Capital Diamond Star Group seeks to raise profile, enter regional markets

Capital Diamond Star Group has kept a low profile for most of its history; at least as much as is possible for a company of 7000 employees and some of Myanmar’s major brands to stay out of the limelight.

Beginning as a humble agriculture trading company in Mandalay in the 1960s, it has expanded to become one of the country’s largest business groups. It is now led by U Ko Ko Gyi, the son of the founders, and has developed outside its original agricultural businesses in pursuit of opportunities from retail to real estate.

Historically, though, it has not been as brazen as some of Myanmar’s other conglomerates. It has so far not entered high-profile businesses such as banking and airlines, favoured by some, and about 80 percent of its roughly US$400 million in annual revenue still comes from its core businesses in food.

All this has contributed to its position as a quiet enterprise. Indeed, some of the company’s brands – Premier coffee, Grab & Go convenience stores, Diamond Star wheat flour, for instance – are likely more widely known than CDSG itself.

This understated approach may end, however. The company has signed a number of agreements with foreign companies, has added staff and taken on more projects, and is also working to build a presence outside Myanmar.

CDSG has entered into several high-profile joint ventures in the last few years with the likes of Japan’s Mitsubishi Corporation in food, as well as a subsidiary of Singapore’s Temasek Holdings in microfinance, and also RMA, the Thailand-based distributor of vehicles from US-brand Ford.

The company also harbours international designs, according to CDSG group chief financial officer Chong Chong Lim. “Our ambition is to grow into the region,” he said in an interview at the company’s Yangon offices earlier this month.

“We have already taken early steps toward that. Within the next 12 months, we should start to see the early emergence of a Myanmar-originated regional company coming out of CDSG.”

With food as its largest and most established business, it is food products that it plans to bring first to the international stage.

In May, the company entered a joint venture with Japan’s Mitsubishi Corporation called Lluvia. The venture is currently focused on coffee powder and wheat flour, though has a broader understanding to develop other food-related businesses.

Mr Lim said one of the advantages of the partnership with Mitsubishi is to make use of its resources in other country. For instance, Mitsubishi has a retail presence in Indonesia, and Lluvia may use that channel to distribute made-in-Myanmar coffee.

There are opportunities in other foods as well, with exports of Myanmar mangos another possibility. It also has received approval from the United States’ Food and Drug Administration to begin coffee exports to that market.

Mr Lim said the Lluvia joint venture is one of the company’s most promising businesses over the next 12 months, with the finishing touches on the joint venture just completed a few months ago.

CDSG is in a transformational stage, and has brought on a number of experienced locals and expats over the last few years to help transform the company and bring it to the next level.

Mr Lim for instance joined about two years ago, and is also an executive council member and vice president of business at the Singapore Association of Myanmar. He previously worked at Temasek Holdings, a Singapore state-owned investment company, as well as two of the big four accounting firms.

The company has also been working to improve its business, upgrading its internal systems, core fundamentals such as HR practices, IT systems financial management and corporate governance.

Outside of food, CDSG is pursuing a range of different enterprises. It has eight divisions which it added opportunistically, as different opportunities arose.

“If you look at how we are pursuing the business opportunities, it’s about pursuing growth, it’s about pursuing opportunities within each business line. But it’s also about having a portfolio approach, about having a balance of cyclical and anti-cyclical businesses,” said Mr Lim.

The firm is involved, with projects such as Gems Garden Condominium, in sectors like real estate which are cyclical, moving between booms and busts.

CDSG also has emphasised anti-cyclical businesses such as food products like its Premier coffee business.

“Good times or bad times, people will still consume a K100 coffee,” he said.

The company has come a long way in 50 years.

Mr Lim said he sees the history of CDSG in three phases. From the 1960s to the 1990s, it grew from being a Mandalay trading company to expand through much of the country; from the mid-1990s – when U Ko Ko Gyi joined the firm – to about 2010, it branched out into industries like agrochemicals, wheat flour and pharmaceutical trading; and from about 2010 to the present, it has again expanded, but this time with more cooperation from international companies as Myanmar opened up.

“The partnership approach was only kind of developed in stage three, the last five years,” said Mr Lim. “It’s a recent development. Clearly with the market opening up, all the companies in Myanmar will have to step up their game. That’s what we’ve been doing internally … We are focusing on building a strong core foundation.”

The company has entered a growing number of new businesses, but is not primarily driven by a strategy of diversification as an end to itself. Instead it is focusing on opportunities as they arise.

“For the newer business that we’ve entered into … if we do not believe we have the capability to be in the market-leading position, we will not enter into the business,” he said.

Mr Lim pointed to some businesses where CDSG already is the market leader, wheat flour, coffee, and agrochemicals, for instance, and others like retail where it already considers itself to be a strong number two.

City Mart Holdings may be the market leader, but CDSG now claims the largest number of convenience stores, under its Grab & Go brand. It also has two Capital Hypermarkets as well as several supermarkets.

Mr Lim also pointed to its microfinance business as an early triumph. It is a joint venture with Fullerton Financial Holdings, a subsidiary of Singapore state investment fund Temasek Holdings. Fullerton Myanmar started in October last year, and now has 12 branches and about 15,000 loan customers. “We have seen success in the newer businesses we have entered into,” he said.

Moreover, the company is keen on building more joint ventures, and is actively seeking local and international partners for different businesses.

“There are a lot of opportunities to pursue in Myanmar. If we can pursue these opportunities together with other partners I think that will be a lot more powerful,” said Mr Lim.

Still, the company is not as well-known as some of the others, having historically generally kept its head down, and is not listed on an exchange.

“When foreign companies come to Myanmar we are not necessarily right in the middle of their radar,” he said, though added this is changing as the company becomes better known.

Important, though, are the type of businesses CDSG chooses to enter. “We may not put it very elegantly, but we believe the substance is more important than the form of the company,” he said. “That’s something we believe very strongly.”

“If we do not believe that we can be successful in the business, we will not enter the business. The results speak for themselves.”

Source: Myanmar Times

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