Uzbekistan: Highly Illiquid Stock Market, with Long-Term Potential

Michael McGaughy of Research Alpha discussed the outlook for Uzbekistan and presented his investment thesis on Qizulqum Cement (Uzbekistan: QZSM) at Asian Investing Summit 2019.

Thesis summary:

Qizulqum Cement is the largest cement plant in Central Asia. It installed capacity of 3.4 million tons per annum, which represents 45% of Uzbekistan’s total. The company operates with 3,500 workers on 1.2 million hectares of land (9 kilometers southwest of Navoiy). The company is anticipating an increase in production capacity by 45% by 2021. Qizulgum is an 86.9% government owed via Agency for State Assets Management.

This is the third most liquid stock in Uzbekistan, as of February 2019. With a market cap of UZS 819 billion, it has an attractive ROE/ROA of 24% and 21.8%, respectively (March 2019). Net cash is 46% of market cap. The enterprise value is UZS 503 billion, with a PE ratio of 2.1x, PB 0.6x, and EV/EBITDA of .8x. The biggest investment risk is the recent change in government SOE ownership to Agency for State Asset Management, as the policies are unknown.

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About the instructor:

Michael R. McGaughy is Head of Research and a Portfolio Manager at Research Alpha.

An award-winning analyst with a distinctive research methodology, Mr. McGaughy has extensive investment experience spanning buy- and sell-side research; and equity, fund-of-hedge-funds, and private equity fund management. He has analyzed, and invested in companies and managers in over 20 countries around the world.

He has written and published numerous reports/books on business groups including Inside China’s Corporations, Inside Corporate ASEAN, Indonesia’s State-Owned Enterprises, Compass Malaysia – A Navigational Guide to Malaysian Business Groups, and four versions of A Guide to Indonesian Business Groups (1990, 1992, 1997 and 2007).

Mr. McGaughy graduated from University of Vermont with a BSc in Economics and completed concentrations in Mathematics and Chinese. He is also a holder of the Chartered Alternative Investment Analyst (CAIA) designation. He has been approved by the Securities and Futures Commission in Hong Kong as a Responsible Officer for Type 4 (Advising on Securities) and Type 9 (Asset Management) regulated activities.

Based in Hong Kong Mr. McGaughy first came to Asia as an exchange student in 1985 and has been involved with emerging and frontier markets since 1989. Before joining Fusion, he worked in Beijing, Hong Kong and Singapore with different companies including HSBC, the old Crosby Group and StoneWater Capital.

Mr. McGaughy’s fund, Research Alpha, looks globally for companies that are run and owned by quality people, have structures that align minority and majority interests and trade below fair value. He writes a personal blog on investing and other topics at http://michaelmcgaughy.blogspot.hk.