Over the past decade, as sound macroeconomic policies and structural reforms were established, Asian economies have grown exceptionally rapidly and many ambitious companies in these regions have been keen to use overseas markets such as AIM to finance growth, writes Oliver Haill

Over the past decade, as sound macroeconomic policies and structural reforms were established, Asian economies have grown exceptionally rapidly and many ambitious companies in these regions have been keen to use overseas markets such as AIM to finance growth, writes Oliver Haill

Indeed, Growth Company Investor’s first piece of comprehensive research into this area, East and South-East Asia on AIM 2008, reveals that a very significant 147 companies operating in East and South-East Asia have tapped AIM to date for £2.9 billion of funds at IPO.

Now, few of these ventures are actually incorporated within their country of operation, and many have their headquarters in another continent entirely. Nevertheless, their combined share price performance demonstrates that a relatively positive reaction from the market overall, recent stock market falls notwithstanding.

Despite the recent small-cap sell-off, the mean share price performance of the companies in general is a decline of a mere 1.8 per cent. That compares favourably with the FTSE SmallCap over the past three years (which, even before recent landslide falls), was down 8.2 per cent from September 2005 to September 2008) and the overall AIM Index (down 27 per cent in the same three year period).

Chinese counters

Examining national markets individually, China dominates the list, with 72 companies raising £1.7 billion from AIM investors at IPO. If you add in ventures in Hong Kong and Macau, separated due to their semi-autonomous status, the total number of Chinese ventures is 82, with £1.8 billion raised at float and an overall share price fall of 26 per cent.

And whilst much has been made about recent relative slowdown in the People’s Republic, a growth rate of around nine per cent is still one many nations would be exceedingly jealous of at any time. But even though exports are being hit by slower demand from the credit-crunched West, there remains considerable potential for the country to develop its domestic consumption.

Investors might investigate prospects at those counters dependent overwhelmingly on domestic demand only, such as expansionary orange plantation owner Asian Citrus and South Chinese travel agency ET-China. ET’s recent half-year results showed underlying revenue growth of 21 per cent and top-line growth of 220 per cent to £56.7 million, though a pre-tax loss of £1.5 million proved disappointing, caused by an exceptionally bad winter and the Sichuan earthquake. Setting aside such events, unlikely to recur, prospects look good, since the company is well placed to absorb much of the continued growth of this sector and has £17.1 million cash to step up its marketing and acquisitive efforts.

Winners and losers

Outside China, there are plenty more fast-growing prospects. Vietnam, which has eight companies plying a trade there, including a number of investment funds, plays host to Vietnam Opportunity Fund among others. This venture has enjoyed a share price gain of 299 per cent on the back of the meteoric rise of the country’s economy. However, with inflation rocketing recently, the fund and its peers are perhaps looking less attractive.

The best performing share in the report is Indonesia- and Malaysia-focused gold producer Avocet Mining. Moving from the Official List to AIM in 2002 at a much-depressed price of 13p, it has enjoyed a near-800 per cent share price gain since.

Not too far behind is Hong Kong-based biometrics expert RCG Holdings after a 520 per cent improvement since debuting on AIM in 2004. The Asia Pacific-focused company is thriving in the fast growing global biometrics and RFID market and is highly profitable, yet remains curiously overlooked by investors. Worldwide security concerns continues to drive demand and analysts are looking for 46 per cent growth in profits to almost £43 million this year. Trading on less than four times historic earnings, the shares look like eventual candidates for a re-rating.

Growth and valuations

Those companies growing sales the fastest are overwhelmingly converged on Chinese opportunities, with seven of the top ten fastest-growing companies almost exclusively focused there. Leading the bunch is diminutive UK-based automotive component developer Antonov, which has significant business in the People’s Republic. Its sales grew 7,600 per cent, from £0.01 million to £0.77 million last year. Those enjoying profits growth were fewer in number, although Hong Kong-based UniVision Engineering is a notable high-flier, having lifted profits by more than 300 per cent in 2007.

Whilst the price-to-sales ratio is a crude method of valuing companies, it can provide useful extra context to flesh out an examination of a company’s financial position. Businesses with a high turnover in relation to their market value will have a low price-to-sales ratio. An extreme case can indicate a growth stock that has suffered a temporary setback, and mild examples can point to an unduly undervalued stock. MobilityOne, a Malaysian e-commerce infrastructure provider, has seen its value spiral down since flotation last year, after experiencing ‘challenging’ market conditions and disappointing versus the market’s expectations. On the other hand HaiKe Chemical, a petrochemical and biochemical business nearing break-even, is valued at just a fraction of its last full-year sales and merits consideration.

For a copy of the full report, contact Calvin Green on 0207 250 7056