If you’re looking to invest in Asia, then small-cap value stocks in Asia look favourable.
According to Fidelity’s Bajaj, three key characteristics to look for are: the company should have a good product that customers want and are ready to pay for, so that the business can make a high return on capital (a key gauge of profitability); second, it should be managed by honest and competent people; and third, it should be available at a good price, which means it should offer enough of a margin of safety to take into account accidents, adverse events and mistakes.
“Most of Fidelity Asian Values’ capital is deployed in small-cap value stocks in Asia. Despite recent outperformance, small-cap value stocks are trading at a significant discount to growth stocks – even greater than the gap seen around the turn of the millennium,” says Bajaj.
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Here are three best value Asian stocks worth a look.
RFM Corporation (Manila: RFM)
RFM Corporation has a solid ice-cream franchise in the Philippines thanks to a 50-50 joint venture with Wall’s (a Unilever brand). The group’s brands, Selecta and Wall’s, have a market share of more than 70% in a sector that is expanding at a low double-digit annual rate as ice cream becomes increasingly popular, according to Fidelity.
“It is difficult for potential rivals to gain a foothold in the market because the company gives its cabinet freezers to mom-and-pop stores for free in exchange for a prime spot on the shelf for its ice creams. These stores don’t have space for a second cabinet freezer and tend to choose to sell RFM’s brands because of their popularity among consumers,” says Bajaj.
Uni-Charm Indonesia (Jakarta: UCID)
Uni-Charm Indonesia is a subsidiary of Japan’s Uni-Charm. It is the country’s largest producer of nappies and sanitary towels. Market penetration remains low. “The strong reputation of the brands constitutes an enduring competitive advantage, helping to ensure these markets remain oligopolies. As a result, the company enjoys stable growth and high returns on invested capital. Uni-Charm Indonesia has a clean balance sheet,” Bajaj adds.
Teejay Lanka (Colombo: TJL)
Teejay Lanka, Sri Lanka’s largest fabric mill, is a textile manufacturer benefiting from supply chains diversifying out of China. Owned by Brandix and Pacific Textile, it operates fabric mills in India and Sri Lanka, and sells to brands such as Nike, Uniqlo, Tommy Hilfiger and Calvin Klein.
“The management has a strong record in growing consistently, profitably and with prudent capital allocation,” Bajaj says.
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