Asean arising, CLSA

J-curves and franchises
With nearly 40% of its population under 20, the Asean labour pool is
surging while China is facing a labour crunch and regulatory risk has
risen in India. FDI flows to the region are already surging. Buying power
is rising with the middle class projected to rise 50% and the number of
wealthy to double over five years. We identify 13 companies building a
business franchise, generating an average annual EVA® spread of 8% and
estimated to provide 70% three-year total returns.


Demographics and the Asean economies
 The region’s labour force is projected to rise from 388m to 444m this decade.
 Asean’s combined GDP slightly larger than India’s and the region set to attract FDI
as China becomes increasingly expensive as a manufacturing base.
 The Asean nations are gradually integrating with an FTA in place, which will lead to
M&As that will establish pan-regional businesses.

Middle class expansion, rapid rise of the rich
 More than 50m to enter the middle class in five years taking the total close to
160m by 2015.
 Discretionary spending power to rise more than 50% in this period.
 Number of HNWIs less than 0.1% of adult population but set to double in five years.
 We estimate an additional US$900bn in wealth for Asean HNWIs by 2015.

Exponential, logarithmic or linear?
 Per-capita spending on consumables tends to slow above US$10k; most of the
Asean population is well below this level.
 Spending on cigarettes, computers and air travel show linear growth.
 J-curve spending pattern pronounced for wine, soft drinks and apparel.

Returns from franchises
 Franchise companies: high return on capital and durable competitive advantage.
 Asean companies with a franchise best positioned to capitalise on the opportunities
include United Tractors, Gudang Garam, Genting Berhad and the Singapore
subsidiary, AirAsia, Universal Robina, ICTSI, F&N and CP Foods.
 Bank Rakyat, Public Bank, UOB and Bangkok Bank also have strong franchises.

Download file : ASEAN ARISING