Having been lucky enough to meet with several investment professionals in the US, Europe, Hong Kong, Singapore, Thailand and several other locations in the world, it has been interesting to see on how they look at and/or value investments in equities.

The metrics that are used in each markets are extremely different, in SE Asia you rarely hear any one look further than PE, PBV or Div yield. In the US and Western Europe they’ll start throwing out terms such as adjusted price to book, Free cash flow per share, EBITDA multiples etc… (note most sell-side analysts also try to do a DCF or a dividend discount model if its a bank/finance sector related co.)

In Asia where most companies are closely held family companies or where the free float requirements are extremely low (Thailand’s free float requirement is a small 15% and in reality most of the 15% is normally held by close friends/insiders of the listed companies).

There are several companies listed in Thailand that are trading at cash value, below book value, below adjusted book value. One simple example of this is Dusit Thani Plc (DTC), it has a market cap of THB 3 bn/USD 100mn, which is less than the value of its hotel property in Hua Hin, and off the top of my head it owns 14 hotel properties in Thailand (don’t quote me on this), so while its trading at 0.7 PBV on an market adjusted basis it may approximately be ~0.05x. But this company’s share price hasn’t done anything for the past 10 years, it has essentially hovered around this price level. Can we do anything here as investors? Nope. If this was Europe or the US activist shareholders forcing management to somehow improve the value of their company/sell off assets/be taken over whatever but in Asia none of this applies, I remember back in 2005, back when I thought I knew everything there was to know about investments, when I asked my boss at the time “Why can’t we buy a small stake in Bangkok Bank Plc and then chase management to improve their performance” and his response was “Pon is your car bulletproof?”

In the US/Europe it isn’t unusual to ask/force a company to improve for its shareholders but in Asia where banks are reluctant to force companies that are unable to repay their loans into bankrupty, where minority shareholders have far fewer rights than in the US and Europe, where having an significant impact upon a public companies business strategy (for the right reasons) is close to impossible. All the above I believe results in a very different market dynamic when investing.

So you won’t see me looking to buy a company here anytime soon just because its really cheap based on its books. I believe that we need to look for any combination of the following: 1. Cheap valuations (dcf/multiples/absolute); 2. Catalyst for earnings improvement; 3. A strong business model; 4. Management/Shareholders that are trustworthy.

Anyways those are just my thoughts…