04 Sep 2019
As an experienced Asian investor, I have been engaging extensively with companies and management teams over the last 25 years. Propelled by rising income levels and the associated shift to a more sustainable consumption-led growth model, I have witnessed first-hand Asia grow up and mature from a frontier market to a region that is now a key contributor to global growth.
This change has also unfolded at ground level - where beginners have matured into market leaders and at the same time, I have witnessed the collapse of giants. What remains a key distinguishing factor is decisive and astute management teams that are willing and able to evolve in response to changing market dynamics.
Some of the structural growth stories that Asia’s market leaders are now known for actually had a seemingly mundane beginning. For example, in 1994, the same year I began my career at Fidelity as an analyst, cookware and small appliances company Zhejiang Supor was set up in China. These were fragmented market segments with a host of players with little to distinguish one frying pan from another.
Supor had a different goal - to establish its brand and stamp its presence on the industry map. In 2004, it listed on the Chinese domestic A-share market and by 2006, it had become the largest company in this area. Its economies of scale, brand visibility and market size as well as its distribution capabilities attracted global suitors. In 2006, the French appliance manufacturer SEB Groupe, which owns well-known international brands like Tefal, acquired a majority stake in Supor.
SEB brought its technical expertise to Supor, which then used its well-established domestic brand strength and expanded into categories like vacuum cleaners and air purifiers. Supor also became a part of SEB’s integrated production base and its Shaoxing facility in China is SEB’s largest small electrical appliance production site.
Supor is now the largest Chinese cookware company and ranks second globally. It offers a unique growth profile as a combination of domestic presence and international revenues. Over the last decade, Supor has grown its revenues at a compounded annual growth rate of 17.5% and it continues to earn higher returns than industry averages.
Elsewhere, I have also seen the changing consumption patterns in smartphone purchases evolve first hand over the last decade. Our on-the-ground research in China highlighted at an early stage the increasing penetration of smartphones and looking at their use in social media and online purchases, it was evident that phone upgrades were here to stay.
Against this backdrop, I zoomed in on smartphone camera manufacturer Sunny Optical early on - identifying it as a small-cap opportunity with a strong product proposition that provided the potential to grow into a future leader. Back in 2013-14, Sunny operated in a market dominated by Apple-focused Taiwanese player Largan Precision.
At the time, Largan ruled the 8 mega pixel (mp) lens arena and enjoyed substantial margins. It was clear that there was room for another player. Sunny took on the challenge and scaled-up from 3mp to 5mp to 8mp image quality. The smart phone market itself matured from single phone cameras to dual cameras and now tri-camera phones are gaining traction. Sunny is a clear beneficiary of this trend and has matured over recent years into a market-leader in the camera module space in the android phone segment.
Sunny’s prospects extend further into optoelectronics as it is uniquely positioned in the vehicular camera arena as well. Increasing adoption of sensing modules in automobiles, for example, will benefit both volume growth and price increase, potentially supporting its revenue growth.
Change is the only constant and nowhere is this more apparent than investing in Asia. The above examples highlight the breadth of opportunity that Asia offers and how local insight and differentiated analysis has enabled us to invest in these market leaders at an early stage. The mosaic approach to investing that I deploy has helped me look at an investment idea from a multitude of angles. For instance, consumption as a theme can be seen uni-dimensionally within consumer companies or explored through a wider lens across the market.
As markets are becoming more short-term orientated, this can be an opportunity for investors with a longer-term horizon. A clear investment philosophy that has been tested across a variety of market environments, therefore, offers investors both an opportunity for upside participation as well as a cushion for downside protection.
This is an excerpt from a longer article from Teera Chanpongsang on Asia’s maturing market leaders. The full version can be found online by visiting professionals.fidelity.co.uk.
Further information
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