Kevin Smith, of Delft Partners and portfolio manager of the TAMIM Asia Small Companies Fund, highlights one of the stocks in the Asia Small Companies portfolio. Showa Denko K.K. (SDK) is one of the largest chemical groups in Japan with history that dates back to 1908, the group also manufactures and markets electronic and aluminium products.
Accounting, Strategy and Governance Comments
Value, Momentum and Quality Comments
SDK has consistently scored exceptionally well in the value category of our scores and is currently in the top 3% of all companies in the region assessed for value. SDK has gradually improved in the quality element of our scoring, the company has ambitious and achievable targets for return on equity which should see the quality scores continue to improve.
During the past eighteen months, the 2020 eps forecast has increased from ¥480 to ¥900, the wave of upgrades by analysts peaked in November 2018 when the 2020 eps forecast reached ¥1,100. The subsequent downward adjustment in eps expectations is responsible for the decline in the momentum and overall VMQ scores, however, that still leaves SDK comfortably in our top quintile of companies in the region.
SDK is a good example of hidden technology by developing the market leading SiC epitaxial wafers within a traditional petrochemicals and aluminium fabrication business they have been overlooked by the market and trades on a forward multiple of 4.3x earnings. The management of SDK have set themselves an ambitious target for return on equity and have defined the business into three types of management “Enhance, Grow and Change” that should see them achieve that goal and achieve substantial positive returns for shareholders.
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TAMIM Asset Management provides general information to help you understand our investment approach. Any financial information we provide is not advice, has not considered your personal circumstances and may not be suitable for you.