Churchouse Letter
September 2013        by Peter Churchouse

Asia’s Finest Part III

The September edition of AHA is the last in our series of reports on "Asia's Finest" investments. These are the stocks you can hold for your entire working life and on into retirement. Importantly, right now I think the company we're talking about here is cheap.

In this edition, we run the rule over a company that had its origin in basic manufacturing, made its first big money by developing real estate, and has continued to expand and diversify by investing in infrastructure and public utilities.

It's also the company that brought me to Asia many moons ago. What was supposed to be a nine to 12 month stint has turned into a sojourn that has already moved into its fourth decade!

Asia provides much of the company's growth potential, but it has also expanded savvily in the West through acquisitions. It may not have got every one right at first, but it has found the way to make money in just about anything that it has turned its hand to. It has expanded well beyond its Hong Kong roots into mainland China but also Europe, Asia, Australia and New Zealand.

There are plenty of other reasons to enjoy this stock, which while a family business has not been shy to reach out and hire the best brains a salary can secure to run its various businesses. The company also weathered the financial crisis in the West well, and looks to be on a firm footing for further growth in developed markets as well as emerging Asia.

It's a powerful combination – and it's one of Asia's finest investments.

Enjoy the issue,

Peter


One of the Best Investments in Asia

In 1980, I touched down in Hong Kong to work on a project that was scheduled to last for nine to 12 months. And more than thirty years on, I am still based in this great city. It’s not an uncommon story – this city draws you in, and before you know it, Hong Kong is your home.

The final company our “Asia’s Finest” series was instrumental in my coming to Hong Kong all those years ago. It helped set me on the path of seeking out wealth-creation opportunities and ideas. It’s another of those investments you can hold forever, sleeping soundly knowing they’re working to build wealth for shareholders like you without taking on unnecessary risks. They’re the workhorses of any portfolio, the wealth generators and, over the long term, produce impressive gains. You can hold on to these stocks for your entire working life and on into retirement.

The project that brought me to Hong Kong was a real-estate development – not that surprising since it is one of the most important industries in town. This company held around a 25 percent stake in a consortium of private companies that owned a large piece of land. The largest piece of land that any private group has assembled in Hong Kong.

Our task as consultants was to plan and design a self-contained “new town” as a private-sector venture. In other words, our job was to make lots of money for the consortium. As project economist, I did most of the number crunching with a team from the private-sector client. I quickly got pretty good at mental arithmetic, dealing in billions of dollars and hundreds of millions of square feet. I ended up as the project manager for the planning and design of an entire town with a population of 535,000 people. This was probably the first time in urban-planning history that an economist headed up such an operation. But that probably says more about Hong Kong's money culture than my design-and-planning skills!

I won't bore you with all the details, but the company I am talking about eventually outlasted all its partners in the consortium. It had patience and a great balance sheet. And it ended up owning the entire private-sector development rights for the town that was eventually built. It built all the housing, hotels, shops and offices. It made a fortune from the project. I tagged along on the coat tails ...

A long time ago, I noticed that many of the larger companies in this part of the world followed a similar path of growth:

They made money in manufacturing (in this case, textiles and toys). They got rich in real estate. They gained influence in infrastructure.

This company epitomizes that development path. Its roots were in manufacturing plastic flowers. It ploughed its surplus cash into real estate to become one of the three largest real-estate companies in the region, and indeed the world. From there, it moved on to become a global force in ports, telecommunications, energy, power, water and waste treatment through its tightly held affiliates.

The company is a true "hard-assets" company.

On a consolidated basis, real estate still accounts for a big chunk of its holdings. The company is classified as a real estate developer, and it sits in the top five or six in the world by market capitalisation. Although its roots are in Hong Kong, its subsidiaries reach around the world. Its operations are in North America, Europe, China, Australia, New Zealand, and of course Asia. It is truly global, with operations spanning 55 countries. The group employs more than 260,000 people…



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