We asked Teera Chanpongsang, Portfolio Manager, Fidelity Asia Fund to tell us about firms that have adapted well to Asia's fast-maturing markets
As a long-term investor in Asia, how has the region evolved since you first started out?
Propelled by rising income levels and the associated shift to a more sustainable consumption-led growth model, I have witnessed first-hand Asia grow up and mature from a frontier market to a region that is now a key contributor to global growth.
This change has also unfolded at ground level - where beginners have matured into market leaders and at the same time, I have witnessed the collapse of giants. What remains a key distinguishing factor is decisive and astute management teams that are willing and able to evolve in response to changing market dynamics.
Could you provide an example of a company that you feel has managed this transition particularly well?
In 1994, cookware and small appliances company Zhejiang Supor was set up in China. These were fragmented market segments with many players and little to distinguish one frying pan from another.
Supor had a different goal - to establish its brand and stamp its presence on the industry map. In 2004, it listed on the Chinese domestic A-share market and by 2006, it had become the largest company in this area. Its economies of scale, brand visibility and market size as well as its distribution capabilities attracted global suitors. In 2006, the French appliance manufacturer SEB Groupe, which owns well-known international brands like Tefal, acquired a majority stake in Supor.
SEB brought its technical expertise to Supor, which then used its well-established domestic brand strength and expanded into categories like vacuum cleaners and air purifiers. Supor also became a part of SEB's integrated production base and its Shaoxing facility in China is SEB's largest small electrical appliance production site.
Supor is now the largest Chinese cookware company and ranks second globally. It offers a unique growth profile as a combination of domestic presence and international revenues. Over the last decade, Supor has grown its revenues at a compounded annual growth rate of 17.5% and it continues to earn higher returns than industry averages.
Asia's consumption story is well-known - how have you played this theme at the company level?
I have seen the changing consumption patterns in smartphone purchases evolve first hand over the last decade. Our on-the-ground research in China highlighted at an early stage the increasing penetration of smartphones and looking at their use in social media and online purchases, it was evident that phone upgrades were here to stay.
Against this backdrop, I zoomed in on smartphone camera manufacturer Sunny Optical - identifying it as a small-cap opportunity with a strong product proposition with potential to grow into a future leader. Back in 2013-14, Sunny operated in a market dominated by Apple-focused Taiwanese player Largan Precision.
At the time, Largan ruled the 8 mega pixel (mp) lens arena and enjoyed substantial margins. It was clear that there was room for another player. Sunny took the challenge and scaled-up from 3mp to 8mp image quality. The smartphone market itself matured from single phone cameras to dual cameras and now tri-camera phones are gaining traction. Sunny is a clear beneficiary of this trend and has matured over recent years into a market-leader in the camera module space in the Android phone segment.
Sunny's prospects extend further into optoelectronics as it is uniquely positioned in the vehicular camera arena as well. Increasing adoption of sensing modules in automobiles, for example, will benefit both volume growth and price increase, potentially supporting its revenue growth.
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