Today I’ll be hosting another Ask Me Anything thread. Feel free to ask any questions you might have. For example, what are you interested in? What are you worried about? What’s on your mind?
You can also ask about the companies I’ve written about recently:
For those of you who are new to the newsletter, my name is Michael Fritzell and I’m writing Asian Century Stocks as my full-time job. I started the Substack three years ago and it’s now become a self-sustaining business. I’ve been in the region for 15 years, mostly on the buy-side. I’m originally from Sweden and have spent the past 10 years in Singapore. Feel free to reach out to me if you wish － I’m always happy to talk to subscribers.
Disclaimer: Asian Century Stocks uses information sources believed to be reliable, but their accuracy cannot be guaranteed. Delante Media Pte Ltd is not regulated under the Financial Advisers Act and should not be regarded as a financial adviser. The information contained in this publication is not intended to constitute individual investment advice and is not designed to meet your personal financial situation. You are advised to discuss your investment options with your financial adviser and to understand whether any investment is suitable for your specific needs. The opinions expressed in the below discussion are those of the publisher and are subject to change without notice. This post is intended for institutional, accredited investors or expert investors only. I may, from time to time, have positions in the securities covered in articles on this website.
Hi Michael, I have been fishing for some ideas in HK market where business is stable and not major surprises expected from top line perspective. The one that interested me the most is HKBN, given its operating in Duopoly environment and business itself is quite stable. With almost 15% dividend yield that too when interest rates have peaked, I couldn’t think of a better risk/reward. Do you have any views on this? Am I missing something?
Wow, just incredible. Are they close to breaking covenants? I'd have to dig deeper to understand exactly what investors are thinking. Let me get back to you.
Hello Micheal, thank you for your work, you have inspired me to go deeper into Asian Markets!
I wanted to ask a couple of questions.
Firstly, are you in Taipei anytime soon? Would love to sit down and chat over some coffee.
Secondly, in terms of MTR Corp stock and others like Fu Shou Yuan (1448 HK) which are intertwined with macro-level metrics, how do you research the macros (example: population growth or deaths)? I know you touched upon this already in "Hong Kong's death has been exaggerated". Sure, the official statistics of the HK government predict population growth, and the numbers (like emigration) are not supposedly as bad as they seem, but due to being new to the HK scene, I'm not sure what the HK government's track record has been with transparency in its statistics -- and its biases. When doing research into macros, do you solely rely on government statistics, and if not, which other sources do you take into account?
Ok, thirdly (and lastly): For emerging markets in Southeast Asia like the Philippines and Indonesia, which brokers would you recommend? What about for Central Asia and countries like Kyrgyzstan and Kazakhstan?
I know I asked a lot, and my writing style is a bit messy, my apologies. Once Again, thank you for the work you do and for hosting this Q&A!
Hi! Sure, I'll let you know next time I'm in Taipei. I think it'll be sooner rather than later.
I think the HK government statistics have been reliable so far. But there are also tons of alternative data sources, including Google search queries and airport arrivals data. It's definitely positive to have the broader macro work in your favor (e.g. the number of deaths going up), but exactly how that translates into company financials is tricky to understand. I believe that the future is difficult to predict, so better play it safe by choosing companies that trade at low multiples.
In Southeast Asia, I prefer the Philippines right now. They're a US and by extension Singapore ally, so I'm thinking the risk of capital controls is lower than in say Kazakhstan. Marcos seems to be corrupt, but also pro-business. With all these investments planned, I'm thinking that gross capital formation is going up, and that we'll see a new credit cycle. In addition, they're about to lower stock transaction taxes, and I hope that it'll lead retail investors to buy Philippine equities. Retail participation is unusually low in the Philippines, even though you can now buy shares through GCash. I'm not as keen on Indonesian equities right now, but I'm finding plenty of individual opportunities in either countries. Micro almost always matters more than macro. I don't know much about Kyrgyzstan and Kazakhstan, but I know they're terribly corrupt countries and I also fear that they'll end up under Russian control at some point, which could mean being cut off from the SWIFT system.
Would your research process be the same, for say, China, which is known to have discrepancies in its officially reported numbers at times? Anything to be weary of?
Additionally, which broker(s) are you using to access the PH market? I’ve heard of a few, but I’d like to know which one you think is “best” from personal experience.
I'm extra careful with Chinese and Vietnamese companies as the numbers cannot always be trusted. Insider buying and share buybacks can provide some comfort what insiders are seeing value where the market is not. What you need to be weary of is 1) weak cash flows 2) fast growing balance sheets and 3) complex capital structure with related party transactions. More information here https://www.asiancenturystocks.com/p/fraud-in-asia?utm_source=publication-search
Boom Securities offers trading access to the Philippines, though it's just been sold by former owner Monex and it's unclear who owns the company now. An option is Singapore-based Phillip Securities, which offers pan-Asian access too https://www.asiancenturystocks.com/p/the-best-asian-retail-broker
Hi Thomas - I don't know much about the company, though I hear their products are decent and they should benefit from a recovery in global auto production. From my understanding, they've also started buying back shares. What makes me a bit cautious is that they're a low-margin business dependent on the Japanese auto industry, which benefits from a weak yen and would suffer in a strong yen scenario. I'm not sure I'd like that exposure now that we're getting so close to a Fed easing cycle.
Hi Michael, would be interested in your views on Delfi given it's come back down to write up levels (or there abouts). Also, do you still follow Thai Bev & if so, do you think the spin will ever happen ? Really enjoy your stack ! Thanks, Paddy
Hi Paddy - it looks like Delfi's earnings are going remain weak for another 12-18 months as it continues to hedge cocoa at high levels and trying to pass on the higher costs to the consumer, putting them at a disadvantage vs its peers. The supply response will come, but with a 2-3 year lag, i.e. from 2025. We also know that the weather is getting cooler year-on-year, which means that next year's cocoa harvest will most likely be better. But the cocoa market remains extremely tight, so I don't expect the headwinds to subside just yet. Fyi John Chuang bought shares around the current level early last year I think. https://climatereanalyzer.org/clim/sst_daily/
ThaiBev is facing greater competition in beer from Carabao and others, while it retains its monopoly in spirits. The current Chairman of ThaiBev is not a great capital allocator, so I can see why investors have become disillusioned with the company. Whether the spin will happen is unclear, but I doubt it'll make much difference. Typically, holding companies still trade at discounts.
thanks for the detailed comments. Re Delfi - I continue to think this is likely to get taken out by a Nestle type, especially at these valuations. That said, this was my original thesis. I'm happy to hold & possibly accumulate. Interesting re John Chuang - thanks.
Re Thai Bev - agreed on the poor capital allocations. Disappointed with this one - although I can see this trending in the right direction given the thai economy is somewhat recovering from the post covid headache.
Thanks again for the comments & look forward to these Q&A in the future. Best.
Yes, or it might be subject to a takeover from Mars Corporation. They're acquisitive, e.g. the see the takeover chatter about Kellanova. Delfi is a prized asset. John has apparently been approached in the past, but said that offers have undervalued the business. That seems to suggest that there is a price at which he'd be willing to sell. If Mars gets access to Delfi's distribution network, that would be a win for all, I think.
To what extent can you rely on income from the newsletter to sustain life expenses? Or is it the case investing income pays the bills? Also, somewhat related, why Singapore?
In the first 2.5 years, I relied on capital gains to pay my bills. Today, I can live on subscription income without a problem.
Why Singapore? It's because I have a son from a previous marriage, and I want to be close to him. I want to see him grow up. It's also a decent place to live: safe, convenient, with great education and a low tax environment.
Hi Michael, how do you view the private credit market in Asia, especially in Singapore? Do you think it's a bursting bubble or you think it still has room to grow?
I think the majority of "private credit" is funnelled into private equity portfolio companies or funds themselves. Some private equity funds are borrowing at high teens interest rates, suggesting near-term distress. Now that USD interest rates have risen over 5 percentage points, I think it's obvious that bankruptcies will follow. So when it comes to my own investing, I would personally never invest in private credit, since the growth of the market signals desperation on the part of the borrower. I feel much safer investing in unlevered entities.
As for ANZ funds, I do respect John Hempton and Bronte Capital. I sometimes listen to Will Granger at Airlie Funds and Steve Johnson at Forager Funds. But I'm not sure how much these two actually outperform. VGI used to be good but not anymore.
I think I've only published three, and been a bit burnt in mining stocks. Cautious right now.
Just found your substack, happy I did. Trying to establish a similar model to you. For my portfolio I track it in SGD and do not hedge. I am interested in ways you manage forex changes or whether you just accept the exposure. Thanks Nathan
Hi Nathan, I just accept the exposure but right now I think it's a plus if a company earns its revenues in JPY and negative if it's in IDR, for example. Based on my personal view of those currencies
Hey Michael, thanks for hosting the AMA! Just wondering how do you deal with or identify "value traps" esp in Asia ? My experience has been that value can be notoriously difficult /takes very long to unlock. What's your time horizon for stocks like these? Ie.Do you have a cut off time before you decide to dispose?
I've been a lurker for a while through a feed and no idea you are based in SG too! I would love to get a coffee with you if you're around CBD one day.
Hi Khinwai, this is the perennial issue. Getting stuck in companies not returning cash to shareholders. It shows the importance of analyzing capital allocation: do they pay out dividends, buy back shares? Are they getting a solid return from their capex or M&A, as evidenced by the return on capital. As you can probably tell, I have a preference for stable, growing companies with decent dividend payout ratios. If they're growing, at least you'll get something back through higher EPS over time.
Happy to grab a coffee in CBD! Perhaps next week? Reply to my email and we'll take it from there.
I have no clue. For graduate jobs into banking and consulting, your degree matters. But after that, it'll be all and your relationships and track record. I think if you're good, it'll show sooner or later.
Hi Michael, sorry Im going to ask you about a HK company that I am studying and I would like to know if you know it and maybe you have an opinion about it already. I am talking about PLAYMNATES TOYS (0869 HK). Mainly they have the license for selling TMNT toys and other new different toys like Godzilla&Kong. They are trading for less than their net cash and deliver an interesting dividend (7%). I would like to hear your thougths since you know the market much better tnah me. Thanks and great job!!
Hi Federico, yes I know about it and I find the story compelling. I love the fact that Seth Rogen was involved with Mutant Mayhem, and now the Paramount Plus TV series. That said, movie-related toy sales tends to be short-lived, and I don't think the new TV series has made as much of a splash as the 2012-2017 Nickelodeon show. https://trends.google.com/trends/explore?date=today%205-y&q=Teenage%20Mutant%20Ninja%20Turtles&hl=en
The big question in my mind is what changes Michael Chan will bring to the business, including perhaps better capital allocation. And perhaps an expansion into other fields? They have plenty of cash available for expansion.
Thank you Michael! I didnt know you had studied the company. I read it and I learn some more about Playmates toys. Thanks. And.... yea, who know were the company is going to... the only thing thats catch my attention is the amount of cash.
I love your work and shared it with my friend. My question is, how do you get good at investigating and reading company disclosures and filings? How do you kill an investment idea quickly? How do you avoid thesis drift? Thank you so much.
I usually start with looking at the financials and think about what has caused revenues, expenses and profits to fluctuate. Then Google for the company's investor presentation to learn about what they do and what's going to change in the future. In the filings, I suppose there are three key parts: 1) the financial statements 2) management commentary 3) outlook statements. Have a look at those three and you'll get a feeling for the past and future.
Killing an idea quickly includes checking the share count (I hate when companies dilute their minorities), checking the return on equity (if it's single digit ROE for decades, they probably don't allocate capital well or it's simply a shitty business) and checking their margins (tiny margins means the company has no pricing power, making it riskier).
I succumb to thesis drift too. It's hard to accept that you've made a mistake. One piece of advice is to look at the stock if it was a new investment. Would you invest today? Or if you want to take it even further, sell it and then consider whether you'll want to buy it back.
1. What are the best 5 companies in terms of quality you see in each of the following countries that given the right valuation you would buy and hold forever?
Japan
China
Singapore
South Korea
2. What sites would you recommend for following asian stocks: to do screening, analysis, reading news etc.
1. Each person has a different risk appetite, but for me, I'd say Japan: Koshidaka, China: Cafe de Coral, Singapore: Delfi, South Korea: Saramin.
2. TIKR is great for financial data and screening, especially given the price. For news, I'd start with Nikkei Asia. The gold standards in terms of equity research platforms is Smartkarma, there's a $50/month option for retail investors.
I wanted to hear your thoughts on Vietnamese and Philippines markets, as to whether index or stock picking is the preferred strategy based on your expertise?
And what do you think about the recent run of Plover Bay Tech (1523), which you wrote about in your HK travel notes?
I think in emerging markets, indices are almost never the answer. They tend to be poorly constructed and too much exposure to banks and property developers. The juicy parts of the emerging market stock universe are the consumer companies as their ROEs tend to be higher. Gun to my head, I'd buy into individual shares using an Asia-focused broker like Phillip Securities, things like Universal Robina or FPT Corporation and just hold them for the long-term.
I actually sold Plover Bay Tech before its run. I still think that Alex Chan is a genius, though I will openly admit to being insecure when it comes to understand competitive moats in the technology sector. They seem to be doing incredibly well, surely benefitting from the deployment of 5G and Starlink connections. I don't know whether they'll ultimately be disrupted, or whether their Hong Kong heritage might one day work against them. But even after this run, the stock still trades at just 15x P/E with a 6% dividend yield.
Hi Michael, you buy and sell stocks much more often than me. Your performance is also better, so no judgement here. Do you think it is driven by the fact that you run across a lot of different companies as an investment blogger? Or perhaps you believe there is too little or too much activity in your portfolio? Actually, I'd appreciate to hear any thoughts on portfolio turnover ratio that you may have.
I think there's been too much activity in the portfolio. Most of the returns will come from long-term price movements. I sold United Plantations too early, missed the recent run in Seria and also sold VTech prematurely.
I think the best way is to buy compounders and letting them run. But many of the stocks that I've covered haven't necessarily enjoyed long-term growth, so I've felt forced to trade them. Hasn't always worked out. Hopefully, with long-term growth stories like Hartalega and Koshidaka, I'll stay with them for slightly longer. I've always had a preference for cheap stocks, so moving up the quality spectrum is a learning process for me. Hopefully I'll get there at some point.
There has been much concern has been about inflation recently, but what's your view on deflation in China and HK and the effects it might have on some of the companies you have written up?
I think deflation is a huge issue in China. Xi apparently doesn't want to stimulate consumption as he thinks it would be a waste of resources. That's fine. But China is is currently experiencing debt deflation due to falling property prices. Most bank loans now go to state-owned enterprises, and the money doesn't trickle down. That's why youth unemployment has gone up. As banks have been lending on collateral values, they're forced to cut back. Meanwhile, local governments are tight on cash now that land sales has come down, and the central government won't support them. It's not a pretty picture.
So who would be affected? Luxury goods sales is certainly weakening. Yantai Changyu, Macau, Lao Feng Xiang, Fu Shou Yuan might plausibly be affected. Travel might also be affected, e.g. through Straco, Multi Bintang and Travelsky.
I feel more comfortable with Hong Kong equities, as the primary issue with Hong Kong's economy has been the strong dollar and high interest rates. I think we might see interest rates come down in the next year, and the dollar to weaken, too.
As this is a "free space" I would like to share my frustration with you with regard to HK stocks. I believe they are currently one of the cheapest asset classes in the world, and yet they look like in a long bear market from which they can't wake up. A partial exception has been Pico Far East, which you recommended. Thank you. In general I struggle to see how some of these valuations are even possible and why HK has become such a pariah. For ex., I am invested in a stock called Hi Sun, which owns a large stake in Pax Global (whose POS machines I see everywhere in the world). It has abundant net cash and other holdings with a lot of cash. Yes, there are a few issues. Yes, management is not thinking about dividends, etc. But.. how on earth can this trade at a discount of 88% to net assets???
Hi Forsi, oh yes some of the valuation multiples in the Hong Kong market are astounding. Some experienced investors look at Hong Kong today and see shades of Japan 2011 or Indonesia 1998. Don't take my write-ups as recommendations, as I try to provide objective views, presenting the facts as I see them without necessarily endorsing each individual stock. Pico Far East is known in the investing community to be well-run. Hi Sun is a stock I don't know much about, have heard some noise about corporate governance, but I don't know enough to say whether those concerns are warranted or not. From my perspective, the Hong Kong market is misperceived. I actually think the capital allocation in some of the companies like Oriental Watch, Pacific Textiles, Lion Rock, etc is excellent. So if you ask me, the choice between investing in Japanese companies with poor capital allocation vs Hong Kong companies with much lower multiples, the choice is really easy at this point in time.
Well I invested in Niu Technologies thinking that the 2022 lockdowns and high lithium prices were the cause of their losses. I expected retail sales to pick up in 2023, but it did not and lower lithium prices didn't help either. The co-founder quit in 2023, suggesting deep-rooted problems. I think the market for electric scooters is simply too competitive. I think I lost 60% on that position.
The best performer has been MAP Aktif, an Indonesian sportswear retailer, up roughly 300% from where I invested in it. Fantastic management team, dominating the market, which continues to grow. The P/E is still low at 17x.
Inflation is already in the rear-view mirror. Developed Asia-Pacific, i.e. Singapore, Korea, Australia printed money during COVID-19 and suffered a bout of inflation because of related spending. But inflation has come back to low levels almost across the board. And emerging Asia such as Indonesia, the Philippines, Thailand didn't print much money to begin with. Japan has seen rising inflation, but that's almost all imported, i.e. due to the weak yen. It'll quickly come back down.
So inflation isn't that much of an issue. The reason why Bangko Sentral in the Philippines or Bank Indonesia haven't lowered rates is not because of inflation, it's because they fear their currencies will weaken against the strong US Dollar. Once the Fed Funds rate starts coming down, Asian central banks will follow suit, and we'll then see the headwind of high interest rates gradually go away.
But management "is excited about its growth prospects for 2024, and believes it is well
positioned to outpace the market"(see annual report linked below) ....but the share price sold off after the 2023 annual results were released, suggesting shareholders don't share management's optimism: https://corporate.samsonite.com/en/annual-and-interim-reports.html
Why are you positive about the outlook for Samsonite over other potential investments?
I'm not 100% sure that its near-term growth prospects are positive. But like you say, their guidance is okay, and the Google Trends chart is moving in the right direction. TSA checkpoint traveler throughput is much higher than last year's level. I don't see anything that would suggest a sudden drop-off in demand. The reason I decided to invest in Samsonite - and my risk profile might be different than yours - is that I felt that the weak 2024 numbers had already been digested. And there could be upside in the multiple if indeed they decide to do a secondary listing in the United States.
My question concerns options on the HK stock market. For stocks like Evergrande or Country Garden which are suspended since months, is it possible to exercise for instance put options if you owned some before the stocks were suspended?
Thanks for your answer and also for your great work!
Hi Daniel - I actually don't know. There should be something in the fine print in the legal documents for the options you're buying. I'd check who the counterparties are and try to get an answer from them.
Well I think they listed in the US first and then Hong Kong, so the act of seeking secondary listings did not help. I think the Chinese Internet companies have had significant issues because of the crackdown that started in late 2020. Many of them have had leadership changes with founders stepping down. I think Americans would understand the value of the Samsonite brand, and the NYSE is also a highly liquid market. I don't know whether it'll make a difference, but let's see.
I'm not aware of any company that has a primary listing on the HKex and a 2ndary listing in the US.
US listings require quarterly earnings and analysts expect next quarter and full year revenue forecasts. We have audio of post-earnings Q&A to gauge management's tone at each call. That level of transparency drives the liquidity of US listings ...as it is easier to 'know what we own'.
We're in August and have no idea how Samsonite has been doing since December last year!
Good point. Now when I think about it, the Chinese telcos and CNOOC used to have US listings. Probably didn't do much for their valuations. Let's see... What I do like about Samsonite is that the Chairman and CEO own $100 million+ worth of shares. Now the company is buying back shares. They'll be working towards realizing value in the stock, which they say is undervalued. But perhaps it won't be that straightforward.
Hi Michael, I have been fishing for some ideas in HK market where business is stable and not major surprises expected from top line perspective. The one that interested me the most is HKBN, given its operating in Duopoly environment and business itself is quite stable. With almost 15% dividend yield that too when interest rates have peaked, I couldn’t think of a better risk/reward. Do you have any views on this? Am I missing something?
Wow, just incredible. Are they close to breaking covenants? I'd have to dig deeper to understand exactly what investors are thinking. Let me get back to you.
Thank you, Michael for the Q&A. even though I had no questions, I enjoyed reading the Q&A posed by others.
Hello Micheal, thank you for your work, you have inspired me to go deeper into Asian Markets!
I wanted to ask a couple of questions.
Firstly, are you in Taipei anytime soon? Would love to sit down and chat over some coffee.
Secondly, in terms of MTR Corp stock and others like Fu Shou Yuan (1448 HK) which are intertwined with macro-level metrics, how do you research the macros (example: population growth or deaths)? I know you touched upon this already in "Hong Kong's death has been exaggerated". Sure, the official statistics of the HK government predict population growth, and the numbers (like emigration) are not supposedly as bad as they seem, but due to being new to the HK scene, I'm not sure what the HK government's track record has been with transparency in its statistics -- and its biases. When doing research into macros, do you solely rely on government statistics, and if not, which other sources do you take into account?
Ok, thirdly (and lastly): For emerging markets in Southeast Asia like the Philippines and Indonesia, which brokers would you recommend? What about for Central Asia and countries like Kyrgyzstan and Kazakhstan?
I know I asked a lot, and my writing style is a bit messy, my apologies. Once Again, thank you for the work you do and for hosting this Q&A!
Hi! Sure, I'll let you know next time I'm in Taipei. I think it'll be sooner rather than later.
I think the HK government statistics have been reliable so far. But there are also tons of alternative data sources, including Google search queries and airport arrivals data. It's definitely positive to have the broader macro work in your favor (e.g. the number of deaths going up), but exactly how that translates into company financials is tricky to understand. I believe that the future is difficult to predict, so better play it safe by choosing companies that trade at low multiples.
In Southeast Asia, I prefer the Philippines right now. They're a US and by extension Singapore ally, so I'm thinking the risk of capital controls is lower than in say Kazakhstan. Marcos seems to be corrupt, but also pro-business. With all these investments planned, I'm thinking that gross capital formation is going up, and that we'll see a new credit cycle. In addition, they're about to lower stock transaction taxes, and I hope that it'll lead retail investors to buy Philippine equities. Retail participation is unusually low in the Philippines, even though you can now buy shares through GCash. I'm not as keen on Indonesian equities right now, but I'm finding plenty of individual opportunities in either countries. Micro almost always matters more than macro. I don't know much about Kyrgyzstan and Kazakhstan, but I know they're terribly corrupt countries and I also fear that they'll end up under Russian control at some point, which could mean being cut off from the SWIFT system.
Amazing! Thank you for your response.
Would your research process be the same, for say, China, which is known to have discrepancies in its officially reported numbers at times? Anything to be weary of?
Additionally, which broker(s) are you using to access the PH market? I’ve heard of a few, but I’d like to know which one you think is “best” from personal experience.
Thank you once again for all that you do!
I'm extra careful with Chinese and Vietnamese companies as the numbers cannot always be trusted. Insider buying and share buybacks can provide some comfort what insiders are seeing value where the market is not. What you need to be weary of is 1) weak cash flows 2) fast growing balance sheets and 3) complex capital structure with related party transactions. More information here https://www.asiancenturystocks.com/p/fraud-in-asia?utm_source=publication-search
Boom Securities offers trading access to the Philippines, though it's just been sold by former owner Monex and it's unclear who owns the company now. An option is Singapore-based Phillip Securities, which offers pan-Asian access too https://www.asiancenturystocks.com/p/the-best-asian-retail-broker
Have a great day! Thank you!
What do you think about Nippon Seiki (7287)?
Hi Thomas - I don't know much about the company, though I hear their products are decent and they should benefit from a recovery in global auto production. From my understanding, they've also started buying back shares. What makes me a bit cautious is that they're a low-margin business dependent on the Japanese auto industry, which benefits from a weak yen and would suffer in a strong yen scenario. I'm not sure I'd like that exposure now that we're getting so close to a Fed easing cycle.
thx for the color!
Hi Michael, would be interested in your views on Delfi given it's come back down to write up levels (or there abouts). Also, do you still follow Thai Bev & if so, do you think the spin will ever happen ? Really enjoy your stack ! Thanks, Paddy
Hi Paddy - it looks like Delfi's earnings are going remain weak for another 12-18 months as it continues to hedge cocoa at high levels and trying to pass on the higher costs to the consumer, putting them at a disadvantage vs its peers. The supply response will come, but with a 2-3 year lag, i.e. from 2025. We also know that the weather is getting cooler year-on-year, which means that next year's cocoa harvest will most likely be better. But the cocoa market remains extremely tight, so I don't expect the headwinds to subside just yet. Fyi John Chuang bought shares around the current level early last year I think. https://climatereanalyzer.org/clim/sst_daily/
ThaiBev is facing greater competition in beer from Carabao and others, while it retains its monopoly in spirits. The current Chairman of ThaiBev is not a great capital allocator, so I can see why investors have become disillusioned with the company. Whether the spin will happen is unclear, but I doubt it'll make much difference. Typically, holding companies still trade at discounts.
thanks for the detailed comments. Re Delfi - I continue to think this is likely to get taken out by a Nestle type, especially at these valuations. That said, this was my original thesis. I'm happy to hold & possibly accumulate. Interesting re John Chuang - thanks.
Re Thai Bev - agreed on the poor capital allocations. Disappointed with this one - although I can see this trending in the right direction given the thai economy is somewhat recovering from the post covid headache.
Thanks again for the comments & look forward to these Q&A in the future. Best.
Yes, or it might be subject to a takeover from Mars Corporation. They're acquisitive, e.g. the see the takeover chatter about Kellanova. Delfi is a prized asset. John has apparently been approached in the past, but said that offers have undervalued the business. That seems to suggest that there is a price at which he'd be willing to sell. If Mars gets access to Delfi's distribution network, that would be a win for all, I think.
To what extent can you rely on income from the newsletter to sustain life expenses? Or is it the case investing income pays the bills? Also, somewhat related, why Singapore?
In the first 2.5 years, I relied on capital gains to pay my bills. Today, I can live on subscription income without a problem.
Why Singapore? It's because I have a son from a previous marriage, and I want to be close to him. I want to see him grow up. It's also a decent place to live: safe, convenient, with great education and a low tax environment.
Thanks for being so candid. Singapore is lovely, but after reading your JB review was curious.
Hi Michael, how do you view the private credit market in Asia, especially in Singapore? Do you think it's a bursting bubble or you think it still has room to grow?
I think the majority of "private credit" is funnelled into private equity portfolio companies or funds themselves. Some private equity funds are borrowing at high teens interest rates, suggesting near-term distress. Now that USD interest rates have risen over 5 percentage points, I think it's obvious that bankruptcies will follow. So when it comes to my own investing, I would personally never invest in private credit, since the growth of the market signals desperation on the part of the borrower. I feel much safer investing in unlevered entities.
New subscriber here and big fan of your book Long-term front-running.
Are there any ANZ focused funds you respect?
Do you have any deep dives on any ASX companies?
Hi Dan,
Great to hear and thanks.
As for ANZ funds, I do respect John Hempton and Bronte Capital. I sometimes listen to Will Granger at Airlie Funds and Steve Johnson at Forager Funds. But I'm not sure how much these two actually outperform. VGI used to be good but not anymore.
I think I've only published three, and been a bit burnt in mining stocks. Cautious right now.
Codan (up almost 4x): https://www.asiancenturystocks.com/p/deep-dive-2022-29-codan-cda-au
Sierra Rutile (being taken over right now): https://www.asiancenturystocks.com/p/sierra-rutile-srx-au
Ten Sixty Four (a complete disaster): https://www.asiancenturystocks.com/p/deep-dive-2022-12-ten-sixty-four?s=w
I also wrote about my trip to WA earlier this year: https://www.asiancenturystocks.com/p/travel-notes-western-australia
Legend, thank you!
Just found your substack, happy I did. Trying to establish a similar model to you. For my portfolio I track it in SGD and do not hedge. I am interested in ways you manage forex changes or whether you just accept the exposure. Thanks Nathan
Hi Nathan, I just accept the exposure but right now I think it's a plus if a company earns its revenues in JPY and negative if it's in IDR, for example. Based on my personal view of those currencies
Hey Michael, thanks for hosting the AMA! Just wondering how do you deal with or identify "value traps" esp in Asia ? My experience has been that value can be notoriously difficult /takes very long to unlock. What's your time horizon for stocks like these? Ie.Do you have a cut off time before you decide to dispose?
I've been a lurker for a while through a feed and no idea you are based in SG too! I would love to get a coffee with you if you're around CBD one day.
Hi Khinwai, this is the perennial issue. Getting stuck in companies not returning cash to shareholders. It shows the importance of analyzing capital allocation: do they pay out dividends, buy back shares? Are they getting a solid return from their capex or M&A, as evidenced by the return on capital. As you can probably tell, I have a preference for stable, growing companies with decent dividend payout ratios. If they're growing, at least you'll get something back through higher EPS over time.
Happy to grab a coffee in CBD! Perhaps next week? Reply to my email and we'll take it from there.
Hi Michael, Does a non-ivy league guy make a huge success in hedge fund or in banking industries.?
I have no clue. For graduate jobs into banking and consulting, your degree matters. But after that, it'll be all and your relationships and track record. I think if you're good, it'll show sooner or later.
Hi Michael, sorry Im going to ask you about a HK company that I am studying and I would like to know if you know it and maybe you have an opinion about it already. I am talking about PLAYMNATES TOYS (0869 HK). Mainly they have the license for selling TMNT toys and other new different toys like Godzilla&Kong. They are trading for less than their net cash and deliver an interesting dividend (7%). I would like to hear your thougths since you know the market much better tnah me. Thanks and great job!!
Hi Federico, yes I know about it and I find the story compelling. I love the fact that Seth Rogen was involved with Mutant Mayhem, and now the Paramount Plus TV series. That said, movie-related toy sales tends to be short-lived, and I don't think the new TV series has made as much of a splash as the 2012-2017 Nickelodeon show. https://trends.google.com/trends/explore?date=today%205-y&q=Teenage%20Mutant%20Ninja%20Turtles&hl=en
The big question in my mind is what changes Michael Chan will bring to the business, including perhaps better capital allocation. And perhaps an expansion into other fields? They have plenty of cash available for expansion.
More discussion here: https://www.asiancenturystocks.com/p/catalyst-mutant-mayhem
Thank you Michael! I didnt know you had studied the company. I read it and I learn some more about Playmates toys. Thanks. And.... yea, who know were the company is going to... the only thing thats catch my attention is the amount of cash.
Hi Michael,
I love your work and shared it with my friend. My question is, how do you get good at investigating and reading company disclosures and filings? How do you kill an investment idea quickly? How do you avoid thesis drift? Thank you so much.
Hi Smaug,
I usually start with looking at the financials and think about what has caused revenues, expenses and profits to fluctuate. Then Google for the company's investor presentation to learn about what they do and what's going to change in the future. In the filings, I suppose there are three key parts: 1) the financial statements 2) management commentary 3) outlook statements. Have a look at those three and you'll get a feeling for the past and future.
Killing an idea quickly includes checking the share count (I hate when companies dilute their minorities), checking the return on equity (if it's single digit ROE for decades, they probably don't allocate capital well or it's simply a shitty business) and checking their margins (tiny margins means the company has no pricing power, making it riskier).
I succumb to thesis drift too. It's hard to accept that you've made a mistake. One piece of advice is to look at the stock if it was a new investment. Would you invest today? Or if you want to take it even further, sell it and then consider whether you'll want to buy it back.
Just noticed that you recently came to Tokyo!
Let's meet for coffee next time you're here!
Sure!
Hi Michael,
1. What are the best 5 companies in terms of quality you see in each of the following countries that given the right valuation you would buy and hold forever?
Japan
China
Singapore
South Korea
2. What sites would you recommend for following asian stocks: to do screening, analysis, reading news etc.
Thank you in advance for the opportunity.
Ran
1. Each person has a different risk appetite, but for me, I'd say Japan: Koshidaka, China: Cafe de Coral, Singapore: Delfi, South Korea: Saramin.
2. TIKR is great for financial data and screening, especially given the price. For news, I'd start with Nikkei Asia. The gold standards in terms of equity research platforms is Smartkarma, there's a $50/month option for retail investors.
Thank you so much!
Hey Michael!
I wanted to hear your thoughts on Vietnamese and Philippines markets, as to whether index or stock picking is the preferred strategy based on your expertise?
And what do you think about the recent run of Plover Bay Tech (1523), which you wrote about in your HK travel notes?
I think in emerging markets, indices are almost never the answer. They tend to be poorly constructed and too much exposure to banks and property developers. The juicy parts of the emerging market stock universe are the consumer companies as their ROEs tend to be higher. Gun to my head, I'd buy into individual shares using an Asia-focused broker like Phillip Securities, things like Universal Robina or FPT Corporation and just hold them for the long-term.
I actually sold Plover Bay Tech before its run. I still think that Alex Chan is a genius, though I will openly admit to being insecure when it comes to understand competitive moats in the technology sector. They seem to be doing incredibly well, surely benefitting from the deployment of 5G and Starlink connections. I don't know whether they'll ultimately be disrupted, or whether their Hong Kong heritage might one day work against them. But even after this run, the stock still trades at just 15x P/E with a 6% dividend yield.
Hi Michael, you buy and sell stocks much more often than me. Your performance is also better, so no judgement here. Do you think it is driven by the fact that you run across a lot of different companies as an investment blogger? Or perhaps you believe there is too little or too much activity in your portfolio? Actually, I'd appreciate to hear any thoughts on portfolio turnover ratio that you may have.
I think there's been too much activity in the portfolio. Most of the returns will come from long-term price movements. I sold United Plantations too early, missed the recent run in Seria and also sold VTech prematurely.
I think the best way is to buy compounders and letting them run. But many of the stocks that I've covered haven't necessarily enjoyed long-term growth, so I've felt forced to trade them. Hasn't always worked out. Hopefully, with long-term growth stories like Hartalega and Koshidaka, I'll stay with them for slightly longer. I've always had a preference for cheap stocks, so moving up the quality spectrum is a learning process for me. Hopefully I'll get there at some point.
but you did sell down Delfi and JCNC at a great time!
Are there any Japan focused funds you respect?
Yes the ones that come to mind are
AVI Japan Opportunity Trust
VARECS Partners
Oasis Management
SPARX Japan
Then there are plenty of funds with broader mandates with exposure to Japan eg Amiral Gestion Sextant Asie and FPA Crescent
There has been much concern has been about inflation recently, but what's your view on deflation in China and HK and the effects it might have on some of the companies you have written up?
I think deflation is a huge issue in China. Xi apparently doesn't want to stimulate consumption as he thinks it would be a waste of resources. That's fine. But China is is currently experiencing debt deflation due to falling property prices. Most bank loans now go to state-owned enterprises, and the money doesn't trickle down. That's why youth unemployment has gone up. As banks have been lending on collateral values, they're forced to cut back. Meanwhile, local governments are tight on cash now that land sales has come down, and the central government won't support them. It's not a pretty picture.
So who would be affected? Luxury goods sales is certainly weakening. Yantai Changyu, Macau, Lao Feng Xiang, Fu Shou Yuan might plausibly be affected. Travel might also be affected, e.g. through Straco, Multi Bintang and Travelsky.
I feel more comfortable with Hong Kong equities, as the primary issue with Hong Kong's economy has been the strong dollar and high interest rates. I think we might see interest rates come down in the next year, and the dollar to weaken, too.
Open to a coffee in Singapore? :)
Absolutely. Next week? Reply to an email and we can take it from there.
Hi, Michael. I'd love to join together. :)
Hi Michael,
Always a pleasure to read you!
As this is a "free space" I would like to share my frustration with you with regard to HK stocks. I believe they are currently one of the cheapest asset classes in the world, and yet they look like in a long bear market from which they can't wake up. A partial exception has been Pico Far East, which you recommended. Thank you. In general I struggle to see how some of these valuations are even possible and why HK has become such a pariah. For ex., I am invested in a stock called Hi Sun, which owns a large stake in Pax Global (whose POS machines I see everywhere in the world). It has abundant net cash and other holdings with a lot of cash. Yes, there are a few issues. Yes, management is not thinking about dividends, etc. But.. how on earth can this trade at a discount of 88% to net assets???
Hi Forsi, oh yes some of the valuation multiples in the Hong Kong market are astounding. Some experienced investors look at Hong Kong today and see shades of Japan 2011 or Indonesia 1998. Don't take my write-ups as recommendations, as I try to provide objective views, presenting the facts as I see them without necessarily endorsing each individual stock. Pico Far East is known in the investing community to be well-run. Hi Sun is a stock I don't know much about, have heard some noise about corporate governance, but I don't know enough to say whether those concerns are warranted or not. From my perspective, the Hong Kong market is misperceived. I actually think the capital allocation in some of the companies like Oriental Watch, Pacific Textiles, Lion Rock, etc is excellent. So if you ask me, the choice between investing in Japanese companies with poor capital allocation vs Hong Kong companies with much lower multiples, the choice is really easy at this point in time.
Do you have historical track record of your recommendation / model portfolio anywhere?
My personal Asia-focused portfolio has done +31.2% since October 2021, a +10.2% CAGR in US Dollar terms.
What's worst drawdown? Best and worst holding?
Well I invested in Niu Technologies thinking that the 2022 lockdowns and high lithium prices were the cause of their losses. I expected retail sales to pick up in 2023, but it did not and lower lithium prices didn't help either. The co-founder quit in 2023, suggesting deep-rooted problems. I think the market for electric scooters is simply too competitive. I think I lost 60% on that position.
The best performer has been MAP Aktif, an Indonesian sportswear retailer, up roughly 300% from where I invested in it. Fantastic management team, dominating the market, which continues to grow. The P/E is still low at 17x.
Any thoughts on inflation in Asia?
Inflation is already in the rear-view mirror. Developed Asia-Pacific, i.e. Singapore, Korea, Australia printed money during COVID-19 and suffered a bout of inflation because of related spending. But inflation has come back to low levels almost across the board. And emerging Asia such as Indonesia, the Philippines, Thailand didn't print much money to begin with. Japan has seen rising inflation, but that's almost all imported, i.e. due to the weak yen. It'll quickly come back down.
So inflation isn't that much of an issue. The reason why Bangko Sentral in the Philippines or Bank Indonesia haven't lowered rates is not because of inflation, it's because they fear their currencies will weaken against the strong US Dollar. Once the Fed Funds rate starts coming down, Asian central banks will follow suit, and we'll then see the headwind of high interest rates gradually go away.
Global travel by prospective Samsonite customers appears to have peaked:
https://www.ft.com/content/33cd9c4a-d525-4ca1-a5de-cd59a90f4afa
But management "is excited about its growth prospects for 2024, and believes it is well
positioned to outpace the market"(see annual report linked below) ....but the share price sold off after the 2023 annual results were released, suggesting shareholders don't share management's optimism: https://corporate.samsonite.com/en/annual-and-interim-reports.html
Why are you positive about the outlook for Samsonite over other potential investments?
I'm not 100% sure that its near-term growth prospects are positive. But like you say, their guidance is okay, and the Google Trends chart is moving in the right direction. TSA checkpoint traveler throughput is much higher than last year's level. I don't see anything that would suggest a sudden drop-off in demand. The reason I decided to invest in Samsonite - and my risk profile might be different than yours - is that I felt that the weak 2024 numbers had already been digested. And there could be upside in the multiple if indeed they decide to do a secondary listing in the United States.
Thanks for sharing your views on Samsonite.
Dual listing in USA have not helped the share prices of $BABA, $JD, $BIDU, $NTES & $NIO, despite this 2022 article to the contrary:
https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/dual-hong-kong-listings-still-attractive-to-us-listed-chinese-tmt-companies-72056065#:~:text=There%20were%20264%20public%20companies,30.
Hi Michael
My question concerns options on the HK stock market. For stocks like Evergrande or Country Garden which are suspended since months, is it possible to exercise for instance put options if you owned some before the stocks were suspended?
Thanks for your answer and also for your great work!
Hi Daniel - I actually don't know. There should be something in the fine print in the legal documents for the options you're buying. I'd check who the counterparties are and try to get an answer from them.
That would be great. I went through the HK Stock exchange Website but didnt find anything.
Well I think they listed in the US first and then Hong Kong, so the act of seeking secondary listings did not help. I think the Chinese Internet companies have had significant issues because of the crackdown that started in late 2020. Many of them have had leadership changes with founders stepping down. I think Americans would understand the value of the Samsonite brand, and the NYSE is also a highly liquid market. I don't know whether it'll make a difference, but let's see.
I'm not aware of any company that has a primary listing on the HKex and a 2ndary listing in the US.
US listings require quarterly earnings and analysts expect next quarter and full year revenue forecasts. We have audio of post-earnings Q&A to gauge management's tone at each call. That level of transparency drives the liquidity of US listings ...as it is easier to 'know what we own'.
We're in August and have no idea how Samsonite has been doing since December last year!
Good point. Now when I think about it, the Chinese telcos and CNOOC used to have US listings. Probably didn't do much for their valuations. Let's see... What I do like about Samsonite is that the Chairman and CEO own $100 million+ worth of shares. Now the company is buying back shares. They'll be working towards realizing value in the stock, which they say is undervalued. But perhaps it won't be that straightforward.