Fund managers favour Asian stocks wired to the region’s growth story.
Aberdeen Asset Management Asia
1) Jardine Strategic Holdings (SGX:J37)
A Hong Kong-based holding company with principal interests in Jardine Matheson, Dairy Farm, Hongkong Land, Mandarin Oriental, and Cycle and Carriage, Jardine Strategic Holdings Limited has consistently ticked the right boxes for Aberdeen Asset Management as a good quality company.
As stock-pickers, Aberdeen favours decently priced healthy businesses with viable models for growth over the long-term. With unparalleled reach in Asia - particularly in greater China and Southeast Asia - through retail, hotels and property, auto distribution, mining and banking, Young regards the stock as a proxy for the region’s secular growth story.
By taking a very long-term view, he says prudent investment by management ensures that earnings remain sustainable and cash flow robust. “That’s important to us, as it reflects the health of a company, which is an asset during an economic slowdown when lesser companies might struggle or fail,” says Young. “We’ve found that well managed businesses tend to make it through the most challenging economic or political conditions, which is why we make sure to choose the right companies.”
A proven performer during many downturns, the stock has returned nearly 250% over the last eight years, compared with the MSCI Asia Pacific (ex Japan) Index’s return of slightly under 100%. Young says it still holds good long-term value despite its current valuation of 12.9 times earnings.
Return on equity (ROE) has averaged 19.69% since 2004, and EPS growth has been exceptional over the last five years. The stock has a long-term funding surplus and good EPS growth is forecast.
2) Over-sea Chinese Banking Corp Holding (SGX:O39)
Formed in 1932 from the merger of three local banks, OCBC Group has comfortably beaten the benchmark over the long haul and is currently trading at a decent price-to-book value of 1.3. Having started as a Singapore lender, OCBC has evolved into a regional financial services firm, with a large presence in consumer and SME lending as well as insurance.
A hefty portion of its profits are derived from overseas, including Malaysia, and Indonesia where it is the controlling shareholder of Bank OCBC Nisp, a solid domestic lender - plus Wing Hang Bank, a mid-sized Hong Kong lender that it recently agreed to buy.
While other investors have been sceptical, Young remains supportive of this deal which he says would provide access to the huge greater China market at a fair price. He also likes the company’s culture, which unlike the more aggressive, risk-taking investment banks is traditional and conservative. “The asset quality has remained very solid, and it has a track-record of understanding and rewarding shareholders, a trait we value highly,” says Young.
Despite a declining ROE – which has fallen from an average 12.52% to 11.22%, EPS growth has been good over the last five years and is expected to remain so.
Co-manager Platinum Asian fund
1) Baidu Inc (NAS:BIDU)
Due partly to regulatory barriers severely limiting the presence of Facebook and Google, Chinese-language Internet search provider Baidu Inc has emerged over the last 10 years as one of the few titans of the Internet in China.
Serving three types of online participants, including users, customers and Baidu union members, Baidu has over 488,000 active online marketing customers comprising small and medium enterprises (SMEs) throughout China, large domestic companies and Chinese divisions or subsidiaries of large, multinational companies.
Lai says the recent correction in technology stocks is presenting interesting opportunities for patient investors to tap into opportunities in the region; the rise of the Asian consumer can be accesssed through domestic titans like Baidu. “Change is unfolding before our eyes and this vast middle class is rapidly adopting internet technology previously beyond their reach,” says Lai.
Having successfully defended its patch as China’s search engine of choice, Baidu is now looking to broaden its horizons, with new expansion plans to further entrench its dominance within China's lucrative Internet market. However, more immediate opportunities for Baidu – now one of the most valuable brands in china - lie within the niche mobile market and the exponential uptake of smartphone technology as Internet use becomes progressively less PC-centric.
Baidu's takeover of group-buying site Nuomi in January is just one example of how the search giant has sought to broaden its business and make it more appealing to a wider variety of users in China.
“Baidu is rapidly investing to dominate in these vertical search apps as well. As adoption of the internet continues, the search function will become more valuable,” says Lai. “Recent share price corrections in the Internet sector globally are presenting us with interesting opportunities. One may not want to buy the entire position now, but it’s certainly worthwhile to keep an eye on them.”
Revenue will be around $1.5 billion) in the three months ended March, as much as 60% above the year earlier.
2) 51Jobs Inc (NAS:JOBS)
As the premier job board website in China, JOBS receives most of its revenues in the form of fees from employers for placing job advertisements on 51job Weekly and www.51job.com. The Company also receives fees from employers for accessing its www.51job.com resume database, using its eHire product and engaging its other human resource related services.
Operating in print publications across 11 major cities in China, JOBS provides a range of human resource services in categories such as recruitment advertising, online recruitment, print advertising, and other human resource related services, such as business process outsourcing, training and executive search services.
JOBS is also well positioned to benefit from the migration away from paper-based job advertisements onto the Internet. While social based job websites such as Linkedin are trying to enter China, Lai says their impact has been muted with too few Chinese workers wanting to put their CVs on public display. “51Job is monitoring such development and is in a prime position to integrate social elements on its property,” says Lai.
While revenue per job ad in China is very low, a fraction of that of Australia, he says JOBS has significantly greater growth potential than Seek.com.au which has a considerably larger market cap. The company is delivering an ROE of 16.70% compared with the sector average of 10.93%, and is expected to deliver long-term EPS growth of 20%.
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