Apollo Asia Fund

Leadership & control
Apollo Asia Fund: the manager's report for 4Q24

Apollo Asia Fund's NAV per A share rose 2.2% in the fourth quarter, and 13.4% for the year. It's up 38% over the five years since the COVID pandemic began. Over the 27 years since inception, compound annual growth has been 16.4%, and the NAV is up 60-fold.

Geographical breakdown
by listing; 31 Dec 2024
% of assets
Hong Kong
14 
Indonesia
Japan
20 
Malaysia
Singapore
Sri Lanka
Thailand
Vietnam
18 
Other
Rounding
Net cash & receivables
27 
 
100 
 

We parted company in Q4 with a company we'd owned for almost a quarter-century. We sold Thai Stanley at 13.4 times our initial purchase price (CAGR 11%), having recovered our outlay in the first few years of dividends. Had we reinvested those dividends in the same shares, Bloomberg tells me that the total return would have been 15% pa (chart); instead we invested in the regional opportunities which seemed most promising on each occasion, and despite some duds we may overall have done even better. Thai Stanley, an exemplary Japanese-Thai joint venture, has never deviated from its core business, making the lights for automobiles and two-wheelers. Maintaining strong relationships as a supplier to key Japanese auto brands, and participating in the expansion into Vietnam, Laos and India, it has generated strong free cash flows and paid substantial dividends. When we bought the shares, Thailand had a clear lead over all other Southeast Asian countries as the preferred regional manufacturing centre for Japanese auto companies, those dominated their sector, and the domestic economy promised years of strong growth ahead. All three of these tailwinds have weakened, and Chinese electric vehicles are making significant inroads. We sold into a strong bid, and on a PE of 11 and dividend yield of 4.6% the shares do not seem expensive, but the long-term outlook seems significantly less predictable than when we invested. We thank the chairman, Khun Apichart Leeissaranukul, for his good stewardship, and wish his team continued success in the years ahead.

We also sold our largest holding, a company we'd known since long before it was listed, when Vietnam was just beginning to discuss the appropriate structure of a stockmarket. In 1993, REE Corporation became the first company in Vietnam to transform from a state-owned entity to a public enterprise; several Vietnamese companies were then run by impressive women, and REE's leader Madam Mai Thanh would be chairman for the next 31 years. In 2000, REE became the first company listed on the new stock exchange. It was some years later that we invested, when other expansion tactics had given way to a winning strategy of investing cashflows into power and water utilities, as well as high-occupancy Saigon office space, and putting in the patient legwork for board representation and stewardship. The resultant best-practice insights allowed REE to play a role in improving operational and corporate governance. It became a consolidator in these vital utility sectors, providing the supporting infrastructure for industrial expansion and rapid economic growth. Improved capital discipline at the investees resulted in growing dividend income. When we invested, others thought the company boring; we considered it one of the best investments in Vietnam. From our initial investment (to which we added), we made about six times our money over our eight-plus year holding period, a compound annual return of over 20% (chart), after exiting at a slight premium on a bid from Jardine which now owns 41%. Madam Mai Thanh at age 72 remains hands-on, having resumed the role of General Director after two potential successors appointed in 2020 and 2024 proved to lack staying power. The portfolio is unparalleled, and growth opportunities remain strong if its managers continue to execute well. I am very glad to have met Madam Mai Thanh all those years ago, and to have coinvested as her efforts came to maturity. May her legacy continue to prosper.

As a result of such bottom-up decisions, our portfolio weightings in Thailand and Vietnam have fallen; the fund's turnover in 2024 was higher than in recent years, at 38%. We have added to holdings in Hong Kong (for value, and business recovery), and Singapore (selectively). The largest increase in weighting has been in Japan: a consumer brand with world-beating engineering, and companies participating enthusiastically in the national drive for improving capital allocation and efficiency. We wish more countries would emulate that.

Rather too much of the fourth quarter was spent learning about the operations of Telekom Malaysia, after the copper cable to my neighbourhood was stolen for a third time. The company revealed a new policy of not maintaining copper infrastructure, forcing upgrades to fibre - and then explained that it had no capacity. Six weeks later, after contractors requesting large cash payments for reconnection were sent packing, new fibre was laid and the house reconnected, only to be cut off again due to issues with the accounting systems (the old, the new, and the one supposed to bridge?). Meanwhile the AIMS office and others in the central business district were cut off for many months, but AIMS at least is now reconnected. Cable thefts in Penang and Ipoh were revealed to be inside jobs. Fortunately we've all learned to adopt belt and braces for resilience, necessarily accepting the trade-off with efficiency. I'm glad we don't own this company, but it has taken me back to basics with a new checklist of questions that might be taken for granted:

As the environmental crisis increases the cost of living, and of maintenance and repairs, many companies will be facing new challenges. We'll seek to identify those that can adapt. We'll look for the most capable next-generation entrepreneurs, and for opportunities amid change. We'll look out for leaders of integrity, and for the ability to develop internal talent for smooth operations and succession. Suggestions are very welcome.

2025 is an interesting number. As our readers have probably noticed, it is

It also seems likely to be an interesting year - probably much hotter, on average, than any of us are used to - yet a Year of the Snake is expected to be one of renewal, and defusing tensions: calm and peaceful after the turmoil of the Dragon. Let's hope - and please wish us luck as we grapple with new uncertainties.

Claire Barnes, 15 January 2025

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