When TheBull asked two Sydney-based fund managers to identify their favourite stocks in Asia, land and mobile internet ventures came out on top.
Platinum Asian fund
1) Tencent Holdings Ltd / 700 Hong Kong Stock Exchange
Listed on the main board of the Hong Kong Stock Exchange in June 2004, Tencent Holdings Limited (SEHK: 700) was founded in November 1998 and since then has grown into China's largest and most used Internet service portal.
The company and its subsidiaries are primarily engaged in providing Internet value-added services, mobile and telecommunications value-added services and online advertising services to users in China. As of December 31 2011, its subsidiaries included Tencent Cyber (Tianjin) Company Limited, Tencent Asset Management Limited, Tencent Technology (Beijing) Company Limited, Tencent Cyber (Shenzhen) Company Limited, Tencent Technology (Shanghai) Company Limited and others.
Most of the company’s growth is wired to proliferation of the mobile devices in China which allows end users – who haven’t previously had access to either bank branches or the Internet - the ability to by-pass offline services. Having started off as a PC messenger service called WeChat, Tencent has rapidly evolved into China’s biggest online gaming platform with 300 million active monthly users.
“Through its integrated platform, hundreds of millions of everyday users can communicate, share experiences, consume information, seek entertainment, and shop online,” says Lai.
The stock has averaged 40% return on equity (ROE) since 2003, and cash flow from its core operations has produced a funding surplus of $2,714,470M. Earnings per share (EPS) have increased 50.51% from $0.23 to $9.07 and dividends per share (DPS) have increased 53.17% annually from % 0.02 to $1.00.
Currently trading on a P/E of 60 times, the stock looks expensive at current levels. However, it has come off 15% in the last week amid macroeconomic and regulatory issues confronting china. Given the ‘transformational’ impact of this company’s technology on the lives of many Chinese, Lai says the future upside for the stock remains hard to value. He expects future corrections to present buying opportunities.
2) Jardine Matheson Holdings Ltd / J36 Singapore Stock Exchange
Founded as a trading company in China in 1832, Jardine Matheson’s controlling interests in Asia include: Car dealer, Jardine Motors; insurance broker, Jardine Lloyd Thompson; listed property group with some 450,000 sqm of prime commercial property, Hongkong Land; listed pan-Asian retail group operating over 5,800 outlets, Dairy Farm; listed hotel investment and management group, Mandarin Oriental; Singapore-listed company with an interest of just over 50% in Astra, Jardine Cycle & Carriage; and the largest Indonesian motor group, Astra International.
The Hong Kong-based company is is incorporated in Bermuda and has a premium listing on the London Stock Exchange, with secondary listings in Bermuda and Singapore.
With much of its future upside - wired to the dominant market position that Jardine Matheson holds within key sectors - yet to be monitorised, Lai expects to see future upgrades on the stock. “We try to look out for stocks like this one – with growth wired to dominant market positions - that have been sold off amid the recent concern over emerging markets,” says Lai.
It’s understood that Astra International, Hongkong Land and Dairy Farm pay 40%, 23% and 20% of net profit to shareholders respectively.
ROE has averaged 15.31% since 2004 and recently generated 7.41%, over the same period Jardine Matheson P/E has averaged 5.73 times earnings, and is currently 14.37, while dividend yield is 2.32%. The stock has funding surplus of $3,318.586M. Lai recommends buying on market corrections and sees value at around $50.
Senior Fund Manager
Pengana Asia Special Events Fund
1) AutoNavi Holdings Ltd (NASDAQ: AMAP)
The second largest GPS developer in China, AutoNavi Holdings has built a mobile and Internet location-based service platform which offers customers and business partners a broad range of location-based solutions. At the core of its business is a comprehensive nationwide digital map database that covers approximately 3.6 million kilometers of roadway and over 20 million points of interest across China.
AMAP’s service platform enables it to move from a pure B2B model to a combined B2B and B2C model, and in the 4Q 2013 the company made significant progress to developing its business model to help monitorise its growing mobile traffic.
Highlights from the recent result included an expanded scale of its mobile market place by incorporating a large number of online to offline services to its mobile map platform including: 500,000 users who were buying bills and coupons, over 100,000 hotels, and over 200,000 restaurants.
The Pengana Asia Special Events Fund initiated a long position in AMAP after it received a privatisation proposal from China’s biggest e-commerce company, Alibaba Group Holding to buy the shares in the Chinese online map provider it doesn’t already own.
Having already rallied on the back of better than expected 4Q profit of $8.7 million, AMAP’s share price jumped a further 24% following Alibaba’s $21 offer for each AMAP American depositary receipt, which implied a 27% premium to the 7 February closing price.
AMAP expects its 2013 revenue to grow up to 10% to $176 million.
2) United Industrial Corp (U06) Singapore exchange
A Singapore-based holding company, United Industrial Corp (UIC) operates in four segments: Property investment, including leasing of commercial office property, property management, investment holding, and investment in retail centres; Property trading, including the development of properties for trading, project management and marketing services; Hotel operations, including hotels and Technologies, a distributor of computers and related products, and systems & network integration.
On 24 Feb, United Industrial Corp made an voluntary unconditional cash offer for Singapore Land, to buyout all minorities by the parent. Given that the deal is priced at 0.7x RNAV, the fund managers see scope for an upward revision due to the presence of a significant shareholder with a blocking stake for full control. The offer has not been declared final.
Assuming the offer is successful, UIC intends to delist SingLand from the Singapore Exchange due to low trading liquidity of SingLand shares, and optimise the use of its Management, and capital resources through privitisation.
Since 2004, UIC’s profits have increased 30.89% annually, and net debt-to-equity currently stands at 19.25%.