Asia Pacific Leaders Sustainability

During the quarter we invested in three new companies: Samsung C&T (South Korea: Industrials), Techtronic Industries (Hong Kong: Industrials) and MediaTek (Taiwan: Information Technology). 

Samsung C&T is the holding company for Samsung Biologics with sizeable positions in group companies such as Samsung Electronics (c.5%). 

Samsung Biologics is a world leader in affordable healthcare. Samsung Electronics is a global leader in consumer electronics and chip manufacturing. 

In its core business, the company is aiming to invest into areas with strong growth prospects such as renewable energy and battery recycling. The group aims to improve governance practices by returning excess cash to shareholders (as dividends for example), cancelling treasury shares (ordinary shares which the company acquired from shareholders), improving profitability and articulating a clear strategy for future spending.

Techtronic Industries is dominant internationally in an array of cordless, hand, measuring and trade power tools for both home and commercial use. They own a number of strong brands in similar areas which results in pricing power. The company is positioned well to grow in the future. 

MediaTek is a fabless (outsourced production) semiconductor company. They are leaders in integrated chip system solutions which are estimated to power over two billion devices a year from smartphones to home entertainment, connectivity and the internet of things (IoT) products. 

High-quality companies at reasonable valuations tend not to come along too often. In the absence of such opportunities, we are very comfortable long-term owners of companies in the portfolio.

During the quarter we initiated two new positions in Samsung Biologics (South Korea: Health Care) and Wuxi Biologics (China: Health Care). We have admired the Samsung Biologics franchise for many years. They have expanded production capacity quickly and efficiently which has helped them to increase wallet share with existing clients and win important new clients. Our more constructive stance on governance at the Samsung Group was another important consideration. We have also been studying Wuxi Biologics for a number of years. It is a leading contract research provider and manufacturer for pharmaceutical companies. The stewards have spent the last decade nurturing strong relationships with customers across geographies, and are building on their research relationships to scale up manufacturing services. The nature of the business, where the timeline from drug discovery to manufacturing can be decades, means that long-term customer relationships are crucial, and the trust built is difficult to disrupt. In terms of additions, we continued to build our holding in Midea (China: Consumer Discretionary), the largest home appliances business in China.

There were no complete divestments during the period. We trimmed Tata Consumer Products (India: Consumer Staples) and Tech Mahindra (India: Information Technology) to control position size. We also reduced the holding in CSL (Australia: Health Care). We are still long-term supporters of this extremely high-quality franchise but consider there to be marginally better risk-reward opportunities elsewhere.

We initiated one new position over the quarter with the purchase of Telkom Indonesia (Indonesia: Communication Services). Telkom Indonesia has a strong track record of growth and profitability sitting as the backbone of Indonesia’s digital growth. Telecoms is notoriously a tough industry as there is little in the way of differentiation between what tend to be equally matched players. In Indonesia, Telkom has significant market leadership in a consolidated market providing them valuable cash flows to reinvest in growth ahead of peers. Telkom is also a unique example of a telecom company that has a robust, near-net cash balance sheet.

Our Chinese holdings have been whipped around in recent months as short-term views shift on a daily basis on whether there is evidence of a post-covid economic recovery and what stimulative polices the government will resort to. The Chinese stock market is dominated by state-owned enterprises. These companies trade on very low valuation multiples – rightly in our view – which when viewing the Chinese market purely from a top-down perspective, muddies the picture on what valuations are being asked of privately-owned, high-quality franchises. We are starting to see such companies approach valuations that we are comfortable paying. But on the whole, we do not yet see the bargain valuations that tend to come up when there is genuine fear in a market. We added to our position in Shenzhen Inovance (China: Industrials) as top-down macro-driven concerns helped depress valuations.

To fund these transactions we trimmed three of our Indian holdings: Mahindra & Mahindra (India: Consumer Discretionary), Tata Consultancy Services (India: Information Technology) and Tata Consumer Products (India: Consumer Staples), and sold Pidilite Industries (India: Materials) for valuation reasons.