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Confident of long term growth, Serge Pun bets big on tourism, property

Investors looking for clues on where the Myanmar economy is headed may glean some insight from Serge Pun’s recent corporate maneuvers.

The 65-year-old Myanmar tycoon has not been idle of late. Last month, units of Peninsula Residences Yangon, a collection of 96 private luxury homes, went on sale. The homes are part of the Yoma Central mixed development project now being constructed at the junction of Sule Pagoda Road and Bogyoke Aung San Road, in the heart of downtown Yangon.

Yoma Central, which will also include two Grade A office towers and a shopping mall, is being developed next to The Peninsular Yangon hotel, which is now being built within the former colonial headquarters of the Myanma Railway Company.

Both projects, which were approved by the Myanmar Investment Commission last February, are being developed by Yoma Strategic Holdings, the Singapore-listed company controlled by Mr Pun. Combined, they have been estimated to require investments of up to $400 million.

In February, a consortium comprising Yoma Strategic and First Myanmar Investment Co (FMI), the Myanmar conglomerate controlled by Mr Pun, participated in a bid to undertake the $2.5 billion redevelopment of Yangon Central Railway Station. However, the consortium eventually lost the project to Singapore-listed Oxley Holdings, Myanmar’s Min Dhama and China’s Sino Great Wall.

Last December, Mr Pun also listed Memories Group, which is a spin-off of Yoma Strategic and FMI’s tourism-related businesses, on the Singapore Exchange. Memories Group, which came to market via the reverse takeover of SHC Capital Asia, is the first ever Myanmar tourism-focused company to go public. Its shares rose 48pc during the first day of trading.

Positive prospects

For Mr Pun, each corporate move represents a strategic step towards optimising value in an economy where long term development and growth are likely to outweigh the current setbacks.

Mr Pun is betting that the economy will stabilise as the government gets better at managing the fledgling democracy and is now positioning to benefit from further economic expansion. “Will the country go back to its socialist, non-protective policies? Will it go back to dictatorship and militarism or return to its highly corrupt ways? I think the risk is low,” he told The Myanmar Times during an exclusive interview at his office in Pun Hlaing, Yangon.

Will the ongoing refugee crisis in Rakhine hold back foreign direct investments (FDI)? “I do not see the world stopping their investments in Myanmar. China, Japan and South Korea acknowledge the Rakhine issue yet they do not consider it to be a decisive factor to pull their investments out of Myanmar,” he said.

While the humanitarian crisis in Rakhine has resulted in some deterioration in investor sentiment and external financing from the West, US sanctions will be highly targeted and are not expected to affect the broader economy, the International Monetary Fund said earlier this month.

Each of Mr Pun’s businesses are thus tailored for long term growth prospects. “We only invest in sectors that are scaleable, from the KFC franchise to our hospitals. For example, Pun Hlaing Golf Course is 18 years old and still growing. It’s been more than 10 years and our FMI City and StarCity projects are still expanding,” he said.

Extracting value

Born in Myanmar, Mr Pun migrated to Beijing in 1965. In 1973, he left China for Hong Kong where he began a career in real estate. He returned to the country in 1991. Since then, Mr Pun has amassed a large stable of businesses across a wide range of sectors.

Under FMI, these mainly include real estate, financial services and healthcare, in which foreigners are not permitted to be wholly invested. But Mr Pun was hungry for more growth. To raise more capital for expansion, he listed Yoma Strategic in Singapore in 2006. That company now runs real estate development projects in Myanmar in partnership with FMI, as well as an automobile leasing service and the KFC consumer business.

Last November, Yoma Strategic raised S$82 million from a Singapore share placement, the bulk of which was channeled towards building rental and development properties at Pun Hlaing Estate and StarCity and making payments relating to the Yoma Central project.

“We started out as a conglomerate, which enabled us to strategically position ourselves in many different sectors. Now, we are well-diversified across many businesses. While some are still under incubation, others have matured into independent core businesses,” he said.

Now, it’s time to extract value from some of those core businesses and free up funds for other investments. “We want each core business division under FMI and Yoma Strategic to grow into independent businesses which we can spin-off and list in due course,” he said.

One example is the recent listing of Memories Group, which owns the iconic Balloons Over Bagan and other tourism-related business in Myanmar. “We consider tourism a sector that will have exponential growth and we wanted to capitalise on that. In our stable of businesses, tourism was one of the lowest hanging fruits. It was very logical to spin it off as a standalone listed entity instead of leaving it on the sidelines of two big companies,” Mr Pun said.

Currently, the other two stocks with exposure to tourism are London-listed Myanmar Investment Holdings and Myanmar Strategic Holdings.

Property bet

Mr Pun is also betting big on property at a time when the market has been subdued. According to Colliers International, demand for residential units, particularly 3-4 bedroom units, has fallen even as the supply pipeline has swelled to some 10,000 units. Meanwhile, office rental rates are down year over year.

Demand has become saturated because income levels have not risen at a pace commensurate with supply. Why then is Mr Pun is going ahead with the development of Yoma Central? The way he tells it, the answer lies in each property developer’s ability to generate demand. “Demand is all about affordability. If nobody is able to afford what you offer, you must be able to give them options so that they can,” he said.

In Myanmar, the availability of mortgage loans is still limited, while most residents are unable to purchase properties with cash. As such, developers should be working with the banks to offer buyers more options such as paying an initial downpayment of say, 20pc, while providing loans under which buyers can repay the remainder over a period of 10-20 years.

With more options, more will be able to afford homes. “Developers should create the demand by providing creative options for buyers to own a home. Then, you might have a chance of succeeding in this sector. Otherwise, you’re just banging your head against the wall,” Mr Pun said.

Meanwhile, he reckons office demand will gradually grow in tandem with economic development. “We believe the economy will expand, which will draw more businesses and foreign investors to the market. These foreigners, in turn, will need offices to work from,” he said.

According to the Asian Development Bank, backed by FDI, the Myanmar economy is expected to grow at 6.8pc in 2018-19, unchanged from the previous fiscal year. GDP is expected to jump to 7.2pc in 2019-20.

Things are a little trickier in the hotel space though. With around 8,000 hotel rooms now available in Myanmar, according to Mr Pun’s estimates, demand has been overrun by supply. But Mr Pun reckons he has timed the market right. By the time The Peninsula Yangon hotel is complete, the number of foreigners and tourist arrivals to the country are bound to play a positive part in demand, he said.

Singapore investment analysts who cover Yoma Strategic see value in the stock. Joseph Ng, an analyst from OCBC Research, reckons demand for the company’s condominium properties in Pun Hlaing and StarCity will rise on the back of the new Condominium Law in Myanmar.

Meanwhile, earnings growth can be expected from the automotive and heavy equipment business and as the number of KFC stories doubles to 50 by 2020, Mr Ng wrote in a February report.

As for FMI, Mr Pun said: “For 26 years, we have not failed to pay dividends every year. During this period, we have never registered losses for any given year. That is because we are well-diversified and invested for the long term,” he said. Shares of Yoma Strategic last closed at 43.5 cents apiece. Meanwhile, shares of FMI are now trading at K12,000 each.

Source: Myanmar Times

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