Asian companies 2005

PTT president Prasert Bunsumpun says the company has paid specific attention to business transparency in an attempt to focus on and work towards good corporate governance. This focus, which is growing in the region, has clearly paid off as PTT also came in top position in the most transparent accounts and most accessible senior management categories.

Euromoney’s panel of analysts identified many reasons why PTT stood out. They like the fact that “as the bulk of its businesses is effectively a monopoly geared towards domestic consumption growth, 35% to 40% of its pre-tax earnings are derived from its gas distribution business on a fixed cost plus basis”, which they see as yielding a secure cashflow. Analysts also pointed to the fact that PTT’s “financial leverage continues to improve” and that it was very good at “turning around bad assets to enhance shareholders’ value”. They were also impressed by recent success as the company’s “long-term growth plan and strategy has been proven by its strong growth over the past five years”.

PTT has turned poorly performing affiliates Thai Oil and Aromatic (Thailand) into profitable concerns with strong expected growth in earnings per share. It is also able to benefit from a high energy price that, in the opinion of the analysts that Euromoney spoke to, appears likely to continue for the next two or three years.

Telecoms company Philippine Long Distance Company took second position in the overall coherent strategy ranking and third in the most transparent accounts category. The company’s “management successfully executed an articulated strategy that was set five years ago and they are now delivering deleveraging, growth, expansion and dividends,” says one analyst.

Another analyst points out that “over past three years, PLDT has proven very successful in achieving twin goals: first, growing its cellular business via creative and innovative products and services aimed at low-income users and, second, deleveraging its balance sheet. He believes that the company is “now in a position to resume dividend payments” after a long hiatus.

Malaysian conglomerate IOI Corporation posted the highest profit margin and highest absolute profit earnings in the Malaysian property sector. In the past year it reported a record profit, ending its full financial year to June 2005 with a net profit of M$902.2 million ($239 million), up 22% on the 2004 figure of M$701.6 million.

IOI’s improved year was based on a 22% increase in plantation earnings and on consistent performances by its property and resource-based manufacturing units. Analysts believe that the outlook for the group “remains positive on the back of continued high demand for palm oil”. Coupled with efforts to streamline its plantation operations, this should guarantee that 2006 is another record year. Analysts singled out IOI since the corporation is “very clear about its long-term strategies and had good vision about the structural changes in its industries”. IOI has a “good strategy to expand into downstream business and yet continue to improve on efficiency of upstream businesses”. Its “proactive and hands-on approach” to business was commended by our analysts, as was the “company vision and competent execution of business plans”. 

One analyst that has covered IOI for 10 years emphasized that the one thing that sets this company apart from rivals was the hands-on approach of top management. Executive chairman Tan Sri Dato Lee Shin Cheng is always in the field. This “man with a vision” is in his view a good part of the reason for IOI’s continuing success as he ensures that all of the group’s operating divisions are “clearly aligned to a common corporate mentality and driven by commonly shared goals and core values”.

Chairman Cheng makes detailed strategic plans and “sticks to them... this is the reason why IOI was able to make the transition from a plantation company to an integrated plantation to what is now a powerful global group,” says one analyst. Despite the fact that top management’s hands-on approach plays a significant role they are also very mindful of the need to delegate responsibility to a team of professional managers to ensure the successful implementation of its business plans. One such individual that stands out is the CFO Dato Yeo How. Further to its excellent top personnel and commitment to shared goals, IOI has shown an ability to make very good business diversification decisions that have led to excellent overall profits and an exceptional return on equity.

IOI’s impressive results come on the back of a recent rise in Malaysian exports accelerated in June, powered by US demand for electronics, including semiconductors, and by higher oil shipments to China. According to the trade ministry, the value of exports rose by 11.7% from a year earlier, the fastest pace of growth in three months, to M$44.5 billion.

Taiwanese financial services company Taishin was able to produce a 112% growth in profit in the past year and another year of growth is expected. It took fourth place in the most convincing and coherent strategy section. It also scored highly in the “most improved” category. The company says it will target “another 20% year-on-year growth in after-tax revenues this year”, part of which will be “achieved through mergers and acquisitions”.

India-based IT firm Infosys scored very well in the transparency ranking, no doubt in part because it recently announced that it is now compliant with Section 404 of the Sarbanes-Oxley Act of 2002, well in advance of the mandatory deadline of March 31 2007. Infosys now ranks among the earliest foreign filers to have achieved this compliance certification. Section 404 deals with management assessment of internal controls. It requires each annual report of an issuer to contain an “internal control report” over financial reporting, which is then externally audited. The company requested revenue growth of almost 50% in 2004, and according to analysts seems likely to boost revenues by about 30% to cross $2 billion in 2005.

Infosys has “made a conscious attempt to move up the value chain and broaden its portfolio of services,” says one analyst, rather than being content to limit itself to its core business model. It has been able to grow new business areas such as business process outsourcing and consulting after careful thought. This has differentiated the company from peers that were prepared to venture into new and untested technologies and business ventures without the proper research and consultation period. For example, some of Infosys’s competitors initially got into voice BPO and then mid-term realized that this was not a sustainable policy so it had to back-track on voice BPO and instead invest in non-voice BPO. This is echoed by another analyst we contacted who chose to single out the company for the top managements’ ability to focus on their key areas and achieve excellence in them.