Florian Weidinger on Three Flavors of Ideas in Southeast Asia

Florian Weidinger of Hansabay outlined the opportunity for fundamental investors in Southeast Asia, discussed three flavors of investment ideas, and presented his theses on Coteccons Construction (Vietnam: CTD), Cosco Capital (Philippines: COSCO), and Siloam International Hospitals (Indonesia: SILO) at Asian Investing Summit 2021.

Florian focuses on three flavors of ideas in Southeast Asia:

• Discovery: investing in undiscovered companies that should gain broader acceptance and whose managemens are likely to improve communications
• Activism: creating a value catalyst by driving management change
• Special situations: the region offers many complex or event-driven opportunities, which generate attractive returns while the local markets remain undiscovered by foreign investors

Thesis summaries:

Coteccons Construction is a discovery idea. It is the leading construction company in Vietnam. It has been subject to a successful attempt by the second-largest shareholder to oust and replace self-dealing management. As a result, Coteccons is a restructured company set to ride the construction cycle in booming Vietnam. The shares are cheap, with a P/E ratio of 0.7x, a P/E of 10x, and a dividend yield of 4+%. The foreign ownership limit has not been reached yet, so the shares are available for purchase by foreign investors. A catalyst might be market (re-)discovery post the recent management change.

Cosco Capital is an activist idea. It is a holding company at an eye-watering discount to traded majority-owned subsidiary Puregold (a Philippine “blue chip” supermarket chain and uncontroversially a good business. Cosco Capital shares have ~60% upside to parity with the market value of its Puregold stake. Florian sees additional ~190% upside when taking into account Cosco’s property portfolio and liquor distribution business. A deep value investment case can also be made on the basis of earnings, with the shares at less than 9x consumer business earnings. A series of value-creating measures over the last few years serve as a catalyst, and the distribution business is in the process of getting a separate stock market listing. Cosco Capital combines elements of all three idea types, as it is a special situation, remains undiscovered with practically no analyst coverage, and Florian has been constructively driving change with the management team.

Siloam is a special situation idea. It is a major hospital operator in Indonesia. The company is part of Lippo, a historically over-leveraged group with a mixed reputation. However, Lippo insiders are compelled to make Siloam work as this is their only bona-fide operating business outside of the property sector, and it supports the equity valuation of the holding company (Indonesia: LPKR). Siloam is well-positioned to benefit from a compelling industry thesis, driven by healthcare spending per capita and healthcare laws in the country. A minority private equity investor (CVC) has been looking out for the interests of fellow minority shareholders. Siloam is also an earnings recovery story, as the drag from new hospital expansion decreases over time. With the shares at ~8x forward EBITDA, they are quite cheap for an emerging markets healthcare company. A potential catalyst is the controlling family’s (Lippo Karawaci) agenda of capital market outreach.

For additional context on Southeast Asia, please see a recent article by Florian.

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About the instructor:

Florian Weidinger is the CEO of Hansabay, a Singapore-based investment management business with a strong focus on emerging and frontier economies, in particular Southeast Asia. Hansabay is a specialist in activist engagement and special situation investing, and follows the PRI Principles for Responsible Investment. Prior to founding Hansabay, Florian Weidinger was a vice president at Lehman Brothers where he last worked for the insolvency administration, after several years with the risk arbitrage, principal investing and investment banking divisions in London. Mr. Weidinger has sourced, managed and executed public and private investments in Europe, Africa and Asia, and across the capital structure. Strategies included event-driven, long/short, distressed/credit and special situations investing. Mr. Weidinger has held multiple board directorships across sectors, including in the public markets. Mr Weidinger holds a BSc from City University London, an MBA from the Stanford Graduate School of Business, and an MS in Environment and Resources from Stanford University’s School of Earth Sciences.

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