Last week, we went on a road trip, ground checking on four Malaysian companies, namely PESTECH, NTPM, OCK and DAIBOCHI which have operations in Cambodia, Vietnam and Myanmar. They are involved in basic infrastructure for power utility and telco, as well as consumer related products that will definitely do well in these frontier markets as their products and services are the basic needs for economic development. We are especially excited about Myanmar which is liberalising its foreign investment stance after years of closed-door policy resulting in its development being at least 30 years behind us. Given the saturation in our domestic market and relatively small population, new markets in Indochina and Myanmar should enlarge these companies’ earnings profile. However, we do see currency risk in Vietnam and Myanmar as well as political risk in Cambodia and Myanmar. Nonetheless, this study tour was a fruitful trip which has enriched our knowledge in these countries and we believe these four companies should do well there given their track records and partnerships with local firms.

The growing Cambodia market. Cambodia is not unfamiliar to us as this is our third trip to Phnom Penh to meet up with PESTECH (OP; TP: RM2.00) and its key client, Electricite du Cambodge (EdC), an entity akin to our TENAGA (OP; TP: RM17.17). When we left the airport for meeting with PESTECH, road traffic was still as busy as our previous visit two years ago with several road extensions while new buildings are coming into the town centre. This signifies rapid development in this fast growing country. All these were concurred upon when we met up with EdC, the state-owned utility which showed us the country’s power generation and infrastructure plans. The country’s generation capacity is expected to increase by another 2,841MW over 2017-2025 from 1,592MW currently while transmission lines are set to reach 4,000km to cover the entire country by 2025 from 1,500km currently. This shows that the country is hungry for electricity supply to cater for rapid development where even capital city Phnom Penh is regularly facing power-cut. Thus, this definitely augurs well for PESTECH which already has track records there.

Vietnam, the right location for Southern China and Thailand. On the second day, we arrived at Ho Chi Minh City (HCMC) the largest city in Vietnam. Our impression is that Vietnam is more developed than Cambodia in terms of infrastructure and economy development. We visited NTPM’s (Not Rated) plant in the Vietnam Singapore Industry Park, about an hour drive from HCMC. Currently, NTPM only produces tissue paper in Vietnam and it is in the Phase 2 of expansion with two new production lines set to be ready by mid-2018. This should result in a material impact to the group as the Vietnam production will account for 1/3 of the group’s total tissue paper production from less than 10% currently once the expansion program is completed. Given the location, this Vietnam operations could be the export-base for Indochina, Southern China and Thailand. We also see great potential from this venture in view of the population size and growing tissue paper consumption trend and this Vietnam operations could be outgrow its Malaysian operation eventually.

The new face of Myanmar. We made our last stop with a 2-day stay in Yangon for meet up with OCK (OP; TP: RM1.05) and DAIBOCI (Not Rated). We see abundance of opportunities in Myanmar which is now opened up for foreign investments from 2011 after years of closed economy under the military regime. We visited one of telco towers which is built and managed by OCK, about 66km outside of Yangon. At such distance, it took us more than 2 hours to reach the site given the bad road conditions. We saw on-going road extension and building of bridges along the journey. We reckon it needs lots of basic infrastructure to develop the country. Our last meeting in Yangon was a meeting with Myanmar Investment Committee where the authority revealed that the top two priorities for foreign investments are in the areas of manufacturing, especially in garment sector, and infrastructures including road, power utility as well as telco. I believe DAIBOCI made the right decision to venture there as MNC FMCGs are starting to open up in Myanmar. Needless to say, potential for OCK is great as well as telco towers are potentially estimated to reach 40,000 sites, from 13,000 sites currently, in order to cater to the market based on its population size. There is potential for PESTECH as well, which has just set up a subsidiary there recently, based on government’s priority of development.

Source: Kenanga Research - 20 Oct 2017