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.  

Hyflux gets non-binding letter of intent from China suitor

SINGAPORE (June 15): Hyflux has received another non-binding letter of intent (LOI) for a potential investment in the group by an investor based in China. In a Friday night filing, Hyflux says the investor is a subsidiary of a state-owned enterprise in the industrial field which works on a global scale to provide comprehensive power services. “Other fields of expertise of the investor’s holding company include wind and solar energy solutions, nuclear industry, medical technology and agriculture,” says Hyflux. See: Rags-to-riches tale goes sour for Hyflux founder Olivia Lum Se....
Read More >>

Hong Kong suspends China extradition bill

(June 15): Hong Kong’s leader suspended efforts to pass a bill allowing extraditions to China, in a dramatic reversal that she said was necessary to restore order in the Asian financial hub and avoid further violence and mass protests. Carrie Lam, Hong Kong’s chief executive, announced the legislative “pause” at a news conference Saturday, even as activists asked hundreds of thousands of residents who marched in protest last weekend to return to the streets and demand her resignation. Lam acknowledged that debate had shattered a period of relative calm in the former British colony, ....
Read More >>

Chip Eng Seng in joint $47.5 mil investment of China distressed property company

SINGAPORE (June 15): Chip Eng Seng and controlling shareholder Haiyi Investment are jointly investing RMB240 million ($47.5 million) in a distressed property company based in Taicang city in Jiangsu province, China. Chip Eng Seng says the investment will enable the project company to discharge its outstanding liabilities such that its assets will be unsealed and restart a project involving the development and construction of a residential development on a land area of 38,000 sqm, with a gross floor area of 111,111 sqm. The project company, effective controlled by local shareholder Ren We....
Read More >>