CC Asia Focus: August Update

Coupland Cardiff’s Asia Focus Fund recently published their letter for August, which you can access via their website. The fund is managed by Charlie Erith and focused on small and mid cap listed equities in the Asia ex Japan market. The latest update includes commentary on Venture Corporation, TK Group and China MeiDong and some broader thoughts on the Chinese market.

Some highlights below (paraphrased):

  • TK Group: Encouraging first half results. Move into auto part moulds has been well executed. Shares trade at 11.5x FY 17 earnings and yield 4.6%. Cash per share makes up 25% of the share price, which presents the possibility of higher payouts and also makes the 32% ROE impressive.
  • China MeiDong: Luxury car dealer in tier 3 and 4 Chinese cities. Net profit grew ~70% year on year and margins have recovered to 2014 levels. Top-line growth has been driven by an expanded store footprint, new model launches and after-market services. Shares trade at an estimated 7.1x FY 17 earnings and yield 7.1%.
  • On China: Unlike 5 years ago, they think we are now seeing “a [genuine] widening out of discretionary spending driven not by price but by quality.” Back then, luxury spending was only happening at a very elevated level. Companies are also emerging from a business cycle after a series of painful but necessary restructuring plans by the authorities. Should see a move to “higher system margins, increased capital discipline and greater returns to shareholders.”