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Crouching tigers, hidden profits
by Ned Humphrey
When U.S. stocks entered the hot phase of the bull market in the mid 90s, foreign markets, and especially the emerging markets, fell out of favor with mainstream investors. After all, why risk your hard-earned money for a mere 100% abroad if you could quadruple it on your neighbor’s kid’s dot-com?
But the tide is turning. With U.S. stocks plummeting, certain markets are becoming quite attractive again.
Given the growing cost-consciousness among western manufacturers, the search for cheaper production sites will begin focusing on these areas again. And the media, telecommunications, IT, and entertainment industries themselves are experiencing enormously strong demand in the emerging markets, which, after all, account for roughly 3/4 of the world’s population.
Asia already is the world’s biggest production center for IT hardware and electronics. The leaders are South Korea, Taiwan and Singapore. Almost half of the notebook computers sold worldwide are made in Taiwan. And 91% of the world’s integrated circuits come from Asian exports.
Creative Technology in Singapore is the world leader in the production of components for audio and video equipment. But consumption of these products in the lands where they’re made is still largely underdeveloped. In the Philippines, for instance, electronics account for 54% of national exports, but the country has the lowest figures for IT usage in all of East Asia. So there’s an immense opportunity here. The know-how exists, the only thing lacking is implementation.
We can expect further alliances and mergers in the mobile communications sector. This will be driven primarily by the switch to third-generation mobile communications and the prevailing trend towards distribution of costs and risks. This year should see a wave of 3G auctions worldwide.
In Asia, the Internet is only getting started
The development of the Asian Internet is still in its early stages. The number of potential Internet users is huge. Populations are soaring. Internet usage is growing much faster than in Europe or the U.S. In China alone, the number of Internet users doubles every 6 months. By 2005, more Chinese will be downloading Internet smut than in the Net’s native land, the U.S.A.
Internet-capable iMode mobile phones are a huge hit in Japan (17.1 million subscribers at the start of 2001). Korea is considered the best example of potential Internet use. Whereas broadband usage is only just getting started here, there it has already become the standard (4 million subscribers at the start of 2001). And, avoiding the high debt burdens of the western telecommunications companies, the Asian telecoms have sought far more realistic financing solutions. According to a study by the International Telecommunication Union (ITU), sales in the Asian-Pacific region are set to grow from US$35 billion in 2000 to US$500 billion by 2003.
From PC producer to mobile phone and Internet giant
The Chinese PC maker Legend (LGHLY:OTC-ADR) currently has a market share of more than 30%. This in a country where only 1 in 25 has a PC — out of a population of 1.3 billion. Domestic competitors include Founder Holdings and Great Wall Technology. The big competition, however, comes from America: Dell and Compaq.
To maintain the furious pace of growth (in the high double to low triple digits!), Legend is stepping up investments in mobile phones, servers, network equipment like routers and switches, and ISP services, in addition to its core PC business.
For the fiscal year ended on March 31, 2001, profits grew by 60%. This equates to a P/E of around 50. For the current fiscal year, profits should grow by 30% to 40%. This works out to a P/E of under 30, and a PEG ratio of 1!
High growth with no end in sight, combined with market leadership, are ideal conditions for further stock price improvement.
Buy Legend Holdings (LGHLY:OTC-ADR) under US$15, and observe your usual -20% trailing loss. Contact: Legend Holdings Ltd, 20th Floor Devon House, Taikoo Place, Quarry Bay, Hong Kong, tel. (852) 2590 0228, fax (852) 2516 5384, Investor Relations Website.
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