STOCKS FOR A POSITIVE VIETNAM STOCK MARKET OUTLOOK IN 2022 PART 2

This is part 2 from the last blog post where I discussed some stocks that might be good picks for 2022. That is, stocks where their fortunes are tied to some degree to the outlook for Vietnam, or at least South East Asia more generally.

STOCKS HELPED BY A POSTIVE VIETNAM STOCK MARKET OUTLOOK IN 2022 – NOT LISTED IN VIETNAM

Today the stocks that I am discussing happen to be listed in Singapore and Australia. However it is not only the outlook for these 2 countries that matter. The likes of Indonesia, Vietnam, Thailand, Malaysia will be important for the futures of the companies I shall be looking at here.

SOUTH EAST ASIAN STOCKS TO BUY FOR 2022

As I discussed in the heading and my last blog post, they are not direct plays on the Vietnam economic outlook. Yet the fortunes of Vietnam and South East Asia more generally are somewhat tied in to some extent at least.

BEST SINGAPORE STOCKS AND ASX STOCKS TO BUY FOR 2022?

A couple of stocks that trade in Singapore (I accumulated mid-September) and Australia (I’ve held for a long time) are the following:

JARDINE CYCLE & CARRIAGE (SGX:C07)
UNITED OVERSEAS AUSTRALIA (ASX:UOS)

Let’s now briefly examine these two.

IS JARDINE CYCLE & CARRIAGE (SGX:C07) A GOOD STOCK FOR 2022?

Jardine Cycle & Carriage (SGX:C07) description – (JC&C) is a Singapore listed conglomerate with exposures to South East Asia, and industries such as automotive, finance, mining & equipment, agribusiness..

Are you falling asleep yet?

Perhaps that is why there is an opportunity here with (JC&C).

I don’t think it would register much interest with the young traders on the reddit threads. It is the opposite to what excites most. Here we have an old school conglomerate that has been around well before we were born, has some real asset backing, and might make some real profits in the short term in traditional industries we all understand well!

When I mentioned exposure to South East Asia I should note it is more a bet on Indonesia and the automotive sector. This is not such a bad thing. Like Vietnam, many economists are optimistic on the future of Indonesia and cite their younger working population as a key factor.

There is a reasonable link with this stock to the future prospects in Vietnam also though. It has more than a few strategic stakes in Vietnam firms, most notably Vinamilk. A bit like how I mentioned with Thai Beverage stock in my last post, (JC&C) is a fairly significant bet on Vietnam. You could expect circa 20% of profits to come out of its Vietnam interests. As I said though Indonesia is the main game for (JC&C), as that might represent circa 70% of profits. It also has subsidiary exposure to Singapore and Thailand.

Jardine Cycle & Carriage (SGX:C07) pe ratio – 14 times FY20

Why Jardine Cycle & Carriage (SGX:C07) might be a good stock to buy for 2022 – If we keep things at a simple level, it is about exposure to a growing young working population which is under appreciated by many global investors. Then we have car ownership levels very low compared to other large countries. Add to that a government commitment, like Vietnam, to ramp up infrastructure spending which includes a lot on roads. At a top-down macro level these are some good potential structural tailwinds to start with.

Its not a one way bet of course, their main exposure in Astra International Auto segment will face plenty of competition because such structural growth potential is well known. Yet they are in a strong position to start with in this respect having about half the market in terms of market share. Some will cite competition from EVs also, however given Indonesia’s more modest level of wealth per capita, it could be a long time before this presents any curbs to the growth of (JC&C).

As earnings have no doubt been adversely affected from covid-19 in this stock situation, now might be the time to take a closer look at (JC&C). Over the next year or two if profits pick up back to pre-covid levels well you are getting a good quality conglomerate that looks after its shareholders at the lower end of average P/E or P/B valuation measures.

IS UNITED OVERSEAS AUSTRALIA (ASX:UOS) A GOOD STOCK FOR 2022?

United Overseas Australia (ASX:UOS) description – UOS is a Malaysian property developer where the founders have achieved “Buffett like” growth for their shareholders over decades. The company was founded more than 30 years ago, and the stock exchange listing in Australia was more to do with the founders’ backgrounds where they studied in Perth. Business wise though they had the foresight to get into property development as the economy in Malaysia was emerging rapidly.

They are not getting any younger, perhaps one small reason for the cheap valuation, but probably are getting even wiser with experience. They have navigated the Asian crisis, GFC, and now are in a strong balance sheet position to navigate the recent covid-19 economic volatility.

Unusual listings like this being an ASX security with its operations mainly in Malaysia can present an opportunity. The founders are majority shareholders so free float is relatively small. This, and the fact they operate under the radar by getting down to business rather than spending time promoting the shares, can mean you can pick up a high-quality company at cheap prices.

Whilst the key exposure has been more in the more affordable mid-tier style residential developments around KL, they have the flexibility to go where the best risk /reward trade offs are heading. This is both in the context of different classes of property, or even counties. In their more recent history they have been more cautious around commercial property in KL which has helped.

It is only in recent years that Vietnam has more specifically come on the radar to UOS as an investment opportunity. Management are excited about the very long term opportunity that exists in Vietnam. Despite this, they have appropriately commenced development in the country at a cautious pace, acknowledging the need to get fully used to doing business regularly in a different country to what they have been used to for a long time.

United Overseas Australia (ASX:UOS) pe ratio –11 times FY20

Why United Overseas Australia (ASX:UOS) might be a good stock to buy for 2022 – UOS have a cashed up balance sheet during a time of significant change in the world and where there are many different views on the future of property development. Their competitors unlikely have the same flexibility in terms of what balance sheet strength can bring, and nor the experience.

In an environment where central banks are trying to suppress yield curves, having some exposure to high quality companies with strong asset backing in hard assets as not such a bad idea. Better still, what better management teams can you expect to get to decide which way to pivot in the future in terms of where various property markets are heading?

Surely property is not dead yet, everyone won’t be working from home. Those that do work at home, might need more innovative residential designs for the future. Companies that need a lot of their staff in offices for that face to face advantage, might now need more space per employee and flexible arrangements. Quality developers are the ones you want to back to capitalise on future trends.

Although the tilt to Vietnam is small from UOS at this stage it is a sign of things to come. As a percentage of the company’s overall exposures, I can see it growing substantially over the next decade. As I said they are excited by the opportunity, so who knows, they may be foreseeing a very long-term opportunity like they did in Malaysia decades ago.

UOS itself is a good stock for a long-term view given its track record and quality. Clearly we now are at more of a contrarian time to buy a stock like this, which might be a good thing. In late October as I am drafting this, UOS trades at a discount to its asset backing of it least 30%, which offers plenty of margin of safety.

FINAL THOUGHTS

These are only brief summaries so I would recommend anyone to do much more research if they were considering becoming shareholders. The idea of this blog is not to be a stock tipping site, but rather give some readers a snapshot view of some stocks in the region and some thoughts they may not have come across elsewhere.

To read part 1 of this blog post refer to below: