SKAGEN Kon-Tiki

SKAGEN Kon-Tiki
Status Report – March 2015
The art of common sense
Highlights – March 2015
• SKAGEN Kon-Tiki rose 1.0% while the MSCI Emerging Markets index increased 2.1% in March measured in
SEK. Most of the difference is due to a strong month for Chinese equities (+6% in EUR), to which we have
significantly less exposure than the index. We are carefully monitoring our holdings there as lower growth
expectations for China and uncertainties around reform implementation could produce near-term volatility in
Chinese equities.
• In the Kon-Tiki portfolio, Great Wall Motor continues to be the top contributor and released fairly good February
figures with further growth from three new high end models. Samsung Electronics also contributed nicely as its
most recent limited introduction of the S6 phone garnered praise from the technology community. The largest
negative contributor was Vale, which was under pressure from continued macro headwinds in Brazil and the
lower iron ore price. State Bank of India also had a weak month underperforming the Indian bank index ahead of
the upcoming partial sale of the government stake which has caused selling pressure to build up.
• We added to our position in Sabanci following a recent meeting with the company, which confirmed our
investment case. We also took advantage of weakness in the Brazilian market and increased our positions in
bank Banrisul and retailer CBD.
• China (Shanghai) (+19%) and Nigeria (+13%), following the first successful presidential bid by a non-incumbent,
were among the top performing markets. At the other end of the spectrum, Brazil (-8%) and Turkey (-3%) were
among the bottom performers measured in EUR.
• EM valuations relative to DM are currently at a c.30% discount with the potential for selected companies to
achieve re-ratings after four years of EM underperforming DM.
• The fund’s portfolio is currently valued at P/E 2015e of 8.2x and P/B of 1.1x compared with 12.0x and 1.6x for
the Emerging Markets index.
2
Results, March 2015
SEK, net of fees
A
SKAGEN Kon-Tiki A
EM Index
SKAGEN Kon Tiki A
MSCI EM Index
Excess return
March
1,0%
2,1%
1Q
8,7%
12,7%
YTD
8,7%
12,7%
1 Year
20,1%
33,9%
3 years
8,5%
9,6%
5 years
5,2%
5,5%
10 Years
13,9%
10,9%
Since inception*
15,7%
9,3%
-1,1%
-4,0%
-4,0%
-13,9%
-1,0%
-0,3%
3,1%
6,5%
Note: All returns beyond 12 months are annualised (geometric return)
* Inception date: 5 April 2002
3
SKAGEN Kon-Tiki has beaten the index in 11/13 calendar years
Percent
SKAGEN Kon-Tiki A* (EUR)
MSCI EM Index (EUR)
92
76
73
64
54
30
35
19 18
17
29 27
27 26
11
16
11 11 15
5
3
-7
-13 -16
-26 -30
-48 -51
2002
2003
2004
2005
Note: All figures in EUR, net of fees
* Inception date: 5 April 2002
4
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
YTD
Emerging markets, March 2015 (in EUR)
Percent
China (local)
Nigeria
Hungary
South Korea
Phillippines
China (International)
Indonesia
MSCI EM Index
Poland
Egypt
MSCI World Index
USA
Malaysia
Russia
SKAGEN Kon-Tiki A
Chile
Mexico
Czech
Kenya
Slovenia
Thailand
South Africa
Croatia
India
Ghana
Turkey
Vietnam
Brazil
5
19
13
9
6
6
6
6
3
3
3
3
3
3
2
2
1
1
1
0
0
-1
-1
-1
-1
-3
-3
-3
-8
Emerging markets, YTD 2015 (in EUR)
Percent
China (local)
Russia
Phillippines
Hungary
South Korea
India
China (International)
Thailand
Kenya
MSCI World Index
MSCI EM Index
Indonesia
USA
Vietnam
South Africa
Chile
Malaysia
SKAGEN Kon-Tiki A
Mexico
Czech
Egypt
Poland
Pakistan
Turkey
Nigeria
Brazil
Ghana
6
31
26
26
24
19
17
16
16
16
15
15
14
14
14
14
12
11
11
11
10
9
9
7
-4
-4
-4
-7
Cumulative net flows
(USDbn) As of Mar 31, 2015
7
EM versus DM Composite PMIs
As of March, 2015
Expansion
Contraction
8
P/E Multiples EM vs DM
12-month trailing, Jan’95 – Mar’15
Emerging Markets P/E
Developed Markets P/E
45
40
35
30
25
Hist. Avg
21
20
Hist. Avg
15
14
10
5
0
Source: Bloomberg, SKAGEN research.
9
P/B for EM at a discount to DM
Last, Jan’95 - Mar’15
Emerging Markets P/B
Developed Markets P/B
4,5
4
3,5
3
Hist. Avg
2,5
2,4
2
Hist. Avg
1,5
1,5
1
0,5
0
Source: Bloomberg, SKAGEN research.
10
Main contributors MTD 2015
Largest positive contributors
Company
Largest detractors
NOK Millions
Company
NOK Millions
Great Wall Motor
397 ##### Vale
-157
Samsung Electronics
396 ##### State Bank of India
-142
Bharti Airtel
280 ##### Banrisul
-131
Hyundai Motor
211 ##### Marfrig Global Foods
-105
X5 Retail Group
131 ##### Tullow Oil
-102
Naspers
116 ##### Hindalco
-75
AP Moeller - Maersk
92 ##### Cosan
-72
GCL-Poly Energy Holdings
68 ##### Aveng
-57
KIWOOM Securities
64 ##### Tech Mahindra
-54
ABB
56 ##### Mahindra & Mahindra
-52
Value Creation MTD (NOK MM):
NB: Contribution to absolute return
11
1456
Main contributors QTD 2015
Largest positive contributors
Company
Largest detractors
NOK Millions
Company
NOK Millions
Great Wall Motor
752
8E+08 Hyundai Motor
-346
Samsung Electronics
498
5E+08 Banrisul
-269
Bharti Airtel
360
4E+08 Marfrig Global Foods
-238
AP Moeller - Maersk
311
3E+08 Vale
-233
Naspers
255
3E+08 Sabanci
-172
Lenovo Group
189
2E+08 State Bank of India
-142
KIWOOM Securities
188
2E+08 Tullow Oil
-124
UPL
164
2E+08 Empresas ICA
-84
X5 Retail Group
162
2E+08 Cosan
-83
Shiseido
159
2E+08 Aveng
-80
Value Creation QTD (NOK MM):
NB: Contribution to absolute return
12
3103
Holdings increased and decreased, March 2015
Key buys in March
CBD
We continued buying into the Brazilian food and non-food
retail operator, which we think has good growth momentum
and is attractively valued at 0.3x Price/Sales and 5.0x
EV/EBITDA for 2015.
Sabanci
Recent weakness in the stock price presents an opportunity
to increase our position in the Turkish conglomerate. The
shares are cheaply valued at book value for a 15% RoE
target, which is within reach.
Banrisul
We added to our position as the stock headed lower on
macro headwinds in Brazil. Valuation for this well-capitalised
bank is attractive at below book value for a stock with a 7%
yield.
Key sells in March
OCI NV (out)
We exited the position as the stock reached our price
target.
UIE (out)
We exited the position as the stock reached our price
target.
Bharti Airtel
The stock price approached our target and we reduced
the position.
Great Wall Motor
The stock price approached our target and we reduced
the position.
Kiwoom Securities
The stock price approached our target and we reduced
the position.
Casino
We switched out of Casino shares into CBD at a more
attractive valuation.
13
Most important changes YTD 2015
Holdings increased
Holdings reduced
Q1
Q1
Petroleo Brasileiro
Cia Brasileira
Hitachi
Sabanci
Banrisul
Vale
Euronav
Hindalco
Knightsbridge Shipping
Cosan
Golar LNG
14
(New)
(New)
Heineken
OCI
Rocket Internet
UIE
Afren
Great Wall Motor
Bharti Airtel
DIA
Casino Guichard Perrachon
Kiwoom Securities
AP Moeller - Maersk
Familymart
Tech Mahindra
Sistema
Samsung Electronics
Massmart
Apollo Tyres
Exxaro Resources
Yingli Green Energy
Harbin Electric
Lenovo Group
Mahindra & Mahindra
Kuribayashi Steamship
Avance Gas Holding
UPM-Kymmene
(Out)
(Out)
(Out)
(Out)
(Out)
Largest holdings SKAGEN Kon-Tiki, end of March 2015
Holding
Price
size, %
P/E
P/E
P/BV
Div. yield
Price
Upside
2014e
2015e
last
14e %
target
%
Samsung Electronics
8,4
1 104 000
7,1
6,7
1,0
1,8
1 500 000
36
Hyundai Motor
7,3
111 000
3,9
3,6
0,5
2,7
250 000
125
Great Wall Motor
4,9
54,8
16,5
11,2
4,3
1,8
60
9
State Bank of India
3,7
267
10,7
8,1
1,2
1,5
450
69
Mahindra & Mahindra
3,4
1 188
14,0
11,9
3,0
1,3
1 500
26
Bharti Airtel
2,9
393
24,6
19,7
2,6
0,5
450
14
ABB
2,9
183
22,0
15,3
3,4
2,7
205
12
Sabanci Holding
2,7
9,18
9,0
7,7
1,0
1,1
14
53
AP Moller-Maersk
2,5
14 540
11,2
10,0
1,2
2,1
15 500
7
Naspers
2,4
1 859
53,1
37,2
9,8
0,3
2 100
13
Lenovo
2,2
11,3
17,4
12,6
3,9
2,9
14
24
Richter Gedeon
1,9
3 840
29,0
14,0
1,3
1,5
5 000
30
Weighted top 12
45,3
9,2
7,8
1,2
1,8
44
Weighted top 35
72,4
10,5
8,2
1,1
2,1
46
Emerging market index
13,1
12,0
1,6
2,6
Top 35 @ price target
16,3
12,6
1,8
1,4
Note: Valuation estimates are based on SKAGEN Kon-Tiki’s independent analysis and may vary from consensus estimates.
15
SKAGEN Kon-Tiki is valued at a meaningful discount to EM
despite a higher weight in ‘expensive’ sectors and low
weight in ‘cheap’ sectors
14
13,3
12,1
12
10,5
10
8,2
8
6
4
2
1,5
1,2
0
P/E +1y
P/E +2y
Kon-Tiki
P/BV
MSCI EM Index
Note: Valuation estimates are based on SKAGEN Kon-Tiki’s independent analysis and may vary from consensus estimates.
16
P/BV for SKAGEN Kon-Tiki versus emerging markets
4
P/BV SKAGEN Kon-Tiki
3,5
P/BV MSCI EM Index
3
2,5
2
1,5
1
0,5
0
As of February, 2015.
17
P/E SKAGEN Kon-Tiki versus emerging markets
18,0
16,0
P/E SKAGEN Kon-Tiki
P/E MSCI EM Index
14,0
12,0
10,0
8,0
6,0
4,0
2,0
-
As of February, 2015.
18
SKAGEN Kon-Tiki sector and geographical distribution
Sector distribution
Fund
Geographical distribution
Index
3
Energy
7
7
Frontier Markets
21
Consumer discretionary
4
1
9
Japan
12
Consumer staples
8
4
2
Health
Core EU
16
Banking & Finance
28
North America
12
IT
19
6
Telecom
The Nordics
5
0
3
0
2
0
9
0
7
7
South America
0
14
3
4
0
Due to rounding, figures may not always total 100
19
15
16
EMEA
16
Industrials
Cash
69
5
Raw materials
Utilities
50
Asia ex Japan
8
Cash
4
0
Key earnings releases and corporate news, March 2015
Hyundai Motor
(7.3% weight):
Great Wall Motor
(4.9% weight):
20
Improved governance on the horizon?
Summary: Positive news on corporate governance has surfaced recently. First, South Korea’s National Pension
Service said it will oppose the reappointment of two external board members at Kia Motors Corp. and Hyundai
Mobis Co. because they failed to fulfil their fiduciary duties over a land deal last year. The external directors had
delegated their voting rights to representative directors at Kia and Mobis without appropriately discussing the need
for the land or how the companies would fund the deal, the pension fund said in an e-mailed statement. The
companies denied this. Second, Dutch APG Asset Management proposed at the AGM to set up a corporate
governance committee to improve decision making. The committee should report its activities annually and the
company should appoint a director who looks into governance issues for shareholders, APG said. Co-CEO said
“We are actively studying ways to improve shareholder value” and “We will work to implement the proposal.”
Implications for Investment Case: It could be that the disastrous property purchase last year triggered so much
anger among external shareholders that management has finally had to pay attention. Losing face and being
attacked even by domestic investors is humiliating for a company like Hyundai. The dividend payout hike, share
buyback and now, possibly, an independent corporate governance committee are definitely steps in the right
direction.
FY14 in line with expectations and confirms launch of H8 in April
Summary: FY14 net profit of RMB 8.05bn was in line with pre-released numbers from end January and marks a
2% YoY decline. Operating profit of RMB 9.64bn was above pre-release of RMB 9.25bn and is down 3% YoY with
sales of RMB 62.6bn, up 10% YoY. 4Q14 net profit rose 13% YoY. Furthermore, the company confirmed the relaunch of its urban higher end SUV, Haval H8, which will go on sale nationwide in conjunction with the Shanghai
Auto Show 20-29 April. The H9 was called back twice in 2014 due to a knocking noise in the transmission when
running at high speed. The problem is now resolved with the help of ZF Friedrichshafen AG, and the company
states that the H9 has also been upgraded in many other respects.
Implications for Investment Case: Result is in line so neutral, but re-launch of H8 is positive if correct. Although
this will not be a volume seller (likely 2-3k per month or 2-3% of total shipment as the newly introduced H9 rural
high end SUV which sold 4,885 units in January and February combined), it proves that it is able to expand its
product portfolio to compete with foreign JV brands. Note that this is a vehicle which in size is equal to the BMW
X5 which starts from RMB 853k in China. Price-wise, it is comparable to much smaller Honda CRV, Hyundai
Tucson and VW Tiguan.
Key earnings releases and corporate news, March 2015 (cont.)
Solar sector
exposure (2.6%
weight):
X5 Retail Group
(1.0% weight):
21
China solar sector; aggressive 2015 installation target
Summary: China’s National Energy Administration (NEA) announced solar target for 2015 to be 17.8 GW,
ahead of 15 GW from draft plans from January. Installations for 2014 was 11GW missing its initial target of 14
GW. The 2015 target thus marks an increase of 62% versus actual 2014 installation. Key provisions include: 1)
China will encourage projects below 20MW, 2) China will dedicate specialised projects to high emission areas
such as Hebei, Ningxia, Qinghai and Gansu provinces, 3) Similar to 2014, restrictions have been placed on the
modification of investment terms ahead of commercial operation, 4) Unplanned projects from 2014 are
cancelled, and to ensure provinces meet their target this year, 2015 targets may be re-provisioned by the end of
April to areas which are ready for new installations and 5) Detailed targets were set by provinces.
Implications for Investment Case: Positive. Supportive policies in China should be beneficial to solar sector,
with China representing +25% of global installation in 2014. If targets are met, China alone would fuel global
installation by 15% in 2015. As for 2013 and 2014, installation might be back-end loaded, as provinces need to
come up with local development plans by end-April and roll out will also be dependent on equipment prices. Our
exposure to the sector is GCL-Poly Energy (1.0% weight), OCI Co (0.9% weight), REC Silicon (0.4% weight)
and Yingi Green Energy (0.3% weight).
4Q14 results show continuing margin expansion
Summary: X5 reported 4Q14 sales of RUB 181.6m, up 21% YoY and LFL sales up 11.6% YoY. Gross margin as
well as EBITDA margin improved 10bps YoY to 24.6% and 7.4%, respectively. Earnings were RUB 4.9bn, up 13%
YoY adjusted for a RUB 2.7bn impairment charge on land and buildings. Operating cash flow fell 40% YoY to
RUB 13.6bn on declining days payables and increased inventories.
Implications for Investment Case: The margin expansion is a positive and key to our investment case, as X5
continues its operational turnaround. The near-term focus will be on food inflation in Russia, which reached 23%
in February and the impact on food spending. Declining wages will make shoppers more cautious about food
purchases and might turn them towards smaller shops and discount stores to control spending. This should
benefit X5, which derives 68% of sales from discount stores. At 0.2x price/sales 2015e, the shares are attractively
priced compared to competitor Magnit at 1.1x and EM median at 0.6x.
The largest companies in SKAGEN Kon-Tiki
Samsung Electronics is one of the world's largest producers of consumer electronics, with over
155,000 employees. The company is global #1 in mobile phones and smartphones, the world's
largest in TV and a global #1 in memory chips. Samsung also produces appliances, cameras,
printers, PCs and air-conditioning units.
Hyundai Motor is the world's 4th largest car maker, including its 39% stake in Kia Motor. Sold 4.7m
cars in 2013 and has a c. 5% global market share. Focus on smaller/less expensive cars. Strong
position in several countries and in emerging markets such as India and China.
Great Wall Motor is a Chinese car manufacturer with sales of over 752,000 units in 2013, up 24%
YoY. It has a market share of more than 3.5% in China. Volume is divided between SUVs, sedans
and pick-ups, where it is market leader. The cars are certified in the EU and Great Wall exports to
120 markets. It has its own engine and transmission production.
Largest bank in India with 17% market share (c. 25% including 5 associate banks). Also presence in
life insurance, asset management and investment banking. 15,000 branches, 32,000 ATMs, 130
million customers and over 220,000 employees. Largest Indian overseas bank with 190 offices in 34
countries.
Mahindra & Mahindra is the largest manufacturer of utility vehicles in India (50% market share) and
tractors (40% market share). It has several listed subsidiaries including Tech Mahindra and M&M
financial services (largest financier of UVs and tractors in India).
22
The largest companies in SKAGEN Kon-Tiki (continued)
Bharti Airtel is India’s largest private integrated telecom company, and it is a leading global player (#4)
with operations in 20 countries across Asia and Africa. They had around 287m customers across their
operations at the end of June 2014. They separated out towers in part owned unit (passive
infrastructure). Bharti family and SingTel own 30% each.
ABB is a leader in power and automation technologies that enable utility and industrial customers to
improve performance while lowering environmental impact. The group operates in around 100
countries and employs 146,000 people. Approximately 50% of sales stem from emerging markets
and this share is rapidly increasing.
Turkey’s leading and financial conglomerate in sectors including financial services, energy, cement,
retail and industrials. The company has 10 companies currently listed on the Istanbul Stock
Exchange and operates in 18 countries across Europe, the Middle East, Asia, North Africa and North
and South America. Controlled by the Sabanci family.
AP Møller-Maersk is a Danish conglomerate with four core businesses which include Maersk Line
(container shipping), APM Terminals (global terminal network in 68 countries), Maersk Oil and
Maersk Drilling. The company is going through a process of streamlining the business by terminating
non-core and underperforming assets.
South-African listed media and internet holding company incorporated in 1915. They have a strong
Pay-TV business in South-Africa and Sub-Saharan African countries and a fast growing internet
division focused on commerce, communities, content, communication and games. They hold a 34%
stake in Chinese Tencent and 29% of Russian Mail.ru.
23
Additional information
24
Market Cap as % of nominal GDP: EM vs US
25
Weekly net flows to EM as % of AUM*, by region
(as of Mar 31, 2015)
*Note: AUM at each week’s start; over past 4 weeks.
Source: EPFR, Samsung Securities.
26
Cumulative performance in USD
Dec ’12 - Mar ’15
140
130
120
110
100
90
80
Dec-12
Mar-13
Jun-13
Sep-13
Dec-13
Emerging Markets
Source: Bloomberg, SKAGEN research.
27
Mar-14
Jun-14
Sep-14
Developed Markets
Dec-14
Mar-15
EM equity volatility
MSCI EM Index 30-day implied volatility, as of Mar 31, 2015
100
90
80
70
60
50
40
30
20
10
0
Jan-08
Jan-09
Jan-10
Source: Bloomberg, SKAGEN research.
28
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
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Information about SKAGEN Kon-Tiki A on our web pages
Unless otherwise stated, all performance data in this report relates to class A units and is net of fees.
Historical returns are no guarantee for future returns. Future returns will depend, inter alia, on market developments, the fund
manager’s skill, the fund’s risk profile and subscription and management fees. The return may become negative as a result of
negative price developments.
SKAGEN seeks to the best of its ability to ensure that all information given in this report is correct, however, makes
reservations regarding possible errors and omissions. Statements in the report reflect the portfolio managers’ viewpoint at a
given time, and this viewpoint may be changed without notice. The report should not be perceived as an offer or
recommendation to buy or sell financial instruments. SKAGEN does not assume responsibility for direct or indirect loss or
expenses incurred through use or understanding of the report. Employees of SKAGEN AS may be owners of securities issued
by companies that are either referred to in this report or are part of the fund's portfolio.
The art of common sense