SINGAPORE MYANMAR INVESTCO Taps Frontier Market Growth

This article by Jennifer Tan (left, Director, Research & Products,  Equities & Fixed Income, at the Singapore Exchange) was published in SGX's kopi-C: the Company brew series on 5 May 2017. The article is republished with permission.

Robust Potential

Fast-forward to 2015, when Bedingham began the next leg of his journey in one of Asia's largest frontier markets.

In January that year, he was appointed CEO of SMI - a diversified business group with a primary focus on Myanmar. The company, previously known as Singapore Windsor Holdings Ltd, exited its printed circuit board business due to price competition, and changed its corporate name to SMI.

Why Myanmar? "In my view, it's too late to get into markets like Vietnam, Philippines and Indonesia - they already have very well-established domestic companies," Bedingham noted.

"I've been travelling to Myanmar for the past 20 years, and have good contacts there. I believe this market has better medium- to long-term potential."

SMI has a current market capitalisation of S$137 million. In the last 12 months, the stock has generated a total return of 37.2%, outperforming the benchmark Straits Times Index's 19.6% and FTSE ST All-Share Index's 19.0%.

In the three years since SMI began its transformation into a Myanmar-focused group, it has narrowed annual comprehensive net losses to US$159,000 (S$221,853) for the year ended 31 March 2016, from HK$87.0 million (S$15.6 million) in the year ended 31 March 2014.

For the six months ended 30 September 2016, SMI reported a total comprehensive loss of US$2.4 million, versus a total comprehensive profit of US$4.4 million after exceptional gains in the previous period. It swung to a gross profit of US$1.9 million from a loss of US$50,000 in the previous half-year, while revenue more than tripled to US$10.4 million.

The Group's operations revolve around five business pillars - duty-free travel retail, food and beverage, auto services, construction services and infrastructure.

"Our mission is very simple - to play an active role in the modernisation of Myanmar, and to bring in products and services that are not present," Bedingham said.

Purchasing Power

The Group has also made inroads into the domestic retail market. It secured about 65% of the commercial space on Level 1 - the luxury floor - of Junction City mall, and featured brands will include Coach, Aigner, Furla, Pandora, Love Moschino, Bering and Versace Versus.

SMI also plans to open a large Benetton store, measuring about 2,000 square feet on Level 2 of the mall, and unveil the first Shiseido counter after securing an exclusive distribution deal with the Japanese cosmetics company in February this year.

Myanmar's Tourism Ministry forecasts visitor arrivals to rise to 7.5 million in FY2020 from 5.0 million in FY2016, which will stoke demand for SMI's F&B and retail brands. Apart from tourism, international business travel will be a key driver, Bedingham said.

"Our selected brands are targeted at Chinese and Japanese business travellers. How well we're doing with travellers from Vietnam, as well as other ASEAN countries, has also been a pleasant surprise."

Meanwhile, the country's domestic demand potential should not be overlooked.

"We estimate that 300,000 to 500,000 Burmese can afford to shop in domestic malls, together with international residents," he noted.

"The wealthy are not in the habit of buying locally, largely because there was nothing to buy. We're in the process of changing that."

Bedingham expects SMI's F&B operations to expand at a rapid clip. "For retail, we'll have to see which brands and concepts work. We've no intention of introducing ultra high-end labels, but there's definitely an opportunity to bring in prestige and premium brands."

In November 2015, Aung San Suu Kyi's National League for Democracy party achieved a sweeping victory in Myanmar's watershed election, placing the country firmly on the path of political and economic transformation. The World Bank projects Myanmar's real GDP to grow 7.8% in the 2016-2017 fiscal year, up from 7% in 2015-2016, and averaging an 8.2% expansion over the medium term.

The country's population of nearly 54 million - more than 60% of whom are below the age of 35 - also offers a significant consumer base.

In auto services, SMI holds a master franchise agreement with international car rental company Europcar to provide vehicle rental and limousine services in the country. The business has long-term contracts with corporate clients, as well as tie-ups with hotels and airports.

"The potential is huge - Europcar is the only international brand operating in the country. We've already increased sales by nearly 100% over the last 12 months, and expect further growth," he noted.

Currently, Europcar operates 160 vehicles in Myanmar. "This, in my opinion, is a 2,000-car business. The only growth constraint is availability of cars due to import restrictions."

Building Partnerships

Clearly, Bedingham has experienced his fair share of speed bumps over the last two years. "I'm very used to building businesses in new markets, particularly markets that are beginning to emerge, like I did for Moet Hennessey in the '90s," he said.

"That's because I enjoy growing things - it's an exciting process. At the same time, you realise the road is never smooth. There will always be ups and downs along the way."

The cumulative experience has been invaluable. "Over the years, I've learned to build local partnerships - long-lasting ones - in different markets. In Myanmar, I've been doing business with two to three people I've known for 20 years."

So what's unique about SMI? Its listed status, he said. "I wanted to run a company with exposure to the stock market - I've yet to experience that in my career."

And SMI's listing offers opportunities to raise both equity and debt for future capital needs. "That's the whole reason to work through a listed vehicle in the first place," Bedingham added.

And while retail is absolutely core to the Group, it would not require the largest investments. Instead, logistics could absorb the most capital.

Singapore Myanmar Investco has entered into a master franchise agreement with Europcar, a leading European car rental company, to provide car rental and limousine services in Myanmar, where it is the only international car rental brand. (Photo: Company)

"I see an opportunity to take the supply chain capability to a level that no one else has in this country. For F&B and our car leasing services, they would absorb a degree of capex, but that would likely be incremental in nature."

Not surprisingly, funding is one issue that keeps Bedingham up till the wee hours.

"This is something quite new to me, and the necessity of capital-raising is always there. Another unfamiliar area is debt funding, and I've spent a lot of time with the banks on that. But that's the reason why I joined SMI in the first place - to do things I had never done before," he smiled.

At the end of the day, it's not just about business, it's also about the organisation.

"We want to attract people who understand our vision, and have the robustness to deal with the ambiguity, uncertainty and disruptions of working in an emerging market," Bedingham said.

In return, SMI offers employees freedom from layers of bureaucracy, as well as room for personal expression and development. Most of all, for Myanmar returnees, there's the satisfaction of watching the country - after decades of military rule and isolation - embark on a journey of recovery and growth.

Bedingham strives to help his staff exceed what they think they can achieve in terms of performance. "For a business to be truly meaningful, it should bring challenge and fulfilment. Otherwise, it wouldn't be an inspiring journey," he said.

"What I've tried to do is to show those who work with me that if they trust me, they will achieve and do a lot more professionally than they could ever have imagined."

Financial results

*Mainly due to a gain on disposal of discontinued operations
NM: Not meaningful
Source: Company data

Singapore Myanmar Investco Ltd

Listed on the Mainboard of Singapore Exchange, SMI adopts a diversified business model to enhance its long-term growth prospects. The Group has identified several growth catalysts in South East Asia's pioneer markets, specifically Myanmar. Capitalising on the underlying growth trends in Myanmar, the Group has ventured into various consumer-related and business-related products/services, including Travel & Fashion Retail, Auto Services, Construction Services, Food & Beverage, as well as Logistics and Warehouse Services.

For its half year financial results ended 30 November 2016, click here.

The company website is: www.sin-mi.com.

The ccompany's Stock Facts page is here.