Governance is Critical to Successful Investing in Asia March 2020 - PowerPoint PPT Presentation

Governance is Critical to Successful Investing in Asia March 2020 Jonathan Wu – Executive Director | Chief Investment Specialist 1

Disclaimer This presentation is prepared by Premium China Funds Management for general information only and does not constitute a prospectus, an offer or an invitation to subscribe to any securities, or advice in relation to any securities or financial products. It does not take into account the investment objectives, financial situation or needs of any person. You should assess whether the information is appropriate for you and consider talking to a financial adviser before making any investment decisions. The comments contained herein are expressions of belief only and should not be relied upon as authoritative or without the recipient’s own independent verification or in substitution for the exercise of judgment by any recipient, and are subject to change without notice. Premium China Funds Management is the trading name of Premium China Funds Management Pty Ltd ABN 98 113 856 214, ACN 113 856 214, Australian Financial Services Licence No. 291570. Equity Trustees Limited (“Equity Trustees”) ABN 46 004 031 298, AFSL No. 240975, is a subsidiary of EQT Holdings Limited, a publicly listed company on the Australian Stock Exchange (ASX:EQT), is the Responsible Entity and issuer of units in the Premium China Fund, Premium Asia Fund, Premium Asia Property Fund and Premium Asia Income Fund. The information is taken from sources which are believed to be accurate at the time, but neither Premium China Funds Management, Equity Trustees, Value Partners, nor any of its related parties, its directors or employees, provide warranty of accuracy or reliability in relation to information contained in this presentation, or accepts liability to any person who relies on it. Past performance is no indication of future performance. Unless expressly stated, none of the information should be taken to be a recommendation. Investors should consider the Product Disclosure Statement (PDS) relating to each Fund in deciding whether to acquire or continue to hold units in the Fund. The PDS is available from www.premiumchinafunds.com.au. 2

A Pragmatic Perspective on ESG in China 3

A Pragmatic Perspective on ESG in China • The practicalities of ESG investing is a 1 st world issue. • For China, the evolution of this concept is prefaced only by bringing a majority of the general population out of poverty first. • The result of this has led examples like: • Before: 30 years ago, you didn’t know where you would get your next meal, no wealth to protect. • Now: With the growth of the middle class, protecting your wealth via life insurance is critical. • Evolution timeline: • Focus 1 – Social – Bringing people out of poverty. • Focus 2 – Governance – Evolution of Companies from simply growth to sustainable growth. • Focus 3 – Environment – Sustainable manufacturing and services. 4

Investment philosophy Bottom-up Value Hunt for the 6500+ company visits stock picking 3Rs o The R ight business, run by o Companies with quality o Highest conviction ideas o On-the-ground, in-depth the R ight people, and at 360 degree review of fundamentals trading driven by our “walk -the- the R ight price companies below their intrinsic extra- mile” bottom -up valuations fundamental analysis o Dedication and insight to o Prefer contrarian and the local market through o Alpha seeking and non-consensus ideas extensive relationships absolute return oriented o Thorough audit and due diligence checks 5

Experienced and close-knit investment team An average of 18 years of industry experience and 10 years at Value Partners Experience: Most team members joined the firm at the beginning of their investment careers Stability : Among the best investment teams in Asia with ~70 on-the-ground investment professionals in Hong Kong, mainland Strength: China, Singapore and United Kingdom, with a special focus on the Greater China market 6

Investment process overview 1 2 3 4 Initial idea Walk-the-extra- High conviction Portfolio generation mile fundamental idea pool construction research o Gather the best-of- o Team approach - Idea o Deep dive company o Concentrated portfolio breeds value ideas generation by sector analysis to explore under- o Value portfolio with VP’s leaders / analysts valued stocks o Target top 5 ideas per highest conviction ideas o All-cap and bottom-up o Cross-checking & sector o High active weight focused maintenance o Routine review and o In-house quantitative o Management quality and discussion to ensure screening to provide constant idea quality corporate governance stock universe overview Supported by Multi-Asset Team Quantitative Team β o Global multi-asset views o Big-Data analysis o Macro risks / drivers o Quantitative market trend signals o Country allocation ranking An alpha seeking portfolio supported by in-house financial models 7

Enhancements to investment process Investment process remains unchanged in the previous 12 months and two enhancements were implemented: 1. Evaluation of paper portfolio • We have integrated Bloomberg with trading system, Charles River IMS (CRIMS) • Analysts can build their paper portfolio on CRIMS where their portfolio performance can be evaluated and tracked • CRIMS provides a real time and accurate calculation on prices, also the sector leaders can assess the analyst’s ability of stock picking 2. Risk Management • Risk management system upgraded to Axioma from RiskMetrics in May 2019. This had enhanced the efficiency of assessing portfolio level risk includes using multiple Value at Risk (VaR) and stress-testing 3. ESG Integration • Became a signatory to the UN PRI in July 2019 • Engaged an independent ESG research and data provider • Integrate ESG in the investment decision-making process via a negative screening process • Active engagement with the main focus on management through the data sourced from the ESG data provider or via internal research on significant violation of ESG issues 8

Human Resources as part of ESG process Board of Directors ESG Spoonsors: Leadership Committee (co-Chairman, co- CIO’s, President) ESG Champion: (co-COO) Patricia Cheung ESG Committee: Dedicated Responsible Investment Staff: Frank Tsui & Ella Wong Oversight Fund Managers: Man Wing Chung & Gordon Ip Co- COO’s: Roger Hepper & Patricia Cheung Oversight & Implementation CFO & Investor Relations: Icy Wong Chief Compliance Officer: Vivienne Lee Implementation Chief Strategy Officer & marketing: Angel Teng Firmwide Participation Firmwide Participation 9

Guangzhou R&F Properties (2777.HK) Background: • Guangzhou R&F Properties (R&F) is a leading comprehensive property developer in China. The company operates its business through four segments: Property Development, Property Investment, Hotel Operations and Others. It operates its business in domestic and overseas market. ESG Issues: • Environmental issues : R&F violated the national legislation on atmospheric pollution and is accused of causing various environmental damage. In May 2019, its sales of property in Hainan Province was suspended as local government discovered that the project has destroyed mangroves in protected areas. • Social issues : R&F also violated the occupational health and safety regulations in its construction projects. One of the causes came from the company’s Nanchang construction project, which was suspended in March 2019 after a fatal accident of its worker and failure to comply with the work safety regulations set by the authority. Our action taken: We put the stock into our ESG exclusion list in 2019 after review. Guangzhou R&F Properties share price since 2016 25 Key Metrics 23 21 Market Cap (in USD) 5.5 billion 19 P/E* 2.7x 17 15 P/B* 0.4x 13 11 ROE* 12.6% 9 7 D/Y* 14.4% 5 Feb-16 Feb-17 Feb-18 Feb-19 Feb-20 Source: Bloomberg FY2020 estimates, as of 24 February 2020 10

RATCH Group (RATCH.BK) Background: • RATCH Group is a leading independent power producer in Thailand. Its business primarily focuses on fossil fuel power generation, renewable projects and businesses adjacent to electricity generation and energy both in Thailand and internationally. ESG Issues: • Environmental issues : In July 2018, the collapse of RATCH Group’s Xe-Pian Xe-Namnoy hydropower project in Laos released 500 millions tons of water from the dam. The accident brought damage to fish stocks, soil fertility, thus loss of land and livelihood in both Laos and Cambodia. RATCH’s management was criticized for its inefficiency to handle the damage before and after incident. • Social issues : The same accident led to social issues as the collapse of the dam killed 71 people and caused communities to lose their livelihoods and suffer from physical and mental health issues. Conclusion: We put the stock into our ESG exclusion list this year after review. RATCH share price since 2016 Key Metrics 90 80 Market Cap (in USD) 3.0 billion 70 P/E* 13.4x 60 P/B* 1.4x 50 ROE* 10.0% 40 D/Y* 3.9% 30 Feb-16 Feb-17 Feb-18 Feb-19 Feb-20 Source: Bloomberg FY2020 estimates, as of 24 February 2020 11