Seng Chong Yeo Chief Investment Officer, Yeoman Capital Management - - PowerPoint PPT Presentation

Seng Chong Yeo

Chief Investment Officer, Yeoman Capital Management Asian Investing Summit 2015 April 7‐8, 2015

Asian Investing Summit 2015 ValueConferences, 7–8 April 2015

Value investing applied to Japan – The Yeoman experience

• Disclaimer: The information presented in the following slides are for

discussion purposes and not to be taken as investment recommendation or advice

 Lost decade? More like lost 2 decades!  Languishing stock market (see next slides)  Sputtering economy  Deflation, deeply entrenched  Zero or near zero interest rates  Investors hoarding cash, institutional and

individuals alike in face of deflation

 For Yeoman we could see all the above, but

also saw that Japanese stocks were very cheap.

500 1000 1500 2000 2500 3000 Jan/91 Sep/91 May/92 Jan/93 Sep/93 May/94 Jan/95 Sep/95 May/96 Jan/97 Sep/97 May/98 Jan/99 Sep/99 May/00 Jan/01 Sep/01 May/02 Jan/03 Sep/03 May/04 Jan/05 Sep/05 May/06 Jan/07 Sep/07 May/08 Jan/09 Sep/09 May/10 Jan/11

Topix Index and Topix Small Cap Index January 1991 to March 2011

TPX Index TPXSM Index

 In Mar11, commenced implementation of the

stock ideas that we had been studying for months and years before ..

 as others worried over radiation leak, damage

to local economy by tsunami and mourned the destruction.

 For us cheap means that all risk

sks s are e already eady compens ensated ated for (this is also our way of helping the country recover by providing capital for rebuilding).

We assembled a Japan Portfolio At end Jun11, it looked like this

 PE 10.71x  P/B 0.38x  Dividend yield 3.56% p.a.  ROE 6.02% (1 yr)  ROE 6.85% (5 yr average)  Weighted average market cap ¥$8.14bn  14 stocks

A harbor tug operator, 2 electronics components distributors, an internet reseller of used ladies luxury handbags, a manufacturer of kitchen stoves and heaters, a specialty steel manufacturer, a motorcar dealer, an aircon manufacturer, a machine tool bit manufacturer, a real estate agency, a building automation and security access services company, a process plant engineering company, manufacturer for controllers for motorcar engines, importer of textiles, retailer of casual wear, manufacturer

• f workmen’s clothing, refractory materials manufacturer,

valves manufacturer, packaging company, a computer

software services company, etc

 PE 13.44x  P/B 0.62x  Dividend yield 2.67% p.a.  ROE 5.78% (1 yr)  ROE 6.59% (5 yr average)  Weighted average market cap ¥$15.05bn  22 stocks

At end Feb15, it looked like this

Portfolio cheap compared to market valuations in Mar11 and Feb15

Topix Large Cap Index Topix Small Cap Index Mar11 Feb15 Mar11 Feb15 PE 17.23x 17.35x 16.13x 15.95x P/B 1.04x 1.34x 0.77x 1.06x Dividend yield 2.14% 1.62% 2.08% 1.55% ROE (1 yr) 6.11% 8.28% 4.85% 6.89% Market cap ¥298.61bn ¥553.15bn ¥33.93bn ¥64.58bn

Answer: At some time sooner or later, it goes up of course. And so it did!

Performance: 4yr 0mo ending 27Feb15

Period Fund Index Out/Under Performance

Topix (TPX) Topix Small Cap (TPXSM)

• Vs. TPX
• Vs. TPXSM

CAGR (p.a.) 26.59% p.a. 12.50% p.a. 14.97% p.a. +14.09% p.a. +11.61% p.a. Cumulative Performance

From Mar11 to Feb15 (4Yr 0mo)

156.79% 60.19% 74.75% +96.60% +82.04% Feb 2015 1.73% 7.69% 4.48%

• 5.95%
• 2.74%

YTD 2015 4.24% 8.27% 5.02%

• 4.03%
• 0.78%

Historical Performance Jan14 to Dec14 23.57% 8.08% 11.80% +15.49% +11.77% Jan13 to Dec13 61.59% 51.46% 45.08% +10.12% +16.51% Jan12 to Dec12 17.93% 18.01% 19.03%

• 0.08%
• 1.10%

Mar11 to Dec11 4.40%

• 23.41%
• 13.81%

+27.81% +18.21%

Note: In JPY terms, gross of fees, dividends re-invested.

 Performance of fund is tracked in JPY  Mar11 to end Feb15, JPY has weakened 31.5%

against USD; weakened 26.7% against SGD,

 For USD referenced investors we gave away

31.5%, for SGD based investors we gave away 26.7%;

 Against the 156.8% cumulative gain in JPY terms

• ver same time window still gives big net of

forex gains.

 Conclusion: When invest with sufficient margin of

safety in underlying stock(s), currency risks are usually covered.

Kept the rest and added new stocks, now still fully invested. Two cases studies for discussion in following slides =>

KU Holdings Co Ltd (9856 JP)

Motorcar distributor in Tokyo area 30Ju Jun11 27Feb15 PE PE 4.07x 6.89x P/B 0.24x 0.71x Div ivid idend end yie ield ld 3.10% 3.51% RO ROE 6. 6.01 01% 7. 7.87 87% Pric ice (spl plit it adjus usted) ed) ¥1 ¥185 85.40 40 ¥7 ¥708 08.00 00

KU Holdings Co Ltd (9856 JP Equity)

150 250 350 450 550 650 750 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15

KU Holdings share price chart

Cumulative performance (incl dividends): +298.21% CAGR (incl dividends): +41.26%

Shinko Shoji Co Ltd (8141 JP)

Electronics component distributor 30Ju Jun11 27Feb15 PE PE 13.41x 10.93x P/B 0.33x 0.50x Div ivid idend end yie ield ld 4.77% 3.37% RO ROE 2. 2.45 45% 4.73% Pric ice (spl plit it adjus usted) ed) ¥6 ¥629 29.00 00 ¥1173.00

Shinko Shoji Co Ltd (8141 JP Equity)

500 600 700 800 900 1000 1100 1200 1300 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15

Shinko Shoji share price chart

Cumulative performance (incl dividends): +78.22% CAGR (incl dividends): +15.54%

50.00% 100.00% 150.00% 200.00% 250.00% 300.00% 350.00% 400.00% Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15

Performance of KU Holdings and Shinko Shoji vs. Topix Index and vs Topix Small Cap Index Mar 2011 - Feb 2015 (4 Years 0 Months)

KU Holdings cumulative Shinko Shoji cumulative Topix (TPX Index) Cumulative Topix Small (TPXsm Index) Cumulative

 Picked stocks on low PE, low PB, low P/NNCA, high

div yield, above average ROE with reasonably strong balance sheets;

 With listing history of at least 5 years;  Ranked them in order of attractiveness;  Deployed cash accordingly;  Liquidity was a problem in some cases, our broker

was very helpful and resourceful.

 Note: Above methodology same as for our Asia ex

Japan fund

Investment Methodology

Conclusion

Value investing works for Japan, for Asia ex Japan and should work in any other environment you care to implement in. In

• ur experience, value investing is

an all-we weathe ather and d all-terr errain ain.