Key Purchases in 2021
In alphabetical order by country, the fund invested in the following companies in 2021:
In Bangladesh, the fund bought Square Pharmaceuticals towards the year-end as the valuation of the company has become too attractive to ignore, while fundamentals of the company remain solid with a net cash position equal to 28% of market cap and a return on equity of 19.1%. There have been some question marks over the company’s growth rate in the past few years but at an all-time low P/E ratio of 11.0x we are happy to wait as the company could be seeing a reversal in fortunes given that it is the largest pharmaceutical company in Bangladesh by revenue and market share.
The fund also initiated an investment in Linde Bangladesh towards the end of the year by taking advantage of the recent correction in its stock price which came under pressure due to rising raw material costs which are linked to the price of copper. The big picture story for Linde Bangladesh is that it is the largest industrial gas producer in the country and the increasing construction and infrastructure investments being made in Bangladesh should lead to higher demand for industrial gases. Besides being a blue-chip company, Linde Bangladesh is also one of the more reasonably valued companies to get exposure to the growing infrastructure needs of the country.
In Cambodia, the fund invested in Emerald Resources (EMR), a gold miner listed in Australia. The company is already in production and is expected to report net profits of AUD 100 mln in 2021, which should help re-rate the stock further as it has already gained 32% since the fund purchased it in April 2021.
We initiated our first investment in Georgia this year by purchasing TBC Bank Group (TBC) listed in London. TBC is the largest bank in Georgia by market share for loans and though it is seeing strong profit growth in Georgia, the more exciting longer-term story for TBC is its foray into Uzbekistan.
More specifically, TBC is the first entity to launch a digital bank on a large scale in Uzbekistan, and so far, the digital bank (TBC UZ) has seen a high growth in user numbers. This digital venture could add substantially to shareholder value in the long run while valuations for TBC are very undemanding at a P/E ratio of only 5.0x.
As mentioned in multiple manager comments previously, the fund purchased fintech player Kaspi in Kazakhstan in the first quarter of 2021. The stock has returned 92% since its initial purchase as the company continues to deliver on robust earnings growth which has consistently beaten market expectations. Furthermore, since the company is highly profitable and pays a dividend, its stock price has outperformed all other frontier and emerging market tech names in 2021, as discussed above in the portfolio review.
In Mongolia, the fund participated in the IPO of Central Express which was the largest ever IPO on the Mongolian Stock Exchange. Central Express is the Mongolian partner of South Korean convenience store operator “CU”, and the company will aggressively expand CU stores in Ulaanbaatar to capture the under-penetrated modern retail market in Mongolia.
In Pakistan, we also participated in two IPOs, namely Air Link Communication (Airlink) and Pakistan Aluminum Beverage Cans (PABC). Airlink is one of the largest distributors of mobile phones in Pakistan and it has also recently signed an agreement with Xiaomi to assemble smartphones locally in Pakistan.
PABC is the largest can manufacturer in Pakistan and it supplies products to all the major brands like Coca Cola, Nestle and Pepsi. We believe both Airlink and PABC are good long-term plays on rising demand for smartphones and beverages in Pakistan due to the country’s large and young population.
Another consumption-related name the fund bought in Pakistan was Nestle Pakistan. It is not only the largest food and beverage company in Pakistan but also trades at a historic low valuation in terms of its P/E ratio of 21x, which is a big discount for a blue-chip consumer name.
We also took advantage of the recent stock market weakness in Pakistan to buy Abbott Laboratories Pakistan which is one of the largest blue chip pharmaceutical companies in the country trading at a trailing twelve months P/E ratio of only 11.0x.
In addition to these consumption related plays, we also purchased Pakistan Oilfields (POL) to gain exposure to rising crude oil prices and the stock’s healthy 14.4% dividend yield.
In Vietnam, the fund took advantage of the deep correction in the VN-Index in July 2021 and purchased Gemadept (GMD), the country’s largest private seaport operator with ports located in both the North and South of Vietnam. We believe GMD is a very good proxy for Vietnam’s increasing integration into the global trade system as its scale will allow it to leverage the country’s increasing export and import activities.
We also purchased FPT Corp. (FPT), Vietnam’s leading technology outsourcing company which continues to make further inroads into the global software outsourcing industry. Earnings growth for FPT Is expected to be robust over the next 2-3 years at 15-20%.
During the market correction in September 2021, we took the opportunity to buy Phu Nhuan Jewelry (PNJ), the largest and most popular jewellery retailer in Vietnam. Besides consumer tastes shifting to branded jewellery, the company has also increased market share as some of its competitors have been negatively impacted by the pandemic. With increasing vaccinations and an economic reopening taking place in Vietnam, PNJ should be able to deliver much better financial results in 2022.
In line with the economic reopening theme in Vietnam, we also purchased two mid-cap domestic tourism companies as domestic travel could return in a strong way in 2022. Taseco Air Services (AST) operates retail stores at the domestic and international airport terminals in various airports all over Vietnam and also runs an airline catering business, while Tay Ninh Cable Car Tour Company (TCT) operates tourist attractions in Tay Ninh province which is a few hours’ drive from Ho Chi Minh City. We believe both companies are well-positioned for any rebound in domestic/international travel.
In the first quarter of the year, we purchased Frontier Digital Ventures (FDV) listed in Australia. FDV invests in and operates online classified portals in various frontier markets including Asia. Its most valuable investment so far is Zameen.com, which has revolutionized the real estate industry in Pakistan while also being profitable. We believe FDV’s investments including Zameen.com could unlock significant value over the next few years.
During the year, we also purchased Coca Cola Icecek (CCOLA) which is listed in Turkey. Though the company is headquartered in Turkey, it generates a majority of its revenues from Asian frontier countries including Iraq, Jordan, Kazakhstan, and Pakistan. In 2021, the company also acquired majority control in Coca Cola Bottlers Uzbekistan, giving it access to another high growth market. At a P/E ratio of 12x, the company offers exposure to high growth markets at a very attractive valuation.