar Agricultural & General Development Public Limited Myanmar Edible Oil Industrial Public Corporation Limited Myanmar Sugar Development Public Company Limited Myanmar Technologies and Investment Corporation Limited National Development Company Group Limited New City Development Public Company Limited
Principal Business
The company’s principal business activities are to: 1. Invest in and participate in the management of the JV company, which is engaged in the development, construction, marketing, sales and operation of the Zone‐A project.
2. Market and sell the Zone‐A properties jointly with the Japanese consortium members.
3. Engage in the development of the Thilawa SEZ (other than the Zone‐A area) or any part thereof as may be determined by the directors at their discretion and which may include the proposed Zone‐B Project.
4. Invest and participate in the management of TPD, which is engaged in the development, construction, marketing, sales and operation of the residential and commercial component of the Zone‐A project.
Figure 2: MTSH’s Structure
Source: MTSH’s disclosure document for listing dated 6th day of May‐16
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Figure 3: MTSH’s Board of Directors Figure 4: MTSH’s Executive Directors
U Win Aung
Chairman of The
Boards of Directors
U TheinWai
Vice Chairman
U KhinMaungAye
Vice Chairman
U TheinHan
Managing Director
U Tun Tun
Chief Financial Officer
U Thurane Aung
Project Director
Dr. Nyan Thit HlaingResidential & Commercial Zone Project Director
U Aye Win
Administration & Human Resource Director
U Myint Zaw
Sales & Marketing Director
Source: MTSH’S annual report 2014‐2015, KT ZMICO Research Source: MTSH’S annual report 2014‐2015, KT ZMICO Research
MTSH’s major investments 41% holding in Myanmar Japan Thilawa Development Limited (MJTD)
Myanmar Japan Thilawa Development Limited (MJTD) was established on 10 January 2014 for the purpose of the operating and development of the Thilawa Special Economic Zone‐ Zone‐A covering 396 hectares. MJTD is a Joint Venture company of MTSH, MMS Thilawa Development Company Limited (MMSTD), Thilawa Special Economic Zone Management Committee (TSMC) and Japan International Cooperation Agency (JICA). MMSTD was formed by a consortium of Japanese developers that include Marubeni Corporation, Mitsubishi Corporation and Sumitomo Corporation. Under the original MJTD Joint Venture Agreement, it is planned that MJTD will have initial issued and paid‐up share capital of US$50,000,000, with the Myanmar parties holding a 51.0% interest and the Japanese parties holding a 49.0% interest, in MJTD. The preliminary issued and paid‐up share capital was reduced to US$27,000,000 when the original MJTD Joint Venture Agreement was revised on 12 February 2015 because of the solid cash flow of MJTD led by the large number of pre‐booking and reservations made by future locators in the Zone‐A Project. MTSH is the major shareholder with 41% holding in MJTD. MTSH has entered into a joint venture agreement with the JV company to undertake the development, construction, marketing, sales and operation of the Zone‐A project. Based on the formation of the MJTD Joint Venture Agreement, MTSH will be required to subscribe for the MJTD shares amounting to US$11,070,000. Future Funding of MTJD In the case that the funding needs of MJTD exceed the initial capital of US$27,000,000 as mentioned above and the net cash flow from the sale, lease and/or other disposal of immovable properties located within the Zone‐A Project, MTSH, TSMC, MMSTD and JICA will discuss the need to subscribe for additional MJTD shares or look for an alternative funding source.
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Figure 5: MTSH & MJTD’s Share Structure
Source: MTSH’S annual report 2014‐2015, KT ZMICO Research
80% holding in Thilawa Property Development Limited (TPD) Thilawa Property Development Limited (TPD) is a joint venture company between MTSH and Thilawa SEZ Management Committee Company Limited (TSMC), which was established on 19 March 2015 with a preliminary issued and paid‐up share capital of Kyat1,000,000,000. TPD’s responsibilities are development, construction, marketing, lease and operation of the residential and commercial component of the Zone‐A Project. The investment license was obtained on 21 July 2015. TPD will carry out projects such as residential buildings, offices, shopping malls, banks and public facilities. The income of TPD will mainly come from the operations of the residential and commercial component, including rental and service fees. MTSH subscribed for additional TPD shares in the amount of Kyat23,000,000,000 on 24 February 2016. MTSH signed a TPD Joint Venture Agreement on 30 March 2016 stipulating that TSMC will subscribe for TPD shares in the amount of Kyat6,000,000,000, giving it a 20% interest in TPD. MTSH will hold the remaining 80% interest in TPD. The obligation of TSMC to subscribe for the TPD shares is conditioned upon securing all approvals from relevant governmental authorities for such subscription. As the subscription by TSMC of the TPD shares under the TPD Joint Venture Agreement is yet to be achieved, at this point MTSH continues holding 100% of the total issued and paid‐up share capital of TPD of Kyat24,000,000,000. However, upon accomplishment of the subscription under the TPD Joint Venture Agreement, MTSH will hold an 80% interest in TPD, with the remaining 20% interest subsequently held by the TSMC. Future Funding of TPD MTSH expects that almost half of any additional funding required for the total development costs of the residential and commercial component will be covered by the net cash flow from the sale, lease and/or other disposal of immovable properties located within the residential and commercial component. In case that the funding requirements of TPD’s development cost exceed the capital of TPD and the net cash flow from its operations, additional funding will be sourced from the capital contribution of shareholders or external financing (i.e., bank loans) or both.
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Dividend policy When MTSH pays dividends, if any, they will come out of profits as permitted under Myanmar law. Dividends will be paid in Kyat. MTSH’s Board has the judgment to advice dividend payment. As MTSH’s principal business is (excluding the marketing and sale of Zone‐A Properties) mainly invest in MJTD and TPD, the dividends receiving from MJTD and TPD will be a significant factor in determining MTSH’s potential to pay dividends. MTSH received an interim dividend of around Kyat7,173,687,000 from MJTD in December 2015. As at the Latest Practicable Date, MTSH has not received any dividends from TPD. Past Dividend During the annual general meeting on 18 December 2015, MTSH announced a dividend payment at the rate of 20% of par value per share or Kyat2,000 per share. The dividends were paid from the company’s unrestricted retained earnings to shareholders who were shareholders‐of‐record as of 23 November 2015. Share capital and Shareholders Myanmar Thilawa SEZ Holding Public Limited was incorporated in Myanmar on 3 May 2013. As of the Latest Practicable Date, the authorized capital of the company is Kyat 500,000,000,000 divided into 50,000,000 shares of 10,000 Kyat each. The total issued and paid‐up capital is Kyat38,929,150,000 divided into 3,892,915 shares, with 45.0% or 1,755,900 held by the principal shareholders and 55.0% or 2,137,015 shares held by public shareholders. Principal Shareholders’ shares The principal shareholders initially subscribed for a total of 1,179,000 shares or Kyat11,790,000,000. The principal shareholders then additionally subscribed for a total of 576,000 shares for a total amount of Kyat5,760,000,000. Hence, the principal shareholders’ total subscription is comprised of a total of 1,755,000 shares at the price of Kyat10,000 per share for a combined amount of Kyat17,550,000,000 Public Offering of Shares On March 2014, MTSH made the first new share offering to the public. The shares totaled 2,145,000 with an offering price of Kyat10,000 per share. After the close of the offering, the paid‐up capital was raised to 38,929,150,000 Kyat with total issued shares of 3,892,915 at Kyat10,000 each.
Figure 6: Pre‐PO shareholding Figure 7: Post‐PO (March‐14) shareholding
11.1%11.1%
11.1%
11.1%
11.1%11.1%
11.1%
11.1%
11.1%
Golden Land East Asia Development Ltd.
First Myanmar Investment Co., Ltd.
Myanmar Sugar Development Plc.
Myanmar Edible Oil Industrial Plc.
Myanmar Agricultural & General Development Plc.
National Development Company Group Ltd.
New City Development Public Company Ltd.
Myanmar Technologies and Investment Corporation Ltd.
Myanmar Agribusiness Plc.
11,790,000shares
5.0%5.0%5.0%5.0%
5.0%
5.0%
5.0%
5.0%
5.0% 54.9%
Golden Land East Asia Development Ltd.First Myanmar Investment Co., Ltd.Myanmar Sugar Development Plc.Myanmar Edible Oil Industrial Plc.Myanmar Agricultural & General Development Plc.National Development Company Group Ltd.New City Development Public Company Ltd.Myanmar Technologies and Investment Corporation Ltd.Myanmar Agribusiness Plc.
Public Shares
3,892,915 shares
Source: MTSH Prospectus 24 Feb 14, KT ZMICO Research
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Figure 8: Summary of public offering (PO) at 27 February 2014
Company Myanmar Thilawa SEZ Holding Public Limited (MTSH)
Par Value Kyat10,000 per share
Offering structure Public offering to Myanmar citizens and companies wholly‐owned by Myanmar citizens
Offering size 2,145,000 newly issued shares
Use of proceeds Business expansion and working capital
PO Price Kyat10,000 per offering share Listing venue Acquired 41% interest in the JV company, developed Thilawa SEZ Zone‐A, and working
capital purposes
Source: MTSH Prospectus 24 Feb 14, KT ZMICO Research
Listing in the Yangon Stock Exchange MTSH was listed on the Yangon Stock Exchange (YSX) on 20 May 2016. The listing shares totaled Kyat38,929,150,000 divided into 3,892,915 shares, with 45.0% or 1,755,900 shares held by the company’s principal shareholders and 55.0% or 2,137,015 shares held by the public shareholders. The purpose of the listing is to allow shareholders to sell and trade the shares at prevailing market value, which in turn will allow shareholders to truly realize the value of the shares. The listing will also ensure greater transparency and accountability of MTSH towards shareholders. The company did not issue any shares within six months before the date of the initial listing application; as such, no shares are subject to the prescribed lock‐up period under YSX securities listing business regulations.
Figure 9: Post Listing (20 May 2016) Shareholding
5.0%5.0%5.0%5.0%
5.0%
5.0%
5.0%
5.0%
5.0%1.4% 54.8%
Golden Land East AsiaDevelopment Ltd.First Myanmar Investment Co.,Ltd.Myanmar Sugar DevelopmentPlc.Myanmar Edible Oil IndustrialPlc.Myanmar Agricultural &General Development Plc.National DevelopmentCompany Group Ltd.New City Development PublicCompany Ltd.Myanmar Technologies andInvestment Corporation Ltd.Myanmar Agribusiness Plc.
Public Corporation Limited
Public Shares
3,892,915 shares
Source: MTSH’s disclosure document for listing dated 6th day of May‐16, KT ZMICO Research
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Figure 10: Summary of the Listing of MTSH on 20 May 2016
Company Myanmar Thilawa SEZ Holding Public Limited (MTSH)
Par Value Kyat10,000 per share The Listing 3,892,915 shares each with a par value of Kyat10,000, representing 100.0% of the issued
and outstanding shares of the company. No shares will be allotted or issued in the listing; hence, there will be no change in the total number of issued and outstanding shares as a result of the listing.
The Initial listing price Kyat40,500 per share Eligibility to Own and Purchase Shares
Only Myanmar citizens and companies wholly‐owned by Myanmar citizens are eligible to own the shares and the shares are currently held and may be sold and transferred only to Myanmar citizens or companies wholly‐owned by Myanmar citizens. As and when permitted by applicable laws in Myanmar, the shares may be transferred or otherwise disposed of, to foreign citizens or foreign companies.
Purpose of the Listing The listing will allow shareholders to sell and trade the shares at prevailing market value,which in turn will allow shareholders to truly realize the value of the shares. The listing will also ensure greater transparency and accountability of our company towards shareholders.
No Lock‐up Period The company did not issue any shares within six months before the date of the initial listing application; as such, no shares are subject to the prescribed lock‐up period under YSX securities listing business regulations.
Source: MTSH’s disclosure document for listing dated 6th day of May‐16
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Overview of Thilawa Special Economic Zone
Thilawa Special Economic Zone is the first Special Economic Zone (SEZ) in Myanmar and a vital project supported by the governments of Myanmar and Japan. The Myanmar government allocated 2,400 hectares of land in Thilawa as a Special Economic Zone area. Thilawa SEZ Zone‐A Phase 1 was finished and a grand opening ceremony was held on 23 September 2015. Zone‐A was developed in three phases, comprising 211 hectares in Phase 1, 150 hectares in Phase 2 and 35 hectares in the residential and commercial zone, totaling 396 hectares. Phase 1 was initiated on 30 November 2013 and the development projects are proceeding accordingly. After the success of Thilawa SEZ Zone‐A development and near lease‐out of industrial land in Zone‐A, MJTD’s shareholders agreed to sign an MOU on 23 September 2015 during the Zone‐A opening ceremony to develop Thilawa SEZ Zone‐B with an additional 500‐700 hectares. Thilawa SEZ Zone‐B development is in the process of doing land selection and an Environmental Impact Assessment study, with the design having been carried out. It is planned to be completed by mid‐2016.
Figure 11: Grand Opening Ceremony on 23 September 2015 Figure 12: Grand Opening Ceremony of Thilawa SEZ Zone‐A
Source: MTSH Source: MTSH
The Zone‐A development plan The Zone‐A project in Thilawa is being developed in three businesses areas: Industrial Areas: develop an industrial park that aims to lease land to investors on a
long‐term basis; the investors will construct their own factories and facilities. Rental factories: construct ready‐built factories that will be leased to investors and
short‐term leases for rental paid on a monthly or other periodic basis. Property development: develop residential and commercial projects for investors and
workers in the zone, which will be developed by MSTH’s subsidiary, TPD.
Figure 13: The Zone‐A development plan
Source: MTSH’s disclosure document for listing dated 6th day of May‐16
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The Zone‐A Project has a total development area of 396 hectares and total saleable area of 319 hectares. The development area is divided into separate phases.
Figure 14: The Zone‐A Development Phases
Phase 1 Phase 2 Residential and Commercial Component
Total
Development Area (hectares) 211 150 35 396 Saleable Area (hectares) 169 122 35 326 Rental Factory Area (hectares) 0 5 0 5
Source: MTSH’s disclosure document for listing dated 6th day of May‐16
The saleable area represents industrial land and rental factories that will be leased to investors. As of the latest practicable date, 247.1 hectares or 76.5% of the total saleable area had been leased out. The development area is land that includes common areas that will be developed into public infrastructure, public utilities and other common facilities. The development area is not being leased to investors. The Zone‐A Project also includes the residential and commercial component that makes up around 35 hectares of land. Timing of development The construction of Phase 1 was formally launched on 30 November 2013 and completed on August 2015 (except for the rental factories that are to be constructed over 10 years from 2015). The construction period and sales period for Phase 2 and the residential and commercial component set out below are indicative in nature and are subject to change and may, in particular, vary depending on actual sales during the sales period and the availability of infrastructure and utilities.
Figure 15: Timing of Development
Construction Period Sales Period Completion Period
Phase 1 Dec‐13 to Aug‐15 2014‐16 Aug‐15
Phase 2 Oct‐2014 to 2016 2016‐18 Jul‐16 Residential and Commercial Component 2015‐2020 2015‐2020 Apr‐2020
Source: MTSH’s disclosure document for listing dated 6th day of May‐16
Infrastructure and Facilities of Zone‐A Project Water Supply System The water source for Thilawa SEZ Zone‐A is from Zarmani Reservoir, which is near Thilawa SEZ, and it will be treated at a water purification plant. A total of 6,000m3/day is provided from the water purification plant and this amount will be expanded in the future. Sewage Treatment System The total capacity of the sewage treatment plant is 4,800m3/day and it will be expanded in the future. Power Supply System Power supply is a loop distribution system in 33 kV from Thanylin substation. A 50 megawatt power plant will be built by the Myanmar government. Sumitomo has won a 5 billion yen (about US$41.4 million) contract for two thermal power generation facilities awarded by the Myanmar government. Two thermal plants will be constructed on a site next to the Thilawa SEZ, and they will be fully operational by July 2016. Telecommunications The Thilawa SEZ is planning to have an optical fiber cable network in the zone.
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Solid Waste Treatment Facility This facility is operated by a Japanese company. The other development works for the Thilawa SEZ are underway and which are being manage by the Myanmar government with subsequent permits from the Official Development Assistance fund of the Japanese Government include:
construction of a 50 megawatt power plant and gas pipeline road expansion works from the Thanlyin Bridge to the Thilawa SEZ sea port construction expansion of the water supply system construction of an optical fiber cable network
Figure 16: Water Supply System Figure 17: Sewage Treatment System
Source: MJTD Source: MJTD
Figure 18: Power Supply System Figure 19: Solid Waste Treatment Facility
Source: MJTD Source: MJTD
Land use plan & lease period The land area used for Zone‐A is 396 hectares, including 35 hectares of residential commercial area. The area of Phase 1 is 211 hectares. The area of Phase 2 is 150 hectares. The lease period is from 2014 until 2064 and it might be extended by an additional 25 years.
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Figure 20: Layout and land use plan of Thilawa Zone‐A (396 hectares/978.12 Acre)
Source: MTSH
Tax incentives There are many tax exemptions available to investors in the Thilawa SEZ. Based on the 2014 Myanmar Special Economic Zone Law, businesses in both the Free Zone and Promotion Zone receive income tax exemptions for the first seven or five years, respectively. After these periods, the exemption remains at 50% for another five years. Following this, it is still possible for an extension of the 50% tax exemptions. In addition, investors in the Thilawa SEZ are exempted from customs duty and other taxes for the capital goods they import. Free Zone investors are exempted from customs duty and commercial tax even for imports of raw materials. These exemptions allow firms to keep both their administrative and construction costs low. There are other advantages for investors in Thilawa, including the ability to lease the land for up to 75 years (50 years with an option for a 25‐year extension), tax deductions for the training of staff or research and development, and exemptions from commercial taxes as well. These have all been put in place to make Thilawa a place where it is convenient for investors to do business and make as much profit as possible.
Figure 21: Tax Incentives
Thilawa Special Economic Zone Free Zone Promotion Zone
Income Tax Tax Exemption 7 years 5 years
50% relief (the following years) 5 years 5 years
Customs Duty Construction Material Free‐Tax First 5 years Free+ following five years
Raw Material Free‐Tax Will be refunded on exported portion
Land Lease Any scale investment 50 years + 25 years = 75 years
Source: MTSH
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Investment Policy in Thilawa
According to the Thilawa SEZ management Committee, the investment policies in Thilawa are different between Zone‐A and Zone‐B. The investors that plan to locate in the Zone A are considered based on factors that mainly include (1) number of employees (2) investment value (3) level of exports (4) whether or not the technology is new to Myanmar (5) whether or not the investor is a reputable and transparent entity (6) investment per hectare (7) number of employee per hectare (8) level of water consumption and (9) level of electricity consumption. The quantitative measurement system assures that each investor gets an adequate level of weighted average points (that are calculated based on given priority factors) in the granting of investment licenses.
Therefore, investors were approved for licenses in Zone‐A in a short time. The investors vary from export‐oriented investors and domestic market oriented investors, to manufacturers and traders, as they contribute more to the development of technology and products to Myanmar. They are also substitutes for imports and services that could facilitate investment and are favorable to existing and future investors.
For Zone‐B, the investment policy of the Thilawa Management Committee for the first phase of Zone‐B is to give priority to labor‐intensive industries and/or export‐oriented industries and industries that are linked to firms outside the SEZ.
Industrial Estate: Selling progress in Thilawa SEZ Zone‐A The Thilawa Special Economic Zone has a total of 2,400 hectares located 23 kilometers southeast of Yangon City. According to MTSH’s disclosure document for listing dated 6th May‐16, as of 12 Jan 2016, MTJD had signed reservations with 56 companies for 247.1 hectares of the saleable area of the Zone‐A Project or 76.5% of the total saleable area. Out of the 56 companies (from Japan 25, Taiwan 5, Thailand 4, Myanmar 3, Malaysia 3, Vietnam 2, USA 1, China 1, France 1, Sweden 1, Singapore 1, Korea 1, Hong Kong 1, Myanmar+Japan 4, Myanmar+Thailand 3, and Myanmar+Australia 1 ), the Thilawa Special Economic Zone Management Committee (TSMC) has granted investment permits to 48 companies; among the 48 companies with investment permits, 43 have already signed land sub‐lease agreements with MJTD. There are 18 companies that have begun construction of their factories. The main investment sectors in Thilawa are in manufacturing business, which is attractive due to low labor costs and incentive schemes. The list of industries interested in investing in Thilawa include basic garments, steel and electronic products. The Zone‐A Project has generated job opportunities for around 2,221 people. The company expects that by 2018 there will be at least 40,000 job opportunities in the Zone‐A Project.
Figure22: Proportion of companies in Thilawa by origin (Jan‐ 1,16) Figure 23: Status of customers in Thilawa
Japan 43%
Thailand 6%
Malaysia 4%
Others12%
Singapore20%
Hong Kong8%
Myanmar6%
Signed for the Reservation Agreement
56
Awarded the Investment Permit
48
Signed the Land Sub‐Lease Agreement with MJTD
43
In progress of the factory construction
18
started the commercial operation
6
Source: Thilawa SEZ Management Committee Source: MTSH’s disclosure document for listing dated 6th day of May‐16
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Figure 24: Investment in Thilawa by type of activity (Jan 1,16) Figure 25: Investment in Thilawa by business type (Jan 1,16)
Service 22%
Manufacturing73%
Manufacturing and service
4%
Logistic10%
Others16%
Export oriented39%
Constructionsupport16%
Importsubstitution
18%
Source: Thilawa SEZ Management Committee Source: Thilawa SEZ Management Committee
Property development: Residential and Commercial Zone in Thilawa SEZ TPD has acquired 35 hectares of prime land along Thilawa Development Road situated between the main access corridor to Thilawa SEZ and Thilawa Reservoir, making it a prime location for urban development. The construction started on 26 April 2014 and land grading has been completed for the entire 35 hectares. TPD plans to create an ultimate and comfortable living community in the Thilawa SEZ that includes houses, condominiums, service apartments, workers’ accommodation, multipurpose halls, shopping malls, office buildings, a police and fire station, banks, gas stations, clinics, hotels, a neighborhood center, restaurants and a school. TPD intends to develop these projects on its own or with other investors.
Figure 26: Residential and Commercial Zone
Source: MTSH
TPD is prioritizing construction of the workers’ dormitory that will provide workers in the Thilawa SEZ comfortable living accommodations and easy access to the factories in the Thilawa SEZ. TPD is also starting construction of shop houses, office buildings and a shopping mall to make way for commercial development within the Thilawa SEZ. This will bring relocation of workforce and create demand for residential development, for which plans have already been made. TPD has called open and international standard bidding for the project development of the residential and commercial component. The projects were awarded as follows:
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Figure 27: TPD’s Projects Awarded
Project Tender Date Announcement AwardeesWorkers Accommodation 3 November 2014 Super Home Co. Ltd.,
Myint Myat Thu Co. Ltd., Dagon Construction Co. Ltd.
Road, Platform and drain 29 March 2015 Zaw Htet Paing Co. Ltd. Myint Myat Thu Co. Ltd.,
Sewage Treatment Plant 21 July 2015 Tesco Myanmar Co Ltd.
Source: MTSH’s disclosure document for listing dated 6th day of May‐16
Figure 28: Workers’ Accommodations
Source: MTSH
Figure 29: Service Apartments
Source: MTSH
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Figure 30: Shop Houses and Hotels
Source: MTSH
Future Expansion Project: The Zone‐B development plan The Zone‐B Project is an expansion plan of MTSH. It includes the development of another industrial park in the Thilawa SEZ. The Zone‐B Project covers an area of about 500‐700 hectares. The Zone‐B Project development is planned to start by the end of 2016. The development of the Zone‐B Project is still in its planning stages and there is no guarantee that MTSH’s future expansion plans, including the Zone B‐Project, will commence.
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Competitive Strengths
Strategic location of the Thilawa SEZ The Thilawa SEZ, in which the Zone‐A Project is located, is about 25 kilometers from Yangon and the Yangon port. This is Myanmar’s commercial and industrial center and handles a large proportion of Myanmar’s foreign trade. The Thilawa SEZ has essential infrastructure and international logistic centers, which facilitate investors doing business with respect to both domestic and international logistics arrangements, imports and exports. The Thilawa SEZ is surrounded by a ring road with access to container ports, i.e., the Thilawa port, along the Yangon River. There are two ways to access to Thilawa SEZ from Yangon city, which are the road passing over Thanlyin Bridge and the road passing over Dagon Bridge. The Thilawa port, one of the main deep sea ports, is next to the Thilawa SEZ. Therefore, it helps shorten transportation time of cargo for exports and imports. In addition, the airport is around 30 kilometers away from the Thilawa SEZ; this makes it convenient for investors traveling frequently and also for the transportation of air cargo.
Figure 31: Map of Thilawa Special Economic Zone (SEZ) and Zone‐A Area
Source: MJTD
Figure 32: Distance from central area From km/mile Time
Distance from Yangon International Airport Approximately 30km/25 miles 1hr
Distance from Centre of Yangon Approximately 25km/15.5 miles 45 min
Distance from Thilawa Port Approximately 4.6km/2.9 miles 5 min
Source: MJTD
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The Thilawa SEZ is just one of the special economic zones in Myanmar, with the development of the Kyauk Phyu Special Economic Zone and the Dawei Special Economic Zones being two other major projects which Myanmar is developing. Moreover, there are other industrial zones that are being developed in Yangon. Hence, these two special economic zones and the industrial zones in Yangon will also be possible targets for foreign investment in Myanmar and a thought in investors’ choice of where to locate their operations in Myanmar. However, of the three special economic zones, the Thilawa SEZ is the only special economic zone in Yangon and the other two special economic zones are geographically remote from the Thilawa SEZ and do not pose as a direct threat to the Thilawa SEZ. For the residential and commercial component, its potential competitors are other residential and commercial developments in the Thilawa area such as the Star City Project located 20 kilometres away with an area of 465 acres and over 9,000 planned residential units. Abundant and inexpensive labor Situated in the Yangon metropolitan area, the Thilawa SEZ has advantages such as an abundant labor force and excellent market access. Moreover, the government of Myanmar has indicated its intention to prioritize fast‐track development there. There are a lot of working‐age people in Myanmar, especially people under 24 years old, which make up 44% of the total working‐age population. The monthly labor wage in Myanmar is around US$83, almost half of Vietnam and below the rate in Laos and Cambodia by 29% and 50%, respectively. Figure 33: Population around Thilawa SEZ
Source: MTJD
Support of the Myanmar and Japanese governments The development of the Thilawa SEZ is supported by a consortium between the Myanmar government and the Japanese government. The Myanmar government hopes the Zone, which is the first international standard SEZ in Myanmar, can grow quickly and boost the country’s economy.
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Strong support from consortium of developers The Myanmar consortium members comprise the promoters, which are public companies that have substantial experience conducting business in Myanmar and know the operating atmosphere. The Japanese consortium members of Mitsubishi Corporation, Marubeni Corporation and Sumitomo Corporation are some of the biggest conglomerates in Japan with global business interests in various sectors. They will bring technical expertise, knowhow and international best practices to the joint venture of Thilawa Zone‐A development and the forthcoming Zone‐B Project. Poised to be a manufacturing base Myanmar’s manufacturing sector has attracted investment by foreign firms seeking cheap production cost of products made with low‐skill labor, such as garments for export sales. The figures at the end of March 2016 of DICA showed that the foreign investment amount in manufacturing ranked third behind the oil and gas and power sectors. The accumulated investment amount of manufacturing increased from US$1.6bn in 2002/03 to US$6.6bn in March 2016. With continuing strong economic growth and foreign investment, the manufacturing industry in Myanmar is poised to expand. This will benefit Thilawa SEZ, with the primary demand for factory space in this SEZ being medium and light industries such as automotive, auto parts, electrical and electronic products, as well as some labor‐intensive industries like garments, footwear, gloves and others.
Figure 34: Myanmar Accumulated Approval Amount by Sector as at March 2016 ($ mn)
Figure 35: Myanmar Accumulated Approved Amount of Foreign Investment in Manufacturing Sector
0 5,000 10,000 15,000 20,000 25,000
Oil and Gas
Power
Manufacturing
Transport & Communication
Mining
Real Estate
Hotel and Tourism
Others
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000 $ mn
Source: DICA, data for 2015/16 for Mar‐16 only Source: DICA, data for 2015/16 for Mar‐16 only
High‐quality Infrastructure The Thilawa SEZ has infrastructure and facilities that significantly magnify its attractiveness as an industrial park for manufacturing activities when compared to other industrial zones and special economic zones and also increase the opportunity of the success of the Zone‐A Project, the residential and commercial component and the future Zone‐B Project. Efficient One Stop Service Applications for government permits and approvals in the Thilawa SEZ (ranging from investment permits, company registrations, import/export declarations, tax registration, multiple‐entry visas, stay permits, etc.) can all be made through the Thilawa One Stop Service Center. Investors are not required to go to any other government organization or ministry. Any approvals, permits and services required by any investor can be acquired from the One Stop Service Center. The Thilawa SEZ’s One Stop Service Center reduces lengthy procedures for applications for government permits and approvals, enhancing its attractiveness to investors and increasing the chances of the success of the Zone‐A Project, the residential and commercial component and the future Zone‐B Project.
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Potential for Expansion and Growth MTSH’s prepares real estate development projects under its subsidiary namely, TPD, which is the residential and commercial component of the Zone‐A project and the future development of the Zone‐B Project. MTSH projects that the real estate development projects will generate significant revenues, guaranteeing the company’s growth in the medium term. Earnings Performance Revenue mainly relies on the results of the operation of MTJD and TPD
As MTSH’s principal business activities rely on profit sharing of investment in the JV company MTJD (41% holding) and the subsidiary TPD (100% hold) and revenue from the marketing and sale of Thilawa Zone‐A properties. Hence, the company’s results are closely tied to the results of the operations of MTJD and TPD.
To be specific, the revenue of MTSH will primarily be derived from:
(i) dividends distributed by MJTD and TPD from their respective real estate activities; (ii) any fees/commissions earned for the marketing and sale, lease and/or disposal of Zone‐A
properties; and
(iii) the provision of management services to MJTD. The structure of income of the MTJD is divided into three parts, which are land sales, rental factory income and management fees.
FY2013/14 booked a net loss because it just started operations and is under development MTSH was incorporated on May 3, 2013. It started operations with a net loss of Kyat464mn in FY2013/14 as it was in the process of developing the Thilawa Zone‐A. Therefore, there was no revenue while the company had to book expenses of Kyat464mn and realize a shared loss of Kyat111mn from MTJD.
FY2014/15 earnings grew after start of operations in 2013 MTSH’s FY2014/15 net profit was Kyat16.2bn, which improved significantly from a net loss in FY2013/14. This resulted from the firm starting to realize revenue from i) net management fees amounting to Kyat826mn and ii) net sales commission fees from marketing and selling the Thilawa Zone‐A amounting to Kyat1.17bn. The firm also received interest income of Kyat1.9bn. Share of profit from MJTD was Kyat14.35bn, which was enhanced from the beginning operation year with a net shared loss of Kyat111mn. The enhancement was due to the completion of the Zone‐A Project and the rental income received by MJTD from the Zone‐A Properties. MTSH realized income tax expenses amounting to Kyat644.5mn compared to zero income tax expenses in FY2013/14, when there was a net loss. MTSH’s FY2015/16E‐FY2017/18E financial projections Due to insufficiency with respect to data for our own financial forecasts, the earnings prospects in this section are based on MTSH’s FY2015/16E, FY2016‐17E and FY 2017/18E financial projections disclosed in the document for listing dated the 6th of May‐16.
FY2015/16E earnings projection MTSH expects FY2015/16E net profit at Kyat18bn, increasing 11.3% from FY2014/15. This will mainly be from higher total revenue to Kyat14.57bn from Kyat3.96bn in FY2014/15 or increasing 344.5% YoY. The source of revenue will be derived from MTSH’s net management fees and sales commission fees from marketing and selling the Thilawa Zone‐A of around Kyat2.7bn (+37.9% YoY) and revenue from TPD for the year at Kyat6.1bn. Meanwhile, the share of profit from MTJD will fall 18.1% YoY to Kyat11.7bn, mainly from higher costs and expenses.
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FY2016/17E and FY2017/18E earnings projections MTSH projects FY2016/17E net profit at Kyat15.3bn, which will decline 15.0% YoY. This will mainly be from the reduction of MTSH’s sales commission and management fees along with the decrease of shared profit from MTJD to Kyat8.2bn (‐30.0% YoY) on the deterioration of land available for sales in the Zone‐A project. Meanwhile, the company expects TPD revenue at Kyat39.1bn (+540.8% YoY) as TPD will recognize revenue from projects on a percentage completion method. The company’s average gross margin will be 29.1% and the SG&A‐to‐revenue ratio will be 4.8%. MTSH projects FY2017/18E net profit at Kyat16.1bn, improving 4.7% YoY. The performance will recover primarily from TPD’s earnings, with the company expecting that TPD’s revenue will grow by 39.0% YoY; meanwhile, MTSH’s revenue is assumed to increase by 8.8% YoY or Kyat1.76bn and shared profit from MTJD will be Kyat7.6bn (‐7.3% YoY) as land sales just started for the Zone‐B project. The company’s average gross margin will be 24.3% and the SG&A‐to‐revenue ratio will be 3.7%. The above 2016/17E‐2017/18E forecasts are based on MTSH’s assumptions as follows:
Revenue from MTSH
• MTSH expects FY2016/17E commission management fees amounting to Kyat1.6bn (‐41.0% YoY). The total sales commissions will be derived from the sublease contracts for the remaining saleable area of 60 hectares in the Zone‐A Project. Meanwhile, MTSH expects FY2017/18E at Kyat1.7bn (+8.8% YoY), which will be derived from the value of the sublease contracts for 60 hectares in Phase 1 of the Zone‐B Project, which is calculated at a 7.0% incremental sales price per square meter.
• Annual management fees of US$656,000 (approximately Kyat767mn) are projected based on the assumption that these will be recurring and fixed for two years according to the MJTD Joint Venture Agreement and the Management Agreement.
Revenue from TPD
• Revenue for TPD for FY2016/17E is projected based on the project schedule, which assumes that the land leases for the 3‐4 star hotel, gas station, mini‐market, restaurants and clinic will be concluded. The infrastructure relating to the lease of land will be completed at the end of 2016 and TPD has potential clients inquiring about leasing the land. Sales of shop houses will also be 100% sold during the FY2016/17E. The workers’ accommodations, lake view condos, south condos, the shopping mall and office and serviced apartments will be partly completed in the Zone‐A Project according to the project schedule and the revenue from these will be recognized on a percentage completion method.
• Revenue for TPD for FY2017/18E is projected based on the assumption that the land leases of duplexes, villas, apartments, the school and neighborhood center will be 100% completed; the workers’ accommodation, lake view condos, south condos, shopping mall and office and serviced apartments will be partly completed in the Zone‐A Project; and the logistics and residential and commercial area in Phase 1 of the Zone‐B Project will be partially completed according to the project schedule. MTSH assumes that the monthly income from rent of the workers’ accommodation will come from three buildings in FY2016/17E and FY2017/18E.
• Revenue and expenses/costs (land cost + infrastructure cost + construction cost) are recognized according to the percentage completion method.
• Share of profit from MTJD in FY2016/17E and FY2017/18E will be Kyat8.2bn and Kyat7.6bn, decreasing 30.0% YoY and 7.3% YoY, respectively.
• Administrative and overhead expenses for FY2016/17E and FY2017/18E will increase 5% every year.
• Marketing expenses for FY2016/17E and FY2017/18E are projected assuming one‐third of the sales commission revenue is used for marketing.
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• It is assumed that there is no financing and financing cost.
• It is assumed that there will be no income taxes in FY2016/17E and FY2017/18E for MTSH as it is forecasted that there will be net losses as per the projected profit and loss statement; moreover, it is assumed that there will be no income tax obligation for TPD due to its tax privileges under the SEZ Law 2014.
• The financial results and position of TPD are consolidated into MTSH based on the assumption that the implementation of the TPD Joint Venture Agreement with TSMC executed on 30 March 2016 will result in MTSH holding an 80.0% share in TPD at any time during FY2016/17E to FY2017/18E.
• No dividend will be paid out to the shareholders of MTSH during FY2016/17E‐2017/18E.
Figure 36: Consolidated revenue segments Figure 37: Consolidated revenue proportion
‐500
9,500
19,500
29,500
39,500
49,500
59,500
2013/14 2014/15 2015/16E 2016/17E 2017/18E
Kyat mn
MTSH‐Net sales commission&management fees Revenue from TPD
Other income Total revenue
Share of profit/ (loss) of joint venture
0
10,000
20,000
30,000
40,000
50,000
60,000
2013/14 2014/15 2015/16E 2016/17E 2017/18E
MTSH‐Net sales commission&management fees Revenue from TPD Other income
Kyat mn
Source: : MTSH’s disclosure document for listing dated 6th day of May‐16 Source: : MTSH’s disclosure document for listing dated 6th day of May‐16
Figure 38: MTSH’s earnings forecast exclude TPD & MTJD Figure 39: TPD’s earnings forecast
‐500
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
2013/14 2014/15 2015/16E 2016/17E 2017/18E
Kyat mn
‐500
1,500
3,500
5,500
7,500
9,500
11,500
13,500
2013/14 2014/15 2015/16E 2016/17E 2017/18E
Kyat mn
Source: MTSH’s disclosure document for listing dated 6th day of May‐16 Source: MTSH’s disclosure document for listing dated 6th day of May‐16
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Figure 40: Share of profit (loss) of joint venture (MTJD) Figure 41: Consolidated earnings forecast by MTSH
‐111
14,347
11,746
8,217 7,617
‐500
1,500
3,500
5,500
7,500
9,500
11,500
13,500
15,500
2013/14 2014/15 2015/16E 2016/17E 2017/18E
Kyat mn
‐464
16,217
18,044
15,339 16,056
‐1,000
1,000
3,000
5,000
7,000
9,000
11,000
13,000
15,000
17,000
19,000
2013/14 2014/15 2015/16E 2016/17E 2017/18E
Kyat mn
Source: MTSH’s disclosure document for listing dated 6th day of May‐16 Source: MTSH’s disclosure document for listing dated 6th day of May‐16
Financial Position Balance sheet strong with net cash MTSH’s balance sheet at the end of March 31, 2015 was strong with net cash. It is a debt‐free company as the firm raised funds via public offering of 21.45bn Kyat in February 2014. MTSH received an interim dividend of about Kyat7.17bn from MJTD in December 2015, leaving the company with positive cash flow of Kyat21.47bn after receiving all dividends. MTSH expects to receive dividends from MJTD in FY2016/17E of around Kyat7.17bn, which is the same amount that was received during FY2015/16. However, for FY2017/18E, MTSH expects that they may not be able to receive dividends from MJTD because MJTD is preparing to reinvest profits into the prospective Zone‐B Project. MTSH projects that the company will have a cash deficit of Kyat23.3bn in FY2017/18E. This is because TPD needs funds for the residential and commercial component’s development. The cash deficit will be funded by either capital contributions or bank loans or both, subject to further discussion and resolution by the board of directors of the company, considering the cost of capital and the most efficient use. Figure 42: Assets & Liabilities Figure 43: MTSH’s Budget Consolidated Statement of Cash Flows
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
2013/14 2014/15
Total shareholders' equity
Total Liabilities
Total current Liabilities
Total assets
Total current assets
Kyat mn
2015/16E 2016/17E 2017/18E
Cash Inflows 28,566 47,923 56,167
Cash outfows (20,123) (36,026) (112,786)
Net cash flows 8,444 11,896 (56,619)
Ending cash flows 21,456 33,353 (23,266)
(120,000)
(100,000)
(80,000)
(60,000)
(40,000)
(20,000)
‐
20,000
40,000
60,000 Kyat mn
Source: MTSH Source: MTSH’s disclosure document for listing dated 6th day of May‐16
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Myanmar’s Economics Myanmar’s Economics Myanmar is a member of the ASEAN Economic Community (AEC), which will commence at the end of 2015. The AEC aims to establish a regional collaboration and boost trade. This will provide Myanmar with the opportunity to set itself up as a vital hub and production base between neighboring countries. According to IMF data, Myanmar’s real GDP was revised upward to 8.4% and 8.7% from the prior figures of 7.8% and 8.5% in 2013‐14, respectively. Acceleration in growth was made possible by increased capital spending and better performances in manufacturing, construction, tourism, and natural gas production in particular. The wide range of reforms, such as political, economic, financial and social, over the last three years have liberalized Myanmar’s economy and enabled foreign investors to access the Myanmar market. The Special Economic Zones Law of 2014 provides more incentives for foreign investors and tax reform has considerably reduced profit taxes. As a result of the process of reform, Myanmar’s GDP growth increased to 7.5% in 2013 (ADB) and is forecast to exceed 8% by 2015. FDI has increased in the last few years The chairman of the Myanmar Industries Association expects that foreign investment will surge as the newly elected government builds up the country’s competitiveness. The labor‐intensive industries such as garments and footwear and resource‐based industries like agriculture and food processing will attract most of the inflow of foreign investment in the next few years. According to the Myanmar Investment Commission, foreign direct investment (FDI) is set to almost double in fiscal year (2014/15), ending March 31, 2015, to US$8.0bn and also continue to increase 18% to Bt9.5bn in fiscal year (2015/16), ending March 31, 2016. Among the foreign players coming to the country in FY2015/16 were companies from Singapore, China, and the Netherlands. Over the past 25 years, Myanmar’s economy has relied on neighboring countries, especially the three largest investors, i.e., China, Singapore, and Thailand, which accounted for US$41.6bn, or 65% of the total FDI approved amount as of the end of March 2016. In addition, Myanmar had FDI value of about US$48.7bn, mainly in the oil and gas, power, and manufacturing sectors, totaling 76% of the FDI approved amount.
Figure 44: Myanmar’s Yearly Approved Amount of Foreign Investment by Sectors
Figure 45: Myanmar’s Yearly Approved Amount of Foreign Investment by Countries
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16
Other Service
Industrial Estate
Real Estate
Hotel and Tourism
Transport & Communication
Construction
Oil and Gas
Power
Manufacturing
Mining
Livestock & Fisheries
Agriculture
$mn
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16
Others
U.K.
R.O.K
Japan
India
Hong Kong
Thailand
Malaysia
The Netherlands
China
Singapore
$mn
Source: DICA, data for 2015/16 for Mar‐16 only Source: DICA, data for 2015/16 for Mar‐16 only
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Figure 46: Cumulative FDI into Myanmar from 1989‐2015/16 by Sector ($mn)
Figure 47: Cumulative FDI into Myanmar from 1989‐2015/16 by Country ($mn)
0 5,000 10,000 15,000 20,000 25,000
Oil and Gas
Power
Manufacturing
Transport & Communication
Mining
Real Estate
Hotel and Tourism
Others
18,072 13,066
10,500 7,351
4,075 3,489
1,911 990 733 693 632 542 255 248
1,161
ChinaSingaporeThailand
Hong KongU.K.
R.O.KMalaysia
The NetherlandsIndia
VietnamJapanFrance
IndonesiaU.S.A.Others
Source: DICA, data for 2015/16 for Mar‐16 only Source: DICA, data for 2015/16 for Mar‐16 only
Investment liberalization The new Foreign Investment Law (FIL) was implemented in 2012 to attract investment in manufacturing, real estate, and communications via industrial zones and SEZ developments. In December 2015, the Union Parliament approved new foreign investment laws, combining the 2012 Foreign Investment Law and 2013 Myanmar Citizens Investment Law. The main amendments to the law allow for more state and regional involvement in investment, tax incentives by zoning and some nominal human rights protections to future foreign investment projects. The new law will be more investor friendly, and it will also guarantee foreign investment protection. New performance‐based tax incentives will be introduced and zoning will be implemented, giving more incentives to projects in rural areas. U Aung Naing Oo, Director General of Directorate of Investment and Company Administration (DICA), expects that the revised Investment Law will be finished during the first part of 2016. The foreign and domestic investment laws will be merged in line with recommendations from the OECD. A favorable demographic profile for growth Labor‐intensive manufacturers are interested in moving to operate in Myanmar, which has an abundance of labor and lower wages when compared to neighboring countries like Thailand and China. Therefore, Myanmar should benefit from the relocation of manufacturers in search of lower labor costs. According to the latest World Development data, Myanmar’s labor force totals around 31 million people. The share of the working‐age population (15–64) is about 70% of the total, the fifth highest among ASEAN’s 10 member countries. Furthermore, about 40% of the working‐age population is between 15 and 29, and women account for almost half of the labor force. According to a survey by the Japan External Trade Organization, wages in Myanmar are the lowest in the region. However, Myanmar’s labor force is generally low‐skilled and it is challenging for employers to find skilled workers. Hence, labor productivity needs to be improved, which will in turn help attract labor‐intensive manufacturing. The government of Myanmar has established a national minimum wage for the first time, starting on September 1, 2015. Workers are to be paid at least 3,600 kyat (US$2.80 at current exchange rates) for a standard eight‐hour day.
The new wage standards set Myanmar’s minimum monthly pay at around US$83 a month. However, the rate is still competitive when compared to the monthly minimum wage in Laos, Vietnam and Cambodia, where the monthly minimum wage ranges from US$107 to US$136, according to the National Wages and Productivity Commission in the Philippines.
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Figure 48: Comparative Wages in Selected Countries ($, Nov‐15) Figure 49: Wage Comparison among Japanese Companies across Asia
83 107
124 136
194 213
252
284
Source: The National Wages and Productivity Commission (NWPC) Source: ADB, Japan External Trade Organization
Figure 50: Population by age in Myanmar Figure 51: Myanmar Labor Force Compared with Selected Asian Countries
Source: World Bank Source: ADB (Myanmar, Unlocking the potential)
Strategic location Myanmar is strategically located at the heart of Asia. The country borders China in the east, India in the west, and Thailand and Laos in the south. Myanmar has capitalized on this strategic location for trading with the massive Indian and Chinese markets for many years. Myanmar’s total exports grew by 12% to US$12.5bn in FY2014/15 (April‐March). China, Thailand, Singapore, Japan and India are the major exporters, which accounted for 86% of total export value. At the same time, Myanmar’s total import value grew by 21% to US$16.6bn. Major import countries are China, Singapore, Japan, and Thailand, which accounted for 76% of total import value.
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Figure 52: Geological Advantage of Myanmar Figure 53: Strategic location between India and China
and ASEAN
Source: MJTD Source: ANZ Research
Figure 54: Myanmar Export Value by Country FY2014/15 ($mn) Figure 55: Myanmar Import Value by Country FY2014/15 ($mn)
Thailand4,029
China4,674
India746
Singapore759
Japan556
Hong Kong289
Korea370
Thailand1,679
China5,020
India595
Singapore4,137
Japan1,749
Hong Kong55 Korea493
Source: Central Statistical Organization, Myanmar Source: Central Statistical Organization, Myanmar
Industry outlook The purpose of Special Economic Zones Special Economic Zones (SEZ) are designated areas that possess special economic regulations that are different from the rest of the country. By offering tax incentives and lower tariffs for conducting business in special zones, the government thus makes these areas more conducive to foreign direct investment. Myanmar’s Special Economic Zone Law was enacted on 23 January 2014. The law provides incentives for export‐oriented and supply chain industries. SEZs aim to develop the momentum of the economy, develop industries and high technologies, enable citizens to train and learn high technologies, develop trading and service businesses, create more employment opportunities for citizens, and develop the infrastructure of the state. The SEZ are divided into two zones: Free Zones: These are treated as if they are situated outside Myanmar for customs
purposes. The businesses operating within free zones must produce their goods primarily for export. As a result, machines, materials and goods used in production (or used to construct the facilities for production) within a free zone are exempt from import duties.
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Promotion Zones: Goods produced by businesses in promotion zones must be intended to be sold primarily in the local market and must also be manufactured with local materials. Promotion zone goods sold abroad are considered export products of Myanmar.
Myanmar SEZ Law benefits Incentives for investors under the Myanmar SEZ Law include: Income tax holidays for the first seven years starting from the date of commercial
operation in respect to those investment businesses operated in exempted zones or exempted zone businesses;
Income tax holidays for the first five years starting from the date of commercial operation in respect to those investment businesses operated in a business promotion zone or other businesses in a promoted zone;
50% income tax relief for investment businesses operated in an exempted zone and a business promotion zone for a second five‐year period;
For the third five‐year period, there is 50% income tax relief on the profits of the business if they are maintained for reinvestment in a reserve fund and reinvested therein within one year after the reserve is made;
Exemption on customs duty and other taxes for raw materials, machinery, equipment and certain types of goods imported for investors in exempted zones. Whereas for investors in promotion zones, there is an exemption on customs duty and other taxes for the first five years with respect to imported machinery and equipment required for construction starting from the date of commercial operation, followed by 50% relief of customs duty and other taxes for a further five years;
Carry forward of loss for five years from the year the loss is sustained. Land use may be granted under an initial lease of up to 50 years and is renewable for a period of a further 25 years. Developers or investors may rent, mortgage or sell land and buildings to another person for investment purposes within the terms granted with the approval of the management committee concerned. Industrial zones in Myanmar Industrial zones in Myanmar have been established since 1995. At present, Myanmar has 19 industrial zones spread across nine geographical regions that are already established and operating. These zones are for industrial use but do not come with any special services or investment incentives. They are:
Ayeyawaddy Region: three zones (Hinthada, Myaungmya and Pathein)
Bago Region: one zone (Pyay)
Magway Region: two zones (Yananchaung and Pakokku)
Mandalay Region: three zones (Mandalay, Meiktila and Myingyan)
Mon State: one zone (Mawlamyaing)
Sagaing Region: three zones (Monywa, Shwebo, and Kalay)
Shan State: one zone (Taung Gyi)
Taninthayi Region: one zone (Myeik)
Yangon Region: four zones (the eastern, western, northern and southern townships of Yangon)
Among the existing industrial zones in Myanmar, Mingaladon Industrial Park in Yangon, developed by Mitsui Corporation of Japan, is the only industrial zone with internationally accepted status.
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Figure 56: Industrial Zones in Myanmar Figure 57: New Industrial Zones in Process
Source: Myanmar Investment Guide Source: Myanmar Investment Guide
Three special economic zones in progress There are three SEZs planned for development in Myanmar. They are Dawei SEZ in the southern part of the country (Tanintharyi Region), Kyauk Phyu SEZ in the western part of the country (Rakhine State) and Thilawa SEZ, which is close to Yangon. Thilawa is designed to serve as the entry point for foreign investors in Myanmar. Kyaukphyu SEZ Kyauk Phyu Special Economic Zone (KP SEZ) is being developed by China and Myanmar. It is located in western Rakhine State, which is strategically located between China and India. The development projects are comprised of a deep sea port, industrial and estate area zones, and a residential area. The international bids for developing the 1,000 hectares of phase one were received in December 2014 and the awarding of a 50‐year concession is expected to be announced in 2015. The development plan is divided into three phases, which are expected to be finished by 2016, 2020 and 2025. A Singapore‐based consortium led by CPG Consultants has been assigned to develop the master plan for KP SEZ. Dawei SEZ The Dawei Special Economic Zone (SEZ) is located in Thanintharyi Region. Thailand and Myanmar signed a memorandum of understanding to develop an industrial park and deep sea port in Dawei in 2008, followed by another MOU in 2012. The project has been delayed from its plan for completion by 2015 due to a lack of financing. Japan became a full partner with Thailand and Myanmar in the Dawei development project on 14 December 2015, after a shareholders’ agreement was signed by the Japan Bank for International Cooperation, Thailand’s Neighboring Countries Economic Developmen