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Business

Modest market caps not always a hurdle

KUALA LUMPUR -- Don't let their relatively modest market capitalizations fool you: Some Southeast Asian companies have been making massive profit strides.

     These businesses have ridden the economic growth that has swept across the region, partly aided by the easing-fed flood of liquidity in the aftermath of the global financial crisis. While their market values may look small by global standards, their profit growth rates are brisk enough to awe the world's big boys.

     One of them is little-known Hong Fok of Singapore, which topped our ranking of net profit growth over the last four years. Hong Fok is a niche property developer that excels at maximizing landholdings in prime areas. Last year, its profit was lifted by a pair of redevelopment projects in the city center -- a condominium and a hotel. Land revaluations on the properties also provided a boost.

     Similarly, Indonesia's Bumi Serpong Damai has seen its net profit septuple since 2010. A property arm of Sinar Mas Group, the company is developing a 60-sq.-km township called BSD City on the outskirts of Jakarta. The area will feature hotels, malls and offices -- and be home to some 160,000 residents.

     Developers like Bumi Serpong Damai have benefited from surging regional land prices in recent years. In 2013, the group's net profit more than doubled on the year to 2.6 trillion rupiah ($212 million). This was mainly thanks to returns on a land sale to a joint venture with Hongkong Land, a unit of Jardine Matheson group, and Japan's Aeon Mall.

     Still, property values alone do not explain Bumi Serpong's success. Its strategy of catering to both lower and upper income segments has won over individuals and businesses alike.

     Vietnam's Vingroup focuses on the high end of the property market -- and in just 12 years has become a leader. It handles retail, hospitality and apartment developments, with a mix of projects in urban and resort areas. Analysts note that the group accounted for nearly 70% of the total market value of all property stocks listed in Vietnam as of June, putting a wide gap between the company and its rivals.

     Not content with that edge, Vingroup recently entered the retail business by acquiring Ocean Mart Retail, a supermarket operator. Plans call for opening 100 supermarkets and 1,000 convenience stores across the country over the next three years. Vingroup also bought a 10% stake in Vinatex, a state-linked textile company that was listed recently.

     Over in the Philippines, major real estate developer Ayala Land's net profit in 2013 was double the figure four years earlier. Property development as well as commercial leasing drove the gains. The company is a subsidiary of Ayala Corp., a conglomerate with interests in banking, telecommunications, infrastructure and business process outsourcing.

Paths to success

Land is hardly the only source of profit in the region. Commodities prices, though volatile, have also worked some magic.

     Consider Sime Darby, a Malaysian conglomerate that deals in palm oil -- a commodity used in food, detergents and biodiesel. When crude oil prices rise, some users turn to plant-based oils as alternatives. Sure enough, this phenomenon pushed up palm oil prices a few years ago -- and Sime Darby's profit. Although, in the past two fiscal years, the price trajectory has reversed and Sime Darby's revenue has declined, its net profit for the year ended June was still triple the result for the year through June 2010.

     Since the palm oil business is cyclical, Sime Darby is undeterred by weak demand from major buyers such as China and India. Eventually, there should be a rebound. Already the world's largest producer of the oil, the company plans to add plantation land in Papua New Guinea to its holdings in Malaysia, Indonesia and Liberia.

     Harnessing the power of diversification has helped companies like Alliance Global Group mitigate risks and rake in profits. Alliance Global started as a glass manufacturer but branched out into property development, the food and beverage industry and the gaming business. The Philippine group owns Emperador Brandy, which ranks among the global leaders in its market segment. The distiller says it sold 400 million bottles in Asia, including the Middle East, in 2013.

     Resorts World Manila, Alliance Global's hospitality business, has also been a steady earner. It runs a casino resort in collaboration with Malaysia's Genting.

     Meanwhile, as Southeast Asian personal incomes increase, consumers can afford to be more health conscious. One company that has capitalized on this is Vietnam Dairy Products, also known as Vinamilk. It has cornered roughly half of Vietnam's liquid milk market through a network of over 200,000 retailers.

     The country's economic growth has been relatively sluggish of late, dampening consumer sentiment, and Vinamilk CEO Mai Kieu Lien said recently that the company's profit for 2014 may decline. Nevertheless, she stressed that Vinamilk maintains a significant lead over domestic rivals and those in neighboring countries.

     To raise production and keep prices in check, the group plans to add four dairy farms by 2015. Vinamilk is currently building a dairy factory in Cambodia, one of its major export markets, through a joint venture. It has also invested in milk producers in New Zealand and the U.S. By 2017, the company hopes to achieve $3 billion in sales and take a place among the world's top 50 dairy businesses.

The power of power

Utilities with long-term supply contracts have also racked up gains. The Philippines' Aboitiz Power has seen steady revenue growth over the past three years. The group is one of the country's biggest power generators with about 2,700 megawatts of capacity.

     Aboitiz's competitor, Manila Electric, recorded a 5% on-year increase in net income to 14.31 billion pesos ($318 million) for the first nine months of this year. Commercial clients accounted for a large portion of the growth. Also known as Meralco, the company is the largest electricity distributor for Metro Manila, serving a quarter of the country's population.

     Malaysia's YTL, originally a construction company, now derives about 80% of its sales from utility operations. Subsidiary YTL Power International is a leading electricity provider in Malaysia, Singapore, Indonesia and Australia. The group also owns Wessex Water, a water and sewerage company in the U.K.

Nikkei staff writers Mayuko Tani in Singapore, Cliff Venzon in Manila, Wataru Suzuki in Jakarta and Atsushi Tomiyama in Hanoi contributed to this story.

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