We woke this morning to annual results from Asia Dragon Trust – which was a bit confusing as it is not a fund we have ever heard of – turns out that Edinburgh Dragon’s board decided to change the name of the trust with immediate effect – the ticker becomes DGN. Given that this is one of the largest and oldest trusts investing in Asia, the decision to change the name seems a bit odd but, then again, the “Edinburgh” referred to Edinburgh Fund Managers – long since departed and putting Asia in the name helps clarify what it does.
Anyway, over the year ended 31 August 2019, Asia Dragon Trust returned 9.8%, well ahead of its benchmark, MSCI All Country Asia ex Japan, which returned 0.3%. The discount narrowed a little, translating into a return to shareholders of 10.0%. The dividend is 4.75p, up from 4p.
The trust has a new co-manager – Pruksa Iamthongthong – who was appointed during the year.
Gearing terms extended
On 30 July 2019 the company’s GBP50 million one year loan facility was replaced with a GBP50 million three year facility, of which GBP25 million was fixed and fully drawn down and GBP25 million was a revolving facility, of which GBP6 million was drawn down at the year end.
Extract from the manager’s report
“The portfolio’s pleasing performance was driven by your Company’s choice of stocks in China. These holdings tap into the domestic economy and have boosted the portfolio’s returns in recent years. Notably, travel-related stocks delivered stellar results. China International Travel Service gained from growing demand for domestic travel and Shanghai International Airport was additionally buoyed by contributions from its duty-free business. Kweichow Moutai, a distiller of high-end spirits, meanwhile benefited increased consumer confidence. It enjoyed healthy earnings growth as it benefited from its status as a premium distiller.
Your Company’s financial holdings also proved rewarding. They were resilient despite the macro uncertainty. This is a testament to the quality of their franchise, capable management teams and balance sheet strength. For instance, Bank Central Asia is the largest private lender in Indonesia and leads the market in lending to small and medium enterprises. As an early adopter of technology, it has the broadest deposit franchise. This helps the bank to enjoy the lowest cost of funds compared to its peers even as it offers competitive rates. Its lending margins are consistently high.
Another key contributor was China’s biggest insurer Ping An Insurance Group. It is transforming itself from a traditional life insurer into a one-stop shop for financial services. The group harbours ambitions to be a financial-technology (fintech) powerhouse, as its management has invested in future technology needs, securing an early-mover advantage in mobile apps and technologies including artificial intelligence and blockchain technologies.
Elsewhere, Housing Development Finance Corp, a financial services conglomerate in India, held its own despite a liquidity crunch in the Indian financial system. This reflects its well-diversified funding mix and quality loan book.
In contrast, its peer Piramal Enterprises lagged. Investors feared it would be exposed to defaults in the real estate sector, which accounts for the lion’s share of its loan book. We take comfort in how it has reduced risks on its loan book and raised enough funds to bolster capital. Vietnamese lender Techcombank also weighed on returns, as lending margins in the sector came under pressure. Nevertheless, we take the long view and believe the bank is well positioned for future growth in Vietnam, an exciting but volatile frontier market.
The internet sector faced a challenging backdrop, but our positioning delivered positive returns for the portfolio. Tencent, which your Company holds, found support from higher profits, although revenue growth slowed. We remain upbeat about Tencent, given encouraging trends from its fintech and cloud segments. The decision to not hold Chinese search giant Baidu benefited your Company, as its shares retreated along with the technology sell-off. Its management also lowered its earnings forecasts, following tighter regulations and growing online advertising competition.”