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Best Asian Companies: Cash is king as Asia’s best companies put their money to work |
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Best Asian Company Methodology |
FOR COMPANIES IN Asia, now more than ever, it’s all about the money. With the capital markets all but seized up, the focus for Asia’s companies now is very much on cash. Those that have reserves of capital are working out how best to deploy it as they look for bargains in the region’s depressed markets; those that do not are desperately looking to maintain liquidity by cutting costs and squeezing every last drop of cash from their balance sheets. This means more focus on cash management, as Tom Ducharme, head of global transaction banking, Asia Pacific, at Deutsche Bank explains. “Twelve months ago the business of cash management was perhaps taken for granted by some corporates,” he says, “but this crisis has been very sobering for companies that assumed the capital markets would always be open and funding through them would always be cheap. When that source dries up, it makes sense to look at internal liquidity to reduce funding costs, and that’s where we can help.”
Corporate treasurers are increasingly involved in executive-level discussion at their firms, Ducharme says, as companies examine even the smallest transactions on their books for ways to make savings and streamline the processes of making and receiving payments.
Maintaining stability at the top is also critical to winning over the trust of investors and analysts during this difficult period, which perhaps explains the fall from the top spot in the Most convincing and coherent strategy category of Hong Kong real estate development company Sun Hung Kai Properties. Last year’s winner of the poll had a torrid start to the year with the announcement on February 18 that chairman and chief executive Walter Kwok would take temporary leave of absence for personal reasons, and, as the story developed, further revelations emerged concerning efforts by his mother and brothers to oust him permanently. The firm still placed first in the property sector in this year’s poll but fell from the top 10 in the overall strategy category to be replaced at the top by last year’s second- and third-placed contenders, China Mobile and China Telecom.
China Mobile is the People’s Republic’s dominant wireless provider, boasting more than 300 million subscribers in its home market. That makes it the world’s largest provider of mobile phone services by number of subscribers, and the firm is increasing that base at an impressive rate. Subscriber numbers grew by almost 25% in the second quarter of 2008, and analysts are impressed by the company’s focus on developing its core wireless market at a time when growth in the fixed-line sector is slow.
Despite that difficulty, China Telecom, the country’s leading fixed-line provider, places third in this year’s poll for its ability to maintain growth despite that slowdown in its core market.
“The fixed-line business is tough,” says an analyst who covers the firm, “but management [at China Telecom] still manages to extract some growth from it and they are well positioned for future growth opportunities.”
The firm differs from China Mobile in that investors and analysts find senior management at China Telecom more readily available: while China Mobile has made up some ground in the Most accessible senior management category this year, its fixed-line rival places above it.
“China’s telecoms industry is being restructured at the moment,” says a Hong Kong-based analyst who covers both firms, “and China Mobile’s management are somewhat reluctant to meet face to face because it is a sensitive year for them. You don’t see them on a lot of roadshows like you might with China Telecom’s top staff.”
Emerge unharmed
Like these Chinese communications companies, Fubon Financial, a Taiwan-based financial services group, has benefited in this year’s poll from the fact that it has emerged from the financial crisis relatively unharmed. The firm exemplifies the trend for cash-rich Asian firms to hunt for bargains among the remains of firms that were not so lucky, announcing on October 20 that it would buy Dutch Bank ING’s Taiwanese life insurance arm for $600 million. The move makes the company the country’s fourth-largest life insurance firm by assets. Fubon Financial wins this year’s Most improved category, and has been praised by analysts for the forthright way in which management have pursued a strategy of expansion during difficult regional conditions.
“Management have an ambitious agenda,” says an analyst who gave the firm top ranking, “and they are executing that agenda with great persistence and excellent results.”
The factors that analysts and investors have rewarded companies for on the stock markets and in this poll are not surprising: access to capital, clear strategy, intelligent acquisitions, stable management, a focus on core businesses. What else can companies do to retain the trust of the market?
“Companies shouldn’t cut dividend payments unless they’re forced to,” says John Vail, chief global strategist at Nikko Asset Management. “Dividends are a symbol of the long-term health of the company,” he says, “so to cut them is a sign that management are not confident. If you’re a growth company that sees a good opportunity for an acquisition then you should be able to convince the market that dividend cuts are OK, but otherwise it’s generally a sign that the company’s in trouble.”
