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Steven Chen
Steven Chen
Articles (206)  | Author's Website |

3 Quick, Moaty Picks From Southeast Asia

Financial, healthcare and consumer names from Singapore, Thailand and Indonesia

When it comes to stock picking, we always favor defense over offense, even in the most rapidly-growing regions across the globe. GDP across the Southeast Asia region is expected to increase at mid-single-digit CAGRs for the foreseeable future. Underlying drivers include an expanding middle-class, increasing trading intra-region and externally (e.g., with China), a booming Internet economy and urbanization.

In this article, we share three picks of quality businesses that have built a competitively advantageous position in their respective domains, and that may benefit from the economic development in the region.

Singapore Exchange

Singapore-based Singapore Exchange Limited (SGX:S68) is Asia’s leading multi-asset exchange covering equity, fixed income and derivatives with a vertically integrated business model. The company employs an asset-light model to generate sales mainly from recurring activities such as trading, clearing, corporate action, settlement, license and subscription.

Being Asia’s most international exchange, Singapore Exchange operates a classic marketplace with a network-effect moat. It is also the world’s only pan-Asian derivatives exchange offering single-point access into key Asian markets.

As shown below, the company has maintained an above 10% return on assets and increased its annual sales by almost three-fold for the past 15 years.

Moving forward, we think that the business is well-positioned to benefit from the gradual opening up of markets in emerging Asia.

Bumrungrad Hospital

Thailand-based Bumrungrad Hospital PCL (BKK:BH) is one of the largest private hospitals in Southeast Asia, providing complete healthcare services for both outpatients and inpatients. The company’s main hospital, Bumrungrad International Hospital in Bangkok, was the first hospital in Asia to receive the U.S. standard accreditation from the Joint Commission International, the first to be approved by Thai Hospital Accreditation and the first in Thailand to receive accreditations from the College of American Pathologists.

The company is an early mover in the medial tourism domain. As of fiscal 2019, Thai nationals accounted for only 34% of the sales. Outside of Thailand, the company has 62 referral offices in 28 countries, including many across the nearby regions, including Bangladesh, Cambodia, Indonesia, Laos, Vietnam and China.

We believe that Bumrungrad Hospital digs itself an economic moat primarily through its highly-reputed services internationally. Its operations also take advantage of the relatively low labor cost in Thailand. Moreover, nearly 69% of the revenue comes from self-pay payors and the remaining 31%comes from third-parties like insurance and corporations, indicating durable pricing power.

“They [Bumrungrad] said, ‘you can have surgery done tomorrow if you want.’ Tomorrow! I have never heard that word in England in all my life.”

- The Financial Times

As with Singapore Exchange, the top line at Bumrungrad Hospital roughly tripled for the past 15 years (see below). In the meantime, the business earned an annual return on less than 13% of assets each year.

Going forward, we expect the growing market of unmet medical needs in neighboring countries, as well as an aging society, to fuel secular growth for Bumrungrad Hospital.

Unilever Indonesia

Unilever Indonesia (ISX:UNVR) is a publicly-traded “subsidiary” of Unilever (NYSE:UN) (NYSE:UL) in Indonesia, which manufactures, markets and distributes consumer goods in the categories of home care, personal care, food and refreshment. Thanks to falling poverty and improved income equality, consumption is now seen as the engine to drive the economy forward in Indonesia. The country is the region’s largest consumer market, with a young and growing population of more than 260 million. Meanwhile, per-capita consumption is still low, indicating a considerable runway for growth.

We believe that the scale advantage and brand would enable Unilever Indonesia to sustainably capture growths at both the higher and lower ends of the local middle class. The company claims to cover 100% of the country’s population with at least one of its world-renowned brands, such as Lux, Dove and Clear.

As you can see below, the annual returns on assets ranged from 36% to 47% since 2005. At the same time, yearly sales more than quadrupled.

Disclosure: The mention of any security in this article does not constitute an investment recommendation. Investors should always conduct careful analysis themselves or consult with their investment advisors before acting in the stock market. We do not own any security mentioned in the article.

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About the author:

Steven Chen
Steven CHEN is a quality-focused, business-perspective investor (with bottom-up opportunistic approaches), an ex-hedge fund analyst on Wall Street, a serial entrepreneur, computer scientist, and free-market capitalist.

Steven is the Managing Partner of Urbem Partnership, a value/quality-focused investment partnership fund (www.urbem.capital).

Steven can be reached at [email protected], LinkedIn, or WeChat (ID: LSCHEN2005).

Also, check out his column at Smartkarma on the Asian market - www.smartkarma.com/profiles/steven-chen

Visit Steven Chen's Website

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