Why Asian family businesses continue to dominate markets

Why Asian family businesses continue to dominate markets

By: 
Michelle Zhu
12/09/18, 05:52 pm

SINGAPORE (Sept 12): The financial performance of Asia’s family-owned businesses is far superior to their peers in terms of growth and profitability, finds a recent report published by the Credit Suisse Research Institute (CSRI).

According to the Credit Suisse Family 1000 in 2018 report, family-owned businesses outperformed broader equity markets across every region and sector on a long-term basis, be it in terms of revenue growth or EBITDA margins, or cash flow returns and gearing.

These findings applied to all Asian family businesses regardless of sector or size.  

The conclusion results from CSRI’s analysis of its database of over 1,000 family-owned publicly listed companies and their performance over a 10-year period, compared to the financial and share price performance of a control group comprising more than 7,000 non-family owned companies globally.

In Singapore alone, 15 companies in the family-owned database.

They were found to have generated an 8.9% annual average share price return since 2006, as opposed to the 4.8% average recorded by their non-family owned peers. Financials, consumer sectors and consumers discretionary made up the top three sectors in Singapore at 38%, 21% and 21% respectively.

This trend in Singapore is in line with that of the 11 markets covered by CSRI in Asia ex-Japan, which continued to dominate and represent a 53% share of the universe with a total market capitalization of over US$4 trillion ($5.5 trillion).

In total, family-owned companies based in Asia generated much higher returns than their global peers with an average revenue growth of 19.5% over the past decade, compared to 6.3% in North America and 7.4% in Europe.

This was also so in terms of annual average total shareholder returns, where the Asian family-owned universe achieved 31.5% over the 10-year period compared to 16.6% and 9.2% achieved by its European and North American peers, respectively.

Eugène Klerk, Head Analyst of Thematic Investments at Credit Suisse and the report’s lead author, believes the strong outperformance of Asia’s family-owned businesses is attributable to less reliance on external funding and higher investments in research and development (R&D).

“Our research on a global scale also suggests family-owned companies with special voting right structures perform relatively in line with those with ordinary shares, contrary to the fears expressed by many investors,” says Klerk.

It was also highlighted in the report that family-owned businesses in Asia tend to be much smaller and younger than their global peers, with a comparatively longer-term and more conservative focus.

“Historical data for our family-owned companies also show stronger growth in gross investments. Given the younger age of family-owned companies in Non-Japan Asia, it is not surprising to us that their asset growth is also above the average for the other regions,” notes CSRI.

“Having a longer-term investment focus provides companies with the flexibility to move away from the quarter-to-quarter earnings calendar and instead focus on through-cycle growth, margins and returns. This also allows for a smoother cash-flow profile, thereby lowering the need for external funding. In turn, all of this has supported the share price outperformance of family-owned companies since 2006,” it adds.  

Right timing: Temporary pause as STI consolidates gains

SINGAPORE (Feb 22): The recovery by the Straits Times Index that started towards mid-January is likely to continue despite short term hiccups. Quarterly momentum is in rising mode, the 50- and 100-day moving averages are positively placed, and the index remains above its 200-day moving average. ADX is rising and the DIs are positively placed. Interestingly annual momentum has stabilised and could attempt to recover. Prices could ease as short term stochastics approaches the top end of its range and turns down. This may cause a temporary retreat. Support is at the breakout level of 3,19....
Read More >>

UOB is RHB's top pick when it comes to local banks

SINGAPORE (Feb 22): United Overseas Bank is the top pick for Singapore banks, says RHB Research which believes the share price weakness after the results release offers a good entry point. UOB has also declared a final dividend of 50 cents per share and special dividend of 20 cents per share. FY2018 total dividend of $1.20 gives an attractive yield of 4.6%. Rising 18% y-o-y, UOB’s FY2018 earnings of $4.01 billion came in line with RHB’s forecast of $4.16 billion and consensus’ forecast of $4.05 billion. For FY2019, management has guided for net interest margin (NIM) to be flatti....
Read More >>

Pioneer, Merdeka... Next, a Majulah Generation package?

SINGAPORE (Feb 22): Hot on the heels of a $9 billion Pioneer Generation package announced in Budget 2014, the $8 billion Merdeka Generation package is setting up expectations of similar packages for every generation of ageing Singaporeans. Notably, both are geared towards healthcare and broadly available to an entire generation of Singaporeans. Already, analysts are expecting at least one more package to follow. “I suppose when there is only one dot, one can’t extrapolate, but with two dots you can,” says Tan Ern Ser, a sociologist at the National University of Singapore (NUS). ....
Read More >>