Pan-Asia Equity Bottom-up, Wickhams Hill

Lloyd Moffatt

I am a fundamental-value investment analyst with a bent for events and soft catalysts.

During my time on both the buy-side and sell-side I focussed on small and mid-cap companies in ASEAN, Australia and HK/China.

Although a generalist, my background as an engineer lends itself toward deep-dive research in more practical sectors like consumer and industrials.

Previous recommendations include:

Concepcion Industrial		(CIC PM)	BUY	03/12/2015		+100.1%
OSIM International		(OSIM SP)	BUY	11/12/2015		+36.9%
Bellamy's Australia Ltd	(BAL AU)	SELL	08/06/2016		+60%
Pryce Corp				(PPC PM)	BUY	14/07/2016		+105%
Rukun Raharja			(RAJA IJ)	BUY	16/02/2017		+61%
Asian Pay Television Trust (APTT SP)	BUY	30/12/2016		+67%

Pan-Asia Equity Bottom-up

Memories Group – Building Long-Term Growth Pipeline for Better Valuation

Myanmar Tourism: Memories Group. The Tourism Assets of Yoma Go for RTO in January 2018

Research-Intensive Fundamental Value Advisor

Wickhams Hill

Wickhams Hill Capital is a research-intensive fundamental value advisor, on long and occasionally short investment opportunities concentrated in small and mid-cap public companies.

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/14962" target="_blank" data-smartkarma-citation="entities:14962">Memories Group Ltd (MEGL SP)</a> was founded through the injection of 5 Myanmar based tourism assets from <a href="https://www.smartkarma.com/entities/65" target="_blank" data-smartkarma-citation="entities:65">Yoma Strategic Hldgs Ltd (YOMA SP)</a> into the shell company, SHC Capital Asia Limited (SHC SP). The company has since completed two independent acquisitions, which we will expand on further in the report. We also note that Memories group reports full-year results at the end of March.The company reported a 4Q18 (Jan – Mar) revenue of US$ 4.92mn with an adjusted EBITDA of US$ 1.71mn and a net profit of US$ 0.56mn. Full-year results are not yet meaningful because the company has only been operating with its current profile since Dec 2017.<h2>How we think about Memories Group</h2>While we are confident that MEGL will become a leading tourism group in Myanmar, it remains unclear as to whether the proposition will be as attractive for existing shareholders, given the company’s reliance on markets to raise capital and issue new shares for acquisitions.However, with the current share-price and plan to acquire 15 properties over the next 3-4 years, management indicates that they could grow earnings by 70% implying that the stock would be trading below 30x in 3 years which is still a lofty valuation (assuming a US$1m per property and 10% margin). A high valuation is critical for a roll-up strategy, using shares to finance acquisitions, to be accretive. For example, if the share price falls to say S$0.10, the additional dilution from issuing scrip would result in EPS growth is only 40% (see analysis below).Any upside in this stock appears to be more of a bet whether investors get behind this story, which is totally plausible, because it’s the only Myanmar tourism pure-play story, and Chairman Serge Pun tells it well. However, a concern is that there’s no clear IR/Marketing strategy and they’re reliant on ad-hoc investor meetings and people coming to Myanmar to find-out the story, which is still a bit far off the beaten track.

Memories Group Ltd (MEGL SP) was founded through the injection of 5 Myanmar based tourism assets from Yoma Strategic Hldgs Ltd (YOMA SP) into the shell company, SHC Capital Asia Limited (SHC SP). The company has since completed two independent acquisitions, which we will expand on further in the report. We also note that Memories group reports full-year results at the end of March.The company reported a 4Q18 (Jan – Mar) revenue of US$ 4.92mn with an adjusted EBITDA of US$ 1.71mn and a net profit of US$ 0.56mn. Full-year results are not yet meaningful because the company has only been operating with its current profile since Dec 2017.How we think about Memories GroupWhile we are confident that MEGL will become a leading tourism group in Myanmar, it remains unclear as to whether the proposition will be as attractive for existing shareholders, given the company’s reliance on markets to raise capital and issue new shares for acquisitions.However, with the current share-price and plan to acquire 15 properties over the next 3-4 years, management indicates that they could grow earnings by 70% implying that the stock would be trading below 30x in 3 years which is still a lofty valuation (assuming a US$1m per property and 10% margin). A high valuation is critical for a roll-up strategy, using shares to finance acquisitions, to be accretive. For example, if the share price falls to say S$0.10, the additional dilution from issuing scrip would result in EPS growth is only 40% (see analysis below).Any upside in this stock appears to be more of a bet whether investors get behind this story, which is totally plausible, because it’s the only Myanmar tourism pure-play story, and Chairman Serge Pun tells it well. However, a concern is that there’s no clear IR/Marketing strategy and they’re reliant on ad-hoc investor meetings and people coming to Myanmar to find-out the story, which is still a bit far off the beaten track.

Memories

Failure to Experience the Upside