Asian family-run businesses shine

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Amid pan-regional success, the past decade has seen Chinese family-owned corporates record a 15% average out-performance versus non-family-owned peers domestically, says Credit Suisse.

A new report from the Swiss bank has found that in every Asian economy (excluding Japan), family-owned businesses have out-performed their non-family-owned local peers since 2006.

Chinese firms performed the best, followed by family businesses in Taiwan and India, which topped local peers by 7% and 6%, respectively.

The Credit Suisse report suggested that the share price out-performance of family-run companies is linked more to revenue growth than cash-flow returns. In terms of top-line growth, China, Indonesia and India have been home to many of the fastest-growing companies in the region on both a one-year and 10-year basis. That also echoes the share price activity.

From a global context, Asia-based family corporates have delivered better performance than their global peers – with annual average revenue growth at 19.5% over the past 10 years. In contrast, North American and European counterparts have returned 6.3% and 7.4% yearly, respectively.

Higher P/E

The report also said Asian family businesses trade 11% higher, on average, using a 12-month forward price-to-earnings ratio when compared with their local non-family counterparts.

Currently, Chinese family-run companies have the largest family premium in Asia. They trade at around 80% more expensive in valuation than non-family businesses. But this year, the premium has narrowed by 9% from its three-year average. Additionally, Thailand and Singapore saw a strong re-rating in the ratio comparing the past three years. The family premium grew 15% and 8%, respectively.

In general, family businesses are rewarded in higher stock valuation, the report noted. This is because they typically run superior profitability and with creditworthiness under a conservative financial structure.

In terms of profitability, 70% of the companies generate revenue growth of above 10% annually in the past 10 years. On a three-year basis, the vast majority (87%) of the companies posted cash-flow returns on investment of more than 10%.

Among the top 30, China- and India-based firms take up most of the places while none of the 72 Hong Kong-based companies covered in the study was among the best-performers in terms of total return.

The research studied a total of 528 listed family businesses across Asia; unsurprisingly, the number and market capitalisation are dominated by China, India and Hong Kong.

Additionally, the Asian family-run companies show diversity in terms of sector.

Around 45% of Chinese family-operated companies belong to technology while financials take up 30% each of the market cap in Indonesia, Malaysia, Taiwan and Singapore.

Asian companies tend to be younger, and most of them are still under control of the first generation family or founder. This group takes up nearly 50% of the studied businesses. In contrast, around 30% of the companies in Europe are fifth generation family-owned or older.

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