Southeast Asia’s conglomerates lose edge against pure-play companies: Bain report

Lippo Center, Hong Kong / Photo credit: Craddocktm

Southeast Asian pure plays, which focus on specific industries as opposed to being diversified, have outpaced regional conglomerates in total shareholder returns (TSR), revenue growth, margins, and multiples, according to a report by Bain & Company.

In the past, conglomerates were “attractive” entry points for international investors as they were large and had privileged access to opportunities, capital, and talent. But that changed once the region’s markets matured.

Economic downturns and the Covid-19 pandemic further dragged down conglomerates’ performance. In more developed markets like Singapore, Malaysia, and Thailand, these companies had a delayed response in adjusting margins and managing costs during global economic downturns. This contracted their price-earnings multiples.

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“Some were caught in the wrong business at the wrong time when the pandemic and movement restrictions dramatically altered demand,” the report said.

Despite the struggles, a group of 12 conglomerates have consistently hit top-quartile status for TSR growth across various economic cycles.

Dubbed “all-weather stars,” these conglomerates include companies like Sinar Mas and Kalbe in Indonesia, BDMS Group and DKSH Holding in Thailand, Sunway Group and Hong Leong Group in Malaysia, and Razon Group of Companies in the Philippines.

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Even during periods of lower economic growth, these conglomerates managed to boost revenue, protect profit margins, and augment their price-earnings multiples.

Seven emerging “all-weather stars” have joined this group by entering sectors like tech and health care, as well as high-growth ones like renewable energy. They include Phinma Corporation in the Philippines, Emtek in Indonesia, and Vingroup.

Vingroup is notably behind VinFast, the Vietnamese manufacturer of electric vehicles. Meanwhile, Emtek swapped its large media portfolio for what the report called “higher-growth prospects,” like its relationships with Bukalapak and Grab.