SINGAPORE (Oct 26): Singapore family-owned companies delivered the greatest relative returns in share price of 7% compared to non-family-owned companies in Asia Pacific ex-Japan, and higher than the regional average of 3%, says a Credit Suisse research.
The republic's family-owned companies also generated strongest sales growth of 16% relative to non-family-owned businesses last year, according to the third edition of “The CS Family 1000” by Credit Suisse Research Institute (CSRI).
SGX-listed Yanlord Land Group also made it to the top 50 family-owned companies globally with market capitalisation above US$2 billion ($2.7 billion) in terms of average revenue growth since 2014.
Executive Director Zhong Ming of Yanlord Land is the son of
Zhong Sheng Jian, the company's chairman and CEO
The results are in line what Credit Suisse has found globally: That family-owned companies have outperformed broader equity markets in every region and sector by an average of 3.9% per year since 2006.
Eugene Klerk, analyst at Credit Suisse and the report’s lead author, says, “Family owned businesses are outperforming their peers in every region, every sector, whatever their size. Our research seems to suggest that investors are not too concerned about the level of ownership but rather how involved the family owners are in the daily running of the business. This seems to be at the core of the success of family owned companies in our view.”
Within Asia Pacific ex-Japan, family businesses showed an outperformance of 3.1% relative to their Asian non-family business control group, with Singapore and Chinese family-owned companies generating the greatest relative returns of 7% and 6% respectively.
In fact, family-owned companies in Asia Pacific ex-Japan have traded at a premium relative to non-family-owned companies since 2006, recording a 10-year average of 8%. An exception to this was during the financial crisis of 2008, when family-owned companies in Asia Pacific ex-Japan traded at a discount of 7% relative to non-family-owned companies.
Out of the top 50 family-owned companies globally with market cap above US$2 billion in terms of average share price returns between 2014 and 2017, 39 are from Asia representing total market cap of US$424 billion.
The research found that financial performance of family-owned companies is also superior to non-family owned peers. Furthermore, family businesses appear to focus more on long-term growth.
In terms of the number of family-owned businesses, Singapore ranks 17th globally. China tops the charts with the highest representation (167), follow by the US (121) and India (108). Among the top 25 countries with the largest number of family-owned businesses, 11 are in Asia including Malaysia (7th), Thailand (8th), Indonesia (9th), Philippines (11th).
With an average market cap of US$7.5 billion each, Singapore is ranked 16th globally and third in Asia Pacific ex-Japan after Korea and Hong Kong.
Since the start of 2006, in terms of share price, CSRI’s universe of family-owned companies have generated a cumulative return of 126%, outperforming the MSCI AC World index by 55% or an annual average of 3.9%, with outperformance across all sectors and highest in energy, financials and technology sectors.
On a sector-adjusted basis, small-cap family-owned companies (less than US$3 billion) in Asia Pacific ex-Japan also generated the highest outperformance against their larger family-owned peers of nearly 19% versus 4% for large caps (over US$7 billion). Global small caps generated a return of 16% versus 5% for the global large caps.
When it comes to share price performance by generation, younger family-owned companies (first or second generation) tend to perform much better than older firms, generating share price returns of around 9% per annum, but returns drop as companies move into the third generation of ownership or beyond, to less than 6.5%. This drop could be due to younger family-owned companies being on average smaller, reflecting a “small-cap growth” factor.
At the country level, Chinese, Indian and Indonesian family-owned companies appear to be the most expensive, trading at high absolute multiples, with a 12-month median price-earnings ratio (P/E) of between 15 and 16 times, compared to around 10 to 13 times P/E multiples of companies in Korea, Hong Kong and Singapore.
The CSRI has researched the characteristics and the benefits of family-owned companies for almost a decade. “The CS Family 1000” analyses close to 1,000 family-owned, publicly listed companies by region, sector and size.
The Asian universe consists of companies ranging from US$200 million to US$463 billion in market cap.
The definition used for the database of family- or founder-owned companies is a minimum shareholding of 20% and/or minimum voting rights of 20%. The report’s research universe has a mid to large cap focus, with some 90% of the companies having a market cap of at least US$1 billion.
