Promising Small-Caps in Asia

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Promising Small-Caps in Asia

Taken from On Target 268

Whether inflation proves to be sustainable or not, historic evidence is that in such environments, portfolios of low price-to-earnings ratios outperform, says NTAsset’s Kenneth Ng. The fund is a specialist in small/midsized Southeast Asian and Indian shares. It is confident that its holdings will deliver almost a doubling of earnings over the next three years.

Here are its top holdings…

BFI Finance is Indonesia’s pioneer and market leader in auto-backed lending. Even though the share price is already up 46 per cent this year, its valuation is said to be “undemanding” on a 1.7 times price-to-book value. Finance and insurance are among the products that benefit from a rising middle class.

FPT is the fund’s largest holding in Vietnam and is up 66 per cent this year. It’s one of the leading infotech outsourcing powerhouses in the region, is a major fixed-line telecoms operator, and has an IT-focused education in institutions with more than 50,000 students.

Mobile World is the largest multi-category retail chain in Vietnam, operating 4,354 stores. Its shares are still trading at less than half the valuation of regional peers despite one of the highest return-on-equity ratios.

Military Commercial Bank is one of the most dynamic midsized private banks in Vietnam, offering a full spectrum of financial products to the middle class. This year it is delivering strong growth in profits with accelerating growth in loans and lower loss provisions.

VSTECS is now the largest general distributor for domestic network security products in Vietnam, with 20 per cent of revenue coming from elsewhere in Southeast Asia. It stands to benefit from digitalization in those countries.

Glenmark Pharmaceuticals is India’s fourth biggest in the sector. It has been focusing on new drugs and biosimilars in the fields of cancer, dermatology and respiratory diseases. Its shares are 20 per cent higher and trading at significant discounts to peers’.

Karur Vysya Bank is a major commercial bank in India’s Tamil Nadu state whose shares have risen 25 per cent this year, but trade at big discounts to peers’. The fund says current valuations ignore the bank’s strength, with a high Tier-1 capital, a large retail deposit base and a low non-performing asset ratio.

Arwana Citramulia of Indonesia “is probably the most well-run ceramics company in the region,” with one of the best track records and growth outlooks, yet it’s the cheapest ceramics player on a price/earnings ratio of only 12 times.

Medikaloka Hermina is Indonesia’s largest hospital network. Its shares are up 33 per cent this year, although its valuations are still undemanding. It delivered the strongest earnings-per-share growth in the region in 2017-20 at 63 per cent.

These shares are all cheap both absolutely and relative to their peers’. Ng says many of these “are hidden gems” which, as they are small-cap and historically illiquid, are under-researched. Targeting such companies “has reaped handsome rewards for us over the years.”

Promising Small-Caps in Asia taken from our ‘On Target Newsletter’ issue no 268

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