Consumer-driven sectors shall thrive

According to Mekong Capital founder and partner Chris Freund, Mekong Capital’s investee companies performed very well in 2015 in terms of net profit growth. MobileWorld, for instance, recorded a 50 per cent net profit growth, and other companies, such as Nam Long, were also in good health. Phu Nhuan Jewelry (PNJ) did well in its core business when the retail jewelry business achieved a net profit growth of 40 per cent, even though they lost a lot with DongA Bank.

“Most of our companies have done very well, only one agricultural investment company failed to perform effectively, in terms of net profit growth,” said Freund.

Mekong Capital, according to Freund, has not simply invested in its investee companies, but also provided assistance in many areas, such as the recruitment of senior managers, setting clear long-term and short term goals and finding third-party experts to introduce best practices. In addition, it also supports these companies in their management reporting, organising training events and seminars for the investee companies, as well as improving corporate governance.

“The thing we focus on the most is how much a company is likely to develop its management team and apply best practices after we make an investment,” he said.

Since management standards in Vietnam tend to be rather low, whichever company does the best job of building its management team and learning and applying best practices from the rest of the world will be the winner, in any sector. This is why MobileWorld is winning in mobile device and PNJ is winning in jeweler retail, Golden Gate is winning in hospitality, and Masan Consumer is winning in the packaged food sector, he added.

In relation to the performance of the Mekong Enterprise Fund (MEF) III, Freund shared that the fund expected to complete a total of four or five investments by the end of 2016. Since it is a private equity fund, it normally takes around six months to complete each investment. It takes a lot more work than public equities in terms of legal procedures, as more often than not the investee company has to do a lot of restructuring before we can invest, after which comes the tax compliance and auditing.

“One thing going well for us is that we can do smaller investments than other, generally bigger private equity funds. We typically target to make investments of $8-12 million, and the market is bustling with companies just the right size for us. Some other funds try to invest minimum amounts of $20 million, or even $50 million, and find themselves in a much smaller investment universe in Vietnam,” he noted.

MEF III is Mekong Capital’s fourth fund that focuses on investments in Vietnamese consumer-driven businesses, such as retail, restaurants, consumer products, and consumer services.

MEF III applies Mekong Capital’s well-proven approach towards adding value as a shareholder, which is anchored in Vision Driven Investing framework and Mekong Capital’s extensive network of international experts and resources.

“Mekong Capital commits substantial time and resources to adding value to investee companies and we believe this has played an important role in the success of many of our past investments,” said Freund.

“Any sector which is driven by the growth in consumer expenditure will be very attractive in 2016. Vietnamese consumers are among the most confident consumers in all of Asia at the moment,” said Chad Ovel, Mekong Capital partner.

Coming off a great economy in 2015, Ovel thus believed that the high levels of consumer confidence was fuelled by a period of low inflation, healthy recovery of the residential real estate market, and a government who had fulfilled their commitments to further trade liberalisation and continue the proactive integration of Vietnam into the regional and global economy.

“We also see that consumers, particularly the large population of young Vietnamese, are increasingly sophisticated in their tastes and preferences. This is an encouraging trend for companies that are at the forefront of establishing modern trade retail chains,” Ovel stressed.