Vinamilk: a low-beta, growth play still at a value price?

Returning from a recent trip to Vietnam, an article from the International Herald Tribune caught my eye, and for obvious reasons.  It reiterates the explicit growth and frenzied pace on display in bustling cities such as Hanoi and Saigon (Ho Chi Minh City), and also underscores the favorable demographic thesis (nearly half of the population of 87m is in the labor force, and the broad, median age is 28.5) underpinning myriad, ongoing projections of an increasing derivative in the country’s future, consumer-driven growth trends.  The population is currently growing at a rate of 1.2 percent/annum.

The piece also mentions Vietnam Dairy Products, or Vinamilk, already the country’s third most valuable company by market cap and which as of last week was up 16.6 percent from the end of 2008, compared with a 3.5 percent loss in the Ho Chi Minh index during the same period.  90 percent of the population lacks the enzyme necessary to process dairy; however, consumers are turning in droves to soya milk, and their consumption patterns correlate neatly with changes in income.  The firm expects a 30% increase in sales during 2010, and also to tack on at least ten points to its current market share of 35 percent.  That said, the company is also insulated to some degree from regional economic contraction as it continues to spread its influence internationally, servicing such large markets as the U.S., India, the Middle East, Africa, Poland, Germany and Cambodia with a diverse product line that includes milk powder, yogurt, and fresh milk, as well as fruit juice, herbal tea and the aforementioned soya milk.

Burgan Bank poised for strategic growth?

In its weekly update to investors, London-based asset and fund manager Silk Invest noted that Kuwaiti-based Burgan Bank “had successfully completed its capital increase,” a 272.6 million Euros rights issue that will theoretically help “further strengthen its business locally as well as capitalize on its expansion strategy which has primarily targeted high growth markets in the Middle East and North Africa (MENA) region.”  The bank currently has majority stakes, for instance, in the Bank of Baghdad, Gulf Bank Algeria and Jordan Kuwait Bank.  The capital increase, it should be noted, is wholly separate from this week’s report that the bank has a healthy 15.9% capital adequacy ratio (i.e., tier one plus tier two over risk weighted assets) on a consolidated basis.

Moreover, per a S&P report from this past week, Burgan Bank is one of four domestic-based firms that are considered “highly systemically important” in a sector towards which Kuwaiti authorities tend to be more ‘interventionist’ than not.  Despite its worries about the bank’s deterioarting asset quality, S&P thus affirmed Burgan Bank’s ‘BBB+/A-2’ long- and short-term counterparty credit ratings.  A few days later the bank announced its operating income of KD43.2m had grown by 37% while operating profit surged to KD29.3m with a growth of 39%.

Asset manager highlights Saudi Arabia, Qatar

Interesting comments from Dan Tubbs, co–manager of BlackRock’s Global Emerging Markets Team, in Moneywise regarding the need to look beyond the BRIC thesis when it comes to one’s “emerging” market investments.  Such commentary continues to be apropos as the MSCI Frontier Markets Index return (9.32%) over its Emerging Markets counterpart stands over one thousand basis points YTD.

“Aside from the BRIC economies, there are 18 other emerging markets and a further 25 frontier markets for the investor to consider.  ‘Many of these countries have as good, if not better, growth characteristics than the BRIC economies.  Two key structural drivers we are seeing within emerging markets are the favourable shift in demographics and the rapid growth in domestic consumption,’ [said Tubbs.]  A quick look at the average GDP growth of developing countries against developed tells the same story: Peru’s 7% GDP average growth and Indonesia’s 5.5% compares to 1.1% in the US, 0.8% in the UK and a paltry 0.05% in Japan.  Emerging stockmarkets have also outperformed: Egypt has returned 230% over five years and Korea 110% while the UK, US and Japan have returned between 8% and 11%.”

Tubbs also mentions both Saudi Arabia and Qatar as markets worth special consideration:

“Saudi Arabia [has a] young up-and-coming population [that] is driving domestic consumption.  Its government has a huge infrastructure spending programme and Tubbs calls it an ‘undiscovered opportunity for investors’ given that foreign investors make up only 0.5% of the Saudi stockmarket.  Qatar [is] ‘one of the world’s fastest growing economies,’ according to Tubbs.  It has stronger annual GDP than China and is a leading liquefied natural gas producer with 14% of the world’s gas reserves.”

Robust IPO market continues as Malaysia’s thirst for FDI persists

Malaysia’s IPO market remains robust amidst a general global slowdown in public floats that pundits attribute to sentiment stemming from the European credit crisis.  While the proposed offering of Malaysia Marine Heavy Engineering, announced last week, will raise over 1 billion ringgit ($309.6 million) and is expected between the third and fourth quarter of this year, the planned listing of Malaysian property developer Sunway City Bhd’s real estate investment trust (REIT) will raise about 1.5 billion ringgit ($459 million), more than was expected in the beginning of this year, sources with direct knowledge of the deal told Reuters on Monday.  Moreover, local investment banks are eagerly eyeing the impending float of state-owned gas and oil company Petronas’ petrochemicals unit, which some analysts wager may garner a P/E multiple of FY09 earnings in the high teens for a total valuation of roughly 5 billion ringgit ($1.548 billion).  That said, it is still unclear as to precisely what form said IPO structure will take.  Petronas’ petrochemicals business, for instance, entails 19 total companies ranging from olefins and polyolefins to fertilizers, industrial and specialty chemicals.

The state’s divestiture of portions of Petronas is seen by observers as part of prime minister Najib Abdul Rajak’s “New Economic Model” (NEM), whereby the government hopes to transform Malaysia “from a middle-income to a high-income country by 2020.”  Per a piece by Thomas Clouse in May’s Global Finance:

“The ambitious plan, known as the NEM, outlines a number of new policy recommendations to promote private investment, raise productivity, improve education and balance growth in order to lift the per-capita average income from $7,000 to $15,000 in the next 10 years.”

Specifically, the government hopes to reverse the downtrend in private investment as a percentage of GDP, which declined to less than one-third of its pre-1997 peak in the decade following the Asian crisis and still remains far below its potential.  Per economist Dr. Yeah Kim Leng, for instance: 

“Malaysia’s share of inward FDI into the Asean economies was unchanged at 12% for the two previous five-year periods of 1999-2003 and 2004-2008.  By contrast, Singapore captured 58% in the first period and 45% in the more recent period.  Thailand, meanwhile, garnered 20% and 17% for the respective two periods . . . This should be taken as a wake-up call for Malaysia that it needs to do more to attract foreign investors.”