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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
[email protected]
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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REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 23 of 35
•
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
$mn
Source: DICA, data for 2015/16 for Mar‐16 only
Source: DICA, data for 2015/16 for Mar‐16 only
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REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 26 of 35
Figure 46: Cumulative FDI into Myanmar from 1989‐2015/16 by Sector ($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$136, according to the National Wages and Productivity Commission in the
Philippines.
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REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 27 of 35
Figure 48: Comparative Wages in Selected Countries ($, 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$16.6bn. Major
import countries are China,
Singapore, Japan, and Thailand,
which accounted for 76% of total import value.
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REFER TO DISCLOSURE SECTION AT THE END OF THE NOTES page 28 of 35
Figure 52: Geological Advantage of Myanmar
Figure 53: Strategic location between India and China
and ASEAN
Source: MJTD Source: ANZ Research
Figure 54: Myanmar Export Value by Country FY2014/15 ($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