Seng Chong Yeo Chief Investment Officer, Yeoman Capital Management - PowerPoint PPT Presentation

Seng Chong Yeo Chief Investment Officer, Yeoman Capital Management Asian Investing Summit 2015 April 7 ‐ 8, 2015

Asian Investing Summit 2015 ValueConferences, 7 – 8 April 2015 Value investing applied to Japan – The Yeoman experience ◦ Disclaimer: The information presented in the following slides are for discussion purposes and not to be taken as investment recommendation or advice

 Lost decade? More like lost 2 decades !  Languishing stock market (see next slides)  Sputtering economy  Deflation, deeply entrenched  Zero or near zero interest rates  Investors hoarding cash, institutional and individuals alike in face of deflation  For Yeoman we could see all the above, but also saw that Japanese stocks were very cheap.

Topix Index and Topix Small Cap Index 3000 January 1991 to March 2011 2500 TPX Index TPXSM Index 2000 1500 1000 500 Jan/91 Jan/93 Jan/95 Jan/97 Jan/99 Jan/01 Jan/03 Jan/05 Jan/07 Jan/09 Jan/11 Sep/91 May/92 Sep/93 May/94 Sep/95 May/96 Sep/97 May/98 Sep/99 May/00 Sep/01 May/02 Sep/03 May/04 Sep/05 May/06 Sep/07 May/08 Sep/09 May/10

 In Mar11, commenced implementation of the stock ideas that we had been studying for months and years before ..  as others worried over radiation leak, damage to local economy by tsunami and mourned the destruction.  For us cheap means that all risk sks s are e already eady compens ensated ated for (this is also our way of helping the country recover by providing capital for rebuilding).

We assembled a Japan Portfolio At end Jun11, it looked like this  PE 10.71x  P/B 0.38x  Dividend yield 3.56% p.a.  ROE 6.02% (1 yr)  ROE 6.85% (5 yr average)  Weighted average market cap ¥$8.14bn  14 stocks

A harbor tug operator, 2 electronics components distributors, an internet reseller of used ladies luxury handbags, a manufacturer of kitchen stoves and heaters, a specialty steel manufacturer, a motorcar dealer, an aircon manufacturer, a machine tool bit manufacturer, a real estate agency, a building automation and security access services company, a process plant engineering company, manufacturer for controllers for motorcar engines, importer of textiles, retailer of casual wear, manufacturer of workmen’s clothing, refractory materials manufacturer, valves manufacturer, packaging company, a computer software services company, etc

At end Feb15, it looked like this  PE 13.44x  P/B 0.62x  Dividend yield 2.67% p.a.  ROE 5.78% (1 yr)  ROE 6.59% (5 yr average)  Weighted average market cap ¥$15.05bn  22 stocks

Portfolio cheap compared to market valuations in Mar11 and Feb15 Topix Large Cap Index Topix Small Cap Index Mar11 Feb15 Mar11 Feb15 PE 17.23x 17.35x 16.13x 15.95x P/B 1.04x 1.34x 0.77x 1.06x Dividend yield 2.14% 1.62% 2.08% 1.55% ROE (1 yr) 6.11% 8.28% 4.85% 6.89% Market cap ¥298.61bn ¥553.15bn ¥33.93bn ¥64.58bn

Answer: At some time sooner or later, it goes up of course. And so it did!

Performance: 4yr 0mo ending 27Feb15 Period Fund Index Out/Under Performance Topix (TPX) Topix Small Vs. TPX Vs. TPXSM Cap (TPXSM) CAGR (p.a.) 26.59% p.a. 12.50% p.a. 14.97% p.a. +14.09% p.a. +11.61% p.a. Cumulative Performance From Mar11 to Feb15 156.79% 60.19% 74.75% +96.60% +82.04% (4Yr 0mo) Feb 2015 1.73% 7.69% 4.48% -5.95% -2.74% YTD 2015 4.24% 8.27% 5.02% -4.03% -0.78% Historical Performance Jan14 to Dec14 23.57% 8.08% 11.80% +15.49% +11.77% Jan13 to Dec13 61.59% 51.46% 45.08% +10.12% +16.51% Jan12 to Dec12 17.93% 18.01% 19.03% -0.08% -1.10% Mar11 to Dec11 4.40% -23.41% -13.81% +27.81% +18.21% Note: In JPY terms, gross of fees, dividends re-invested.

 Performance of fund is tracked in JPY  Mar11 to end Feb15, JPY has weakened 31.5% against USD; weakened 26.7% against SGD,  For USD referenced investors we gave away 31.5%, for SGD based investors we gave away 26.7%;  Against the 156.8% cumulative gain in JPY terms over same time window still gives big net of forex gains.  Conclusion: When invest with sufficient margin of safety in underlying stock(s), currency risks are usually covered .

Kept the rest and added new stocks, now still fully invested. Two cases studies for discussion in following slides =>

KU Holdings Co Ltd (9856 JP) Motorcar distributor in Tokyo area 30Ju Jun11 27Feb15 PE PE 4.07x 6.89x P/B 0.24x 0.71x Div ivid idend end yie ield ld 3.10% 3.51% ROE RO 6. 6.01 01% 7. 7.87 87% Pric ice (spl plit it adjus usted) ed) ¥1 ¥185 85.40 40 ¥7 ¥708 08.00 00

KU Holdings Co Ltd (9856 JP Equity) KU Holdings share price chart 750 Cumulative performance (incl dividends): +298.21% 650 CAGR (incl dividends): +41.26% 550 450 350 250 150 May-11 Sep-11 Nov-11 Jan-12 May-12 Sep-12 Nov-12 Jan-13 May-13 Sep-13 Nov-13 Jan-14 May-14 Sep-14 Nov-14 Jan-15 Mar-11 Jul-11 Mar-12 Jul-12 Mar-13 Jul-13 Mar-14 Jul-14

Shinko Shoji Co Ltd (8141 JP) Electronics component distributor 30Ju Jun11 27Feb15 PE PE 13.41x 10.93x P/B 0.33x 0.50x Div ivid idend end yie ield ld 4.77% 3.37% RO ROE 2. 2.45 45% 4.73% Pric ice (spl plit it adjus usted) ed) ¥6 ¥629 29.00 00 ¥1173.00

Shinko Shoji Co Ltd (8141 JP Equity) Shinko Shoji share price chart 1300 1200 Cumulative performance (incl dividends): +78.22% CAGR (incl dividends): +15.54% 1100 1000 900 800 700 600 500 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15

Performance of KU Holdings and Shinko Shoji vs. Topix Index and vs Topix Small Cap Index Mar 2011 - Feb 2015 (4 Years 0 Months) 400.00% 350.00% KU Holdings cumulative Shinko Shoji cumulative 300.00% Topix (TPX Index) Cumulative Topix Small (TPXsm Index) Cumulative 250.00% 200.00% 150.00% 100.00% 50.00% Dec-11 Dec-12 Dec-13 Dec-14 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Feb-15

Investment Methodology  Picked stocks on low PE, low PB, low P/NNCA, high div yield, above average ROE with reasonably strong balance sheets;  With listing history of at least 5 years;  Ranked them in order of attractiveness;  Deployed cash accordingly;  Liquidity was a problem in some cases, our broker was very helpful and resourceful.  Note: Above methodology same as for our Asia ex Japan fund

Conclusion Value investing works for Japan, for Asia ex Japan and should work in any other environment you care to implement in. In our experience, value investing is an all-we weathe ather and d all-terr errain ain .