Asia’s best companies 2002: Hong Kong takes the cream

The Hong Kong economy may be suffering but research analysts still rate companies based there as the cream of the crop among Asian corporates. They take five of the number one rankings across the 20 different sectors in the 2002 best companies poll, the most from any one country.

Within Hong Kong, Sun Hung Kai Properties beats off rivals including Hutchison Whampoa, HSBC and Johnson Electric to clinch top spot, according to analysts. The large-scale developer, which is celebrating its thirtieth anniversary this year, has been innovative in its strategies for coping with the property downturn. In a city where space is still a luxury, the company has done well by being the first to include extra facilities, such as spas, which continue to earn it maintenance fees even after the property has been sold.

The company was listed in 1972 but is still family-run, with the original founder’s three sons at the helm. Analysts maintain that it has an excellent investor relations department that is highly responsive to enquiries. Full-year earnings to June 2002 have increased by 2% year on year. Eva Lee, research analyst at ING Financial Markets in Hong Kong, says of the company’s operating performance: “It is consistent and there is good execution of the business strategy.”

Micromotor manufacturer Johnson Electric is second to Sun Hung Kai in the rankings for companies in Hong Kong and also comes second in the region in the technology sector. The company has benefited from the trend of outsourcing to lower costs. Management is seen to be conservative with a focus on building shareholder value. Alan Wong, vice president in equity research at GK Goh Securities in Hong Kong, says: “The company’s reports are very transparent. They’ve been awarded ‘best annual report’ in Hong Kong over the past couple of years.”

Another company in Hong Kong that has done well is Li&Fung. The family-owned corporate also tops the overall Asian sector rankings in both the retail and textile sectors. It is possibly the largest company in the world for sourcing garments. Its accounts are highly transparent, and it has regular meetings with analysts. GK Goh Securities’ Wong says: “It has very modern management.” He adds: “The management is Harvard educated. One of the Fung brothers was a professor.” Another analyst praises Li&Fung for being “well managed with a clear strategy for achieving sales and profit”.

Despite Hutchison Whampoa’s recent failure to tap the international capital markets (see Euromoney November 2002) analysts rate the conglomerate as another of the top corporates in Hong Kong. The company is also rated as the best Asian company in the conglomerates category. As well as benefiting from diversity, it also wins praise for its senior management’s trading instincts. One analyst comments that the company: “is able to dispose of assets at the peak and buy them at a bargain level”.

Corporates in India have also done well, topping the sectors for banking and finance, IT and software, petrochemicals and pharmaceuticals. Infosys Technology has held its place as top corporate in India. The company provides IT services and consulting, with over 90% of its business coming from outside India. Infosys has seen volume growth because the difficult business environment for companies worldwide has led to a rise in the outsourcing of IT services.

Infosys has also managed to increase its operational efficiency during the market downturn. Ratnesh Kumar, head of research at Salomon Smith Barney in India, says: “They’ve hired a lot of people over the past six months. They were able to increase their operational efficiencies which can been seen, for example, by their utilization [number of people utilized on projects out of total employees] rates.” He adds that the company has established a good brand as a quality offshore IT services provider.

The management at Infosys is viewed as highly professional. One analyst says its disclosure standards have established a benchmark for other Indian companies. Appropriately, it has topped the ranking of companies across the region with the most transparent financial accounts, the most accessible senior management, the best treatment of minority shareholders and even the best website. “The website contains all relevant data pertaining to operations and financials,” says an analyst.

Its peer, Wipro, also does well, coming in equal third in India with HDFC Bank. ICICI Bank (the Industrial Credit and Investment Corporation of India Bank) is slightly ahead in second place. ICICI Bank also comes in at number one in the banking and finance sector across Asia, with HDFC Bank equal second.

ICICI Bank was set up by ICICI in 1994. In 2000 it became the first Indian commercial bank to list on the New York Stock Exchange. Earlier this year it was merged with ICICI. The bank has been aggressive in the retail market over the past 18 months and has the second largest ATM network in India.

It may have to work hard to retain its top spot in next year’s poll. Analysts say that it has to concentrate on maintaining its top position in the retail market as well as deal with the legacy portfolio of bad assets from ICICI. However, on November 21 the treatment of non-performing loans was altered by the Indian government. Lenders are now permitted to repossess the assets of a borrower that has failed to repay its loans after 60 days, enabling the lender to realize the capital. This means that banks such as ICICI Bank are better positioned to improve their asset quality.

HDFC Bank was created in the early 1990s by the Housing Development Finance Corporation (HDFC) which, in turn, was formed by ICICI in 1977. Its business growth has been greater than 35% in the last three years and it is now the second-largest private-sector bank in India, with a balance sheet size of Rs238 billion, compared with ICICI Bank’s Rs996 billion ($21 billion). Rajat Rajgarhia, research analyst at Motilal Oswal Securities in India, says: “Its asset quality is the highest in the sector, with NPLs of less than 1%.” He also says the bank has been innovative in introducing products into the capital markets. Rajgarhia can see a possible merger between HDFC and HDFC Bank, as happened with ICICI and ICICI Bank.

In China, both China Mobile and China Unicom are highly rated and come in at third and fourth respectively in the Asian cellular telecom sector. Analysts feel that China Mobile has a clear strategy, with a clear focus on GSM. One analyst rates it as the most improved corporate because “it has learnt about shareholder value, paying dividends and has a better understanding of investor needs and rights”. Analysts also say the company provides thorough monthly operating figures.

In Korea, Samsung Electronics comes in as the top corporate. Analysts approve of its well-diversified business portfolio, including semiconductors, handsets and digital equipment.

Both fixed-line operator Korea Telecom and cellular telecom SK Telecom also rate highly in the country rankings as well as topping the Asian fixed telecom and cellular telecom sector categories respectively. One analyst rates Korea Telecom as the best company at treating minority shareholders well. He says this is a result of the “introduction of cumulative voting and appointment of new outside directors to represent minority shareholders”.

Singapore Airlines tops the poll for companies in Singapore as well as for the airlines and aviation category. Analysts are impressed by the company’s resilience over the past 12 months despite the impact of the events of September 11 on the sector. Results for the six months ending 30 September 2002, in which the group’s basic EPS increased by 472% to 63.5 cents, are testament to this.

The top company in Thailand, according to analysts, is Thai Farmers Bank, which also comes in equal second in the banking and finance sector across Asia. It gets top marks for cutting costs. At the end of last year, it decreased its head count by about 1,000 and has closed around 30 branches.