Long-term investors who buy stocks exposed to powerful demographic and social trends will salivate over forecasts for growth in Asia and internet usage.
Middle-class consumers in Asia-Pacific (households with daily spending of US$10-US$100) are estimated to grow from about half a billion in 2009 to 3.2 billion in 2030, according to research cited in the Federal Government’s Australia in the Asian Century white paper, released last year.
Internet users in the Association of Southeast Asian Nations (ASEAN) region have soared from 11.5 million in 2000 to 163.5 million in 2012, according to research cited in a release last month from Asia-based online media company Catcha Group.
One can only imagine how many Asian middle-class consumers will use the internet in coming years and the incredible opportunities for companies that provide internet-based advertising services in the region for property, cars, jobs and travel – markets that have boomed in the West.
Gaining pure exposure to Australian companies with Asian internet operations is not easy. The well-performing Seek is a standout, given its planned 79 per cent stake in Zhaopin, a leading China-based employment website, and 69 per cent stake in JobsDB, an Asia-based recruitment network.
Seek has busily lifted its stake in both businesses and is superbly placed to capitalise on Asian growth. Its international education business provides further exposure to the region as more Asian middle-class consumers send their children to Australian universities.
But Seek has soared from a 52-week low of $5.87 to $10.07 and looks fully valued, for now. Four of six analysts have hold or sell recommendations and two have strong buys on Seek, according to consensus analyst information compiled by Morningstar. Seek’s international business, while growing strongly, contributed just under a fifth of its underlying earnings in the December half.
REA Group’s Hong Kong property website, squarefoot.com.hk, is starting to grow faster, but remains a tiny part of the overall business. Another stand-out internet stock, Carsales.com.au, earns all its revenue from Australian operations, and is starting to build a presence in Asia.
Carsales.com acquired 19.9 per cent of iCar Asia in March. After raising $10 million through a float on ASX in August 2012, iCar’s 20-cent issued shares have raced to 48 cents. Carsales.com’s investment put iCar on the investment map.
iCar wants to become the Carsales of South-East Asia and win the race to consolidate a fragmented online car advertising market. It is a pure play on rapid growth in internet advertising for cars in South-East Asia, and sharply higher car sales as more middle-class consumers buy them.
iCar is betting South-East Asia will follow the Western trend of advertising dollars moving from print to online; the region is a long way behind Australia in online advertising in general and car advertising in particular. Its target markets of Malaysia, Thailand and Indonesia had car advertising expenditure of $378 million in 2011, compared with Australia’s $1.05 billion, Frost & Sullivan data shows.
Sister company iProperty has also done well after raising $7.5 million in a 2007 float. iProperty’s 25-cent issued shares soared as high as $1.32 in 2012 and currently trade at 95 cents, amid signs that Asian governments are looking to dampen sales volumes and price inflation, and cool their overheating property markets.
iProperty wants to become the realestate.com.au of South-East Asia. Its co-founder and executive chairman at listing was Patrick Grove, the 38-year-old Australian/Singaporean who had an estimated $70 million personal fortune on the BRW Young Rich list in 2012.
Grove is the major shareholder of Catcha Group, a Singapore-based internet investment company that has majority ownership of Catcha Media Berhad, which listed in Malaysia last year. Catcha Group companies have significant stakes in iProperty and iCar Asia.
Grove has a classic start-up entrepreneur strategy: replicate strong Western concepts in emerging countries, get a headstart, rapidly acquire and consolidate small rivals, and capitalise on strong underlying growth in core markets. Then position the company to be bought out by a much larger rival that finds it easier to make a small bolt-on acquisition than do the hard work itself.
iCar looks a neat fit for Carsales.com and iProperty must surely be on the radar of REA Group or other online property advertising companies that seek a fast entry into booming Asian markets.
iProperty and iCar are still making losses as they acquire business in Asia and build scale. As such, they suit speculators comfortable with micro-cap stocks.
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Tony Featherstone is a former managing editor of BRW and Shares magazines. All prices and analysis at Feb 14, 2013. The author implies no stock recommendations from the above commentary. Readers should do further research or talk to their financial adviser before acting on themes in this article.