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Written by: John Ewart | Aubrey Capital Management
With sentiment towards China remaining negative this year and the economy inevitably struggling as a result of the lockdown, we wrote to you in April about the opportunities we were seeing elsewhere. Although the lockdown has been relaxed somewhat, sentiment towards China remains fragile for a number of reasons. However, the set of opportunities that we are finding outside China remain appealing. Following a recent trip to the country, we wrote last month about what we are finding attractive in India and thought it would be timely to follow this up with a brief insight into the other 30% of our portfolio that also lies outside China.
Mexico did not adopt the same level of lockdown that we witnessed in many other countries, however, the economy did still suffer due to less trade with the US and less tourism to the country. The return of tourists has been positive and domestic travel has also increased dramatically and now accounts for over 65% of passenger volumes. Over 40 million people flew internally in 2021. We have seen a recovery in passenger volumes now exceeding those pre Covid and Grupo Aeroportuario del Pacífico (“GAP”) is the largest airport operator in Mexico measured by passenger volumes, hence the appeal.
The domestic carriers now estimate that 55% of the population will be able to afford flight costs by 2025 with the increase in the middle-class segment in particular supporting flight growth. Inter-city flights in Mexico are now comparable in cost to bus travel leaving considerable potential from this transition. Guadalajara is the key hub for GAP and management expects to double passenger volumes by 2026.
PT Sumber Alfaria, which operates the Alfamart brand of mini supermarkets, is Indonesia’s leading food retailer with over 18,000 outlets and a near one third share of grocery sales in the country. The march of modern retail in Indonesia has been led by the convenience end of the sector, and Alfamart has been at the forefront of this. While store rollout continues, the pace has now slowed to single digit growth rates, but revenue growth will be driven by improving sales per store and additional services operated out of this unmatched network, such as financial service payments and e-commerce collection. Operating leverage should drive faster profitability growth, while cashflow will only strengthen further as capex has peaked.
Bumrungrad Hospital (“BH”) is one of the oldest and most renowned hospitals in Thailand. The re-opening of the Thai economy and the reputation of the hospital as a centre for regional customers encouraged our expectations of a growth recovery. Operating from a single 580 bed site in central Bangkok, BH is well known as a top tier hospital in Asia as well as the Middle East.
Revenue was previously split approximately 2/3 internationally and 1/3 in Thailand in normal times, albeit it has been closer to 50/50 post-COVID. Self-paying customers account for 66%, with Insurance covering 21% and the rest being government or corporate paid. BH focusses on high-end, specialist and high-intensity procedures such as transplants, cardiac and oncology treatments. It also offers world class technologies such as the Da Vinci robotic surgery solutions.
The restoration of diplomatic ties between Thailand and Saudi Arabia in March 2022 has helped to spark a revival in tourist numbers from Saudi Arabia, and another potential cohort of patients from within the ageing Saudi population. BH’s fastest growing markets recently have been Myanmar and Bangladesh, as well as their major overseas markets of Kuwait, Qatar, UAE, Oman and even some patients from the US. Year to date BH is up 59% and we think there is considerable room for continued growth based on its fundamentals.
These are just three of the ten holdings in our GEM portfolio that are ex-China and India. We have recently topped up our holdings in Vietnam and believe there is considerable upside in the long term.
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