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Value investment strategies in the ASEAN capital market Roshan F Padamadan, CFA, FRM, CAIA Fund Manager, Luminance Global Fund July 29, 2015 Bangkok, Thailand

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Value investment strategies in the

ASEAN capital market

Roshan F Padamadan, CFA, FRM, CAIA

Fund Manager, Luminance Global Fund

July 29, 2015

Bangkok, Thailand

Agenda

• The trend of key ASEAN capital markets

• Interesting sectors for value investors: ASEAN

case studiescase studies

• An outlook

3

• We are in the middle of this incredible region, which can

cooperate more, economically, for mutual benefit

– 600mn people : larger than EU / N. America

– GDP of over USD 2.4tn

The rise of ASEAN

– GDP of over USD 2.4tn

4

• The markets are at different stages of development. (3 largest

sectors of GDP):

–Singapore (Manufacturing, Trade, Business Srvs)

–Thailand (Mfg, household goods, Transport)

ASEAN Exchanges

–Thailand (Mfg, household goods, Transport)

–Malaysia (Services, Mfg, Trade)

– Indonesia (Trade, Food/Bev/Tobacco, Food crops)

–Vietnam (Services, Construction, Agr/fishery)

–Philippines (Mfg, Motor vehicles, Real Estate)

5

• We will not discuss:

– Brunei (exchange may open in 2017)

– Cambodia (2 stocks)

Other ASEAN countries

– Laos (4 stocks)

– Myanmar (2 stocks)

6

• Labour productivity is driving growth

ASEAN Trends (1)

7

• GDP growth rate is still robust

Real GDP growth 2000-13

China 10.0%

ASEAN Trends (2)

Source: IHS, International Monetary Fund, World Economic Outlook, McKinsey Global Institute Analysis

India 7.0%

ASEAN 5.1%

8

• …while still being underlevered

Real GDP growth

2000-13

Debt to GDP

(2013)

China 10.0% 22%

ASEAN Trends (3)

Source: IHS, International Monetary Fund, World Economic Outlook, McKinsey Global Institute Analysis

China 10.0% 22%

India 7.0% 67%

ASEAN 5.1% 47%

9

• Rising global competitiveness

• ~ 200 companies with more USD 1bn in revenues

– Total crossed USD 1trn revenues by 2010

ASEAN Trends (4)

– Average of USD 4.7bn

• This makes ASEAN 7th in the world

10

• Companies with over USD 1bn in revenues

Rising Global Presence

Country Company count

Singapore 42

Thailand 32Thailand 32

Malaysia 31

Indonesia 31

Vietnam 25

Philippines 25

Source: FT Stock Screener, 28 July 2015

11

• Buying at a price well below intrinsic value

• Intrinsic value is based on reasonable assumptions

• I typically use a horizon of 3 years to give enough time for

the company to deliver on its re-rating and/or the business

What is Value Investing?

the company to deliver on its re-rating and/or the business

cycle to turn

12

• Is the country earning enough?

– Current account (Exports – imports)

– Capital account (Inflows – outflows)

• Is the country rich?

Analysing a country

• Is the country rich?

– Average income level

– Average education level

– Average health level

• Is the currency open or managed?

13

Comparing Across Countries

• Take a note of the respective 10-year government bond

yield

• Subtract this from the local currency earnings yield to get

equity risk premiumequity risk premium

• You can now compare the equity risk premium across

countries

14

• Different stages of development and inflation

Risk-free Rates are Different

Country 10-year Government bond yield

Singapore 2.7%

Thailand 2.8%Thailand 2.8%

Malaysia 4.0%

Indonesia 8.3%

Vietnam 6.8%

Philippines 4.4%

Source: tradingeconomics.com (28 July 2015)

15

• Ideas are composed of Knowledge, Observation and Logic.

– Know what is normal

� Compare with peers

� Compare with history

Spotting Investment opportunities

� Compare with history

– Observe everything around you

� News; walking down the supermarket aisle

– Logically deduce the future

16

• Sign up for Investor Alerts on Company website

• Sign up for alerts on company and its peers on the Stock

Exchange website. All listed companies have obligations to

release news to the exchange in a timely manner.

Following a company

release news to the exchange in a timely manner.

– SGX.com for Singapore

– www.set.or.th/SET for Thailand

– Etc.

• Read leading newspaper of the country

17

• Banks are becoming regional plays

• Likely to grow through acquisitions

• Banks are a usual way to get “beta” of the economy

Singapore Banks

• Banks are a usual way to get “beta” of the economy

Disclosure: The fund may be long or short to express a view, or to hedge

18

Singapore Banks

CompanyMarket Cap

(USD billions)P/B (x)

Dividend

Yield

% of Assets

outside SG

DBS 38.5 1.34 2.76% 35.0%

Source: Bloomberg. Data as of 28th July, 2015, using last available quarterly filing.

OCBC 30.4 1.26 3.53% 45.9%

UOB 26.9 1.28 3.05% 40.0%

19

• SingTel is a multicountry play

• StarHub is a pure play

• Entry of 4th operator spells uncertainty

Singapore telecom

• Entry of 4 operator spells uncertainty

Disclosure: The fund may be long or short to express a view, or to hedge

20

Singapore telecom

CompanyMarket Cap

(USD billions)P/E (x)

Dividend

Yield

% of Revenue

outside SG

Singtel 49.7 18.0 4.22% 57.3%

Source: Bloomberg. Data as of 28th July, 2015, using last available quarterly filing.

Starhub 5.0 18.8 5.08% 0.0%

M1 2.2 16.9 5.85% 0.0%

21

• Regional hub for managing wealth

• Large players have expanded into China with homes, malls,

offices

• Listed Real Estate Investment Trusts give you the “beta”

Singapore real estate

• Listed Real Estate Investment Trusts give you the “beta”

Disclosure: The fund may be long or short to express a view, or to hedge

22

Singapore REITs

CompanyMarket Cap

(USD billions)Dividend Yield Debt to Capital

CapitaMall Trust 5.28 5.26% 30.3%

Ascendas REIT 4.25 4.96% 36.2%

Source: Bloomberg. Data as of 28th July, 2015, using last available quarterly filing.

Ascendas REIT 4.25 4.96% 36.2%

CapitaCom Trust 3.12 6.21% 16.9%

Suntec REIT 3.13 5.87% 36.2%

Keppel REIT 2.49 6.54% 37.5%

23

• Commodity play, but represents a global competitive

advantage

• Sustainability concerns have to be addressed, so look

before you invest

Malaysian, Indonesian palm oil

before you invest

Disclosure: The fund may be long or short to express a view, or to hedge

24

Malaysian, Indonesian Palm Oil

CompanyMarket Cap

(USD billions)P/E (x)

Dividend

Yield

Debt to

Capital

Sime Darby 13.9 22.0 4.0% 37.4%

Kuala Lumpur Kepong 6.0 28.0 2.5% 26.1%

Source: Bloomberg. Data as of 28th July, 2015, using last available quarterly filing.

Kuala Lumpur Kepong 6.0 28.0 2.5% 26.1%

Astra Agro Lestari 2.4 17.2 3.5% 31.2%

Batu Kawan 1.9 17.0 3.3% 27.5%

Felda Global Venture 1.6 30.8 6.1% 34.0%

25

• Vast reserves of thermal coal have a competitive advantage

of being close to end-markets of India and China

• Corporate governance is still developing

Indonesian Mining

Disclosure: The fund may be long or short to express a view, or to hedge

26

Indonesian Mining

CompanyMarket Cap

(USD billions)

EV/EBITDA

(x)

Dividend

Yield

Debt to

Capital

Adaro Energy 1.3 2.8 4.65% 36.2%

Bukit Asam 1.1 5.8 5.05% 23.0%

Source: Bloomberg. Data as of 28th July, 2015, using last available quarterly filing.

Bukit Asam 1.1 5.8 5.05% 23.0%

Indo Tambangraya

Megah0.8 2.2 0.0% 0.0%

27

• First way to serve the customer is to improve infrastructure.

Time saved and resulting productivity might help drive

consumption.

Filipino consumer

Disclosure: The fund may be long or short to express a view, or to hedge

28

Filipino conglomerates

CompanyMarket Cap

(USD billions)

EV/EBITDA

(x)

Dividend

Yield

Debt to

Capital

San Miguel Corp 3.0 8.8 1.19% 64.1%

Source: Bloomberg. Data as of 28th July, 2015, using last available quarterly filing.

San Miguel Corp 3.0 8.8 1.19% 64.1%

Ayala Corp 10.7 21.0 0.60% 44.8%

JG Summit 11.5 16.7 0.52% 40.8%

29

• Drought risk and weak currency brings down consumer

confidence

• Lack of regional ambition – or lack of delivery- should be

next steps to address

Thai Consumer

next steps to address

Disclosure: The fund may be long or short to express a view, or to hedge

30

Thai Consumer

CompanyMarket Cap

(USD billions)

EV/EBITDA

(x)

Dividend

Yield

Debt to

Capital

CPALL 12.1 23.4 1.55% 83.0%

Source: Bloomberg. Data as of 28th July, 2015, using last available quarterly filing.

CPALL 12.1 23.4 1.55% 83.0%

Land & Houses 2.8 18.6 7.13% 39.4%

Home Product

Center2.3 17.8 1.18% 47.1%

31

• The store of global capital has no relation to

population – recognise that surplus capital belong to

the advanced Western nations for the most part, and

more recently the petro-states.

Outlook (1)

more recently the petro-states.

32

• When global risk appetite cools, Asia and ASEAN will fall

in price – this does not mean a fall in value per se

Outlook (2)

33

• Domestic capital is limited - best invested in improving

domestic productivity.

• Possibly insufficent surplus to be contrarian, except some

cases:

Outlook (3)

cases:

– E.g. Singapore (Temasek, GIC)

– E.g. Malaysia (Khazanah, Employee Provident Fund)

34

• ASEAN prices can be volatile while it remains a

region of tremendous growth

• Your returns will depend on the themes you pick,

In Summary

• Your returns will depend on the themes you pick,

the stocks you select and the price you get in at

• Keep learning, and prosper

35

Questions

Roshan F Padamadan, CFA, FRM, CAIA

Email: [email protected]: [email protected]

36

Disclaimer

The views are not meant to be taken as investment

recommendations. Nothing in this document constitutes an

offer for the Luminance Global Fund. The fund may have long offer for the Luminance Global Fund. The fund may have long

or short positions in any stocks/sectors/countries mentioned.

The author does not undertake to update you of any change

in his views.

37

Q & AQ & A

38

“Thank you”

39