Noah with a market cap of ~USD 679 million operates an investment advisory platform serving ~470,000 registered high-net-worth (HNW) clients with CNY 141 billion (USD 20.7 billion) in assets under management (AUM). The business is comprised of two revenue engines, namely:

• Wealth management distribution: placement, trail, and performance fees on products sold to HNW clients; and

• Proprietary asset management: through Gopher (domestic) and Olive (overseas).

Both engines run across two geographies: the domestic China business and ARK Group (ARK), the Company’s licensed offshore platform. ARK holds licensed entities, regulatory permissions and client digital infrastructure in Singapore, Hong Kong, Tokyo and the US through which Noah serves Mandarin-speaking HNW families based outside of Mainland China.

When it comes to growing its footprint among overseas HNW Chinese, Noah knows it can’t match the branch networks and funnels of big domestic banks. Its edge is independence: offering third‑party products instead of pushing its own, appealing to clients who want diversification. Against Asian and Swiss bank‑licensed wealth managers, Noah competes without custody, deposits, or Lombard lending, positioning itself as a generalist with breadth across origination, product shelf, and multi‑jurisdictional booking. That breadth shows up in the numbers: overseas revenue reached 49% of net revenue in FY25, level with domestic for the first time.

Noah looks like a paradox. Strip out the net cash (roughly USD 726 million against a ~USD 679 million market cap) and you’re effectively buying the operating business for free. On top of that, investors collect a dividend yield of ~13%, backed by three straight years of 100% non‑GAAP net income payout. It’s a setup that looks compelling even before factoring in any potential appreciation.

But the current setup raises an uncomfortable question: domestic AUM has shrunk for seven consecutive quarters, overseas wealth management revenue fell 18.8% in FY25, contingent liabilities are still accelerating, and tax normalization will bite earnings in FY26. Is this a value trap weighed down by Chinese‑ADR liquidity discounts, or a survivor whose transformation the market hasn’t finished pricing?

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Episode Summary:

In this episode, we sit down with Gary Dugan, Founder and CEO of The Global CIO Office, an outsourced CIO business providing multi-asset investment advice and asset allocation guidance. Gary has a track record spanning four decades, from portfolio management at the National Coal Pension Funds, to Global CIO for multi-asset portfolios at JP Morgan, through senior wealth management roles at Barclays, Merrill Lynch, and Coutts. He then spent nearly a decade in the Gulf as CIO at Emirates NBD and the National Bank of Abu Dhabi, before founding The Global CIO Office in Dubai in 2017. Few people can speak to the intersection of Gulf capital, Asian growth, and Western portfolio construction with the same authority.

We talk with Gary to unpack how geopolitics, technology, and the rise of the East are reshaping global capital flows and what that means for how portfolios should be built today. The conversation spans Gulf sovereign capital and its evolving relationship with the US, Iran’s doubling down on RMB trade and depolarization implications, India’s resilience and renewables push, the Magnificent Seven’s next chapter, why commodities may be the diversifier that bonds no longer are, and Gary’s case for rethinking how much of your portfolio should sit in China.

Final word

Gary shares his insights into shifting allocation frameworks: countries are risky, industries are resilient. Gary’s single best piece of advice for investment professionals navigating today’s environment:

Look to the future, not the past.

The world is becoming polycentric. Countries are political and risky. Industries, diversified globally, offer more resilient long-term opportunities. Asset allocation should increasingly be driven by sectors rather than countries, with diversification across industries and regions.

Audio Timestamps:

00:00 Introduction

01:30 Gary Dugan’s career – from the City of London to The Global CIO Office

02:58 Emerging markets, capital flows, and why traditional benchmarks are broken

05:04 Sovereign wealth funds, Gulf capital, and growing frustration with the US

08:40 Iran, China, and de-dollarization – more than symbolic?

10:55 AI infrastructure and data centers in the Gulf – is the thesis at risk?

13:47 India: energy imports, inflation, and the renewables acceleration

20:15 Safe havens, commodities, and the case for real assets

24:35 US tech and the Magnificent Seven – entering a retrenchment phase

26:35 China and Hong Kong – why allocations should increase

29:30 China and India in pharmaceuticals – complementary or competing forces?

32:33 Think sectors, not countries

Additional Resources:

Gary Dugan - LinkedIn

The Global CIO Office - Website

Disclaimer: This research/podcast is for informational, entertainment, educational, and/or study or research purposes only. The information contained herein or discussed does not, should not, and cannot be construed as or relied upon and, for all intents and purposes, does not constitute or provide professional financial, investment, or any other form of advice. This research/podcast does not and should not be construed as an offer to sell or the solicitation of an offer to buy any securities or any other financial instruments in any jurisdiction, including where such actions are illegal. This research/podcast is not intended for publication in jurisdictions where it would violate laws. The research/podcast does not consider individual investment objectives or financial positions and merely expresses the opinions of its authors. Any investment involves taking substantial risks, including (but not limited to) the complete loss of capital. Every investor has different strategies, risk tolerances, and time frames. You are advised to perform your own independent checks, research, or study, and you should consult a licensed professional before making any investment decisions. The assumptions and parameters discussed or used are not the only reasonable ones, and no guarantee is given for their accuracy, completeness, or reasonableness. No promise is made that any indicative performance return will be achieved. The research/podcast is derived from public information sourced by Pyramids and Pagodas. No representation or warranty is given for the reliability, completeness, timeliness, accuracy, or fitness of this research/podcast, nor is any responsibility or liability accepted for any loss or damage. The authors (Pyramids and Pagodas) and/or key persons involved shall in no event be held liable to any party for any direct, indirect, punitive, special, incidental, or consequential damages arising directly or indirectly from the use of any of this material.

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Since then, we have covered the Company through:

In that time, Plover Bay has done what it said it would do: grow revenues, expand margins, and hand back the excess. FY25 was no different on the financial front. But the simultaneous announcement of a proposed spinoff of the North American business onto Nasdaq was not something anyone had penciled in.

Or was it? In our FY24 write-up, we noted:

With a majority of its business (64% of revenues) and growth (38% yoy) coming from the US, to us, we think it could be advantageous to do a secondary listing in the US to enhance liquidity, tap into a different shareholder base, as well as increase overall visibility for the business.

Pyramids and Pagodas write-up: Plover Bay Technologies (1523.HK) - A milestone year with strong growth and expanding opportunities

Management has gone one step further than a secondary listing; they are proposing full separation. We think the logic is sound, but do execution complexity and economic trade-offs deserve more scrutiny than the market has given them? We’ll look to unpack both the numbers and the strategic pivot.

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Another year of profitable, capital-light growth

Revenue growth of 11.4% looks modest compared to FY24’s 24% clip, but this number deserves context. Management revealed on the earnings call that tariff-related uncertainty caused Plover Bay to halt US shipments for approximately 1.5 months during Q225. For a Company where North America represents 59% of revenue, that is a material headwind that was entirely self-imposed out of prudence. At a monthly US revenue run rate of roughly USD 6.4 million, the lost revenue from the halt is likely in range of USD 8-10 million. Adding that back implies a normalized revenue growth rate closer to 18-19%, which is fully consistent with the Company’s historical trajectory.

More importantly, profit growth significantly outpaced revenue growth. This is the hallmark of the Plover Bay model: each incremental dollar of revenue carries higher margins because of the growing software and subscription layer sitting on top of the hardware. Net profit margins expanded to nearly 35%, and ROE hit 79%, numbers that would make most enterprise hardware companies envious.

Where the revenue growth is (and isn’t)

Mobile First Connectivity remains the engine, now representing 56% of total revenue. Starlink-related products contributed to the strong volume growth here, with management noting they now cover Starlink’s entire product line and are developing “companion products”, integrated boxes combining Starlink antennas with 5G routers (like the Peplink Antenna Max S).

The standout is Software Licenses at +33.6%, validating the thesis we have been tracking since our first write-up: that recurring and subscription-based revenue is the real prize. Total recurring revenue reached USD 37.6 million, or 28.9% of total sales, up from 27.6% in FY24. The subscription take-up rate jumped to 38.6% from 34.2%, and devices with active subscriptions increased 25% yoy. The contract liability backlog (essentially prepaid future revenue) stands at USD 38.5 million, up 20% yoy, providing strong forward visibility.

The geographic mix tells the more nuanced story. North America’s 2.1% growth is entirely attributable to the Q2 shipment halt. Had the Company shipped normally, North American growth would likely have been in the low-to-mid double-digits. Meanwhile, EMEA surged 27.6% and Asia jumped 36.0% and these are not small bases anymore. EMEA growth is driven by some hefty contracts: hypermarket chain across 42 locations in France, a major EU infrastructure project where Plover Bay displaced a close competitor, and growing traction in tele-operations for mining equipment.

This geographic diversification is the foundation for the spinoff thesis and, critically, it means the Retained Group (ex-North America) is not the “leftover” entity that some investors might assume. More on this below.

The margin flywheel continues to roll smoothly

Gross margin expanded 210 basis points to 57.0%, driven by:

1. Favorable product mix shifting toward higher-end routers

2. Economies of scale in high-volume models

3. Recurring revenue at 93% gross margins contributing a larger share

The margin chart from the presentation shows a steady upward progression across its combined hardware margin, while recurring revenue margins remain above 90%. As the subscription layer compounds, this structural margin expansion should continue.

On the cost side, total operating expenses rose to USD 22.1 million from USD 20.6 million, but as a percentage of revenue actually declined from 17.6% to 17.0%. R&D spend increased 18% to USD 10 million (7.7% of revenue), reflecting investment in new products and AI capabilities. Selling expenses actually fell, from USD 4.3 million to USD 3.7 million, demonstrating the efficiency of the channel partner model.

Management was candid on the call about rising component costs, particularly for RAM and storage. However, they deliberately avoided price increases to entry-level products, because these are the gateway to multi-year subscriptions. For high-end models, they indicated the market would accept price increases without issue. This pricing discipline is a classic Plover Bay move: protect the installed base expansion, and monetize through software over time.

Balance sheet is clean as a whistle

The Company fully repaid its bank borrowings during the year, leaving it with USD 67.4 million of gross cash and zero debt. Operating cash flow was USD 52.2 million, comfortably funding the USD 44.3 million in dividends paid during the year.

Total dividends declared for FY25 were USD 49 million against net profit of USD 45.4 million, implying a payout ratio of approximately 108%, which underscores the commitment founder Alex Chan has always articulated: distribute excess cash, reinvest only where it compounds.

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The Company is fairly well covered by the local sell-side, but we see a wider story that is potentially missed as quarterly earnings don’t capture what happens when the rules of an entire energy sector will be re-written over the coming decade. The consensus view is simple: GASMIA trades a ~6% yield with limited growth at near fair value. Yet, we think this framing misses a fundamental shift that is underway. Between now and 2030 beyond, Malaysia’s gas market is slated to fully liberalize with subsidies to unwind and new infrastructure reshaping competitive dynamics.

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Understanding the business

GASMIA operates as a blend of a regulated utility and a competitive trading business and can be broken down into three business units.

1. Gas Malaysia Distribution (GMD) – “The toll road”

Think of GMD as operating pipelines which function as a toll road for gas. The Company owns over 3,000 km of medium-to-low pressure pipelines across Peninsular Malaysia. The vast majority of the gas that flows to industrial customers, whether sold by GASMIA or competitors using their pipelines, pays a toll.

The Energy Commission (Suruhanjaya Tenaga, or “ST”) sets GMD’s toll revenue using a formula that guarantees a return on assets:

Allowed Revenue = (Regulated Asset Base × 7.3% WACC) + Operating Expenses + Depreciation + Taxes + Unaccounted Gas

This is classic utility regulation. GMD invests in pipelines, the regulator allows a 7.3% return on those assets, and customers pay tariffs that cover costs plus profit. The more pipelines GMD builds, the higher its allowed revenue.

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Founded in 2009 as a trading arm of the Sunda Group (“Sunda”), Softcare with a market cap of around USD 2.6 billion, has evolved into a local manufacturing champion in Africa. It has captured a 20% market share by volume, built eight local production plants, and established a robust distribution network on the continent – advantages that are not easily replicated in Africa’s highly relationship-driven FMCG sector.

The Company derives the majority of its sales from Africa. Its strategy moves beyond treating the continent as a simple export destination. By localizing production, it provides low-cost diapers in a market of unparalleled demographic scale: Sub-Saharan Africa accounts for 36% of global births, yet diaper penetration sits at just 20%, compared to 70-86% in developed markets.

Softcare listed on HKEX in November 2025 at HKD 26.20, and now trades at HKD 32.76 (as at 18 December 2025), roughly 25% above the IPO price. At current prices, does the opportunity still exist?

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From Yancheng to Lagos – A contrarian bet on a forgotten continent

In 2000, as China’s export engine roared toward Western markets, husband-and-wife team Shen Yanchang and Yang Yanjuan, formed Sunda and looked decisively South. From their base in Guangzhou, they focused on Africa – a region many multinationals considered too poor, fragmented and difficult.

Their education began in the chaotic, vibrant markets of Nigeria. Starting as a trader of general merchandise, Sunda navigated unreliable supply chains and learned that in Africa, business is built on layered, personal relationships and a keen understanding of opaque regulations. They discovered a fundamental truth: the company that masters the complex, multi-tiered distribution puzzle owns the market.

Rather than relying on established top-tier distributors, Sunda took a harder path. They went directly into communities to cultivate smaller, second-tier agents and local shop owners. They supported these partners by absorbing initial product losses, helping build out retail shops, and running local advertisements – a grassroots strategy that steadily wove a deep, resilient, and uniquely loyal sales network.

This distribution-first philosophy became Sunda’s foundational moat. By 2004, the Group had planted its flag with an overseas subsidiary in Ghana, marking the start of a physical presence that would expand across the continent.

For years, Sunda operated on a classic trade model: import goods from China and sell them through its hard-won African network. However, the limitations of this approach (high tariffs, long shipping times, and currency risks) soon became apparent.

The Group’s pivotal strategic shift was to localize production and the value it created set the stage for a major corporate reorganization. To raise funds and expand the footprint further, Sunda carved out this business into a separate entity named “Softcare Limited” that listed in Hong Kong in November 2025.

Africa’s hygiene paradox: Immense penetration gap amid demographic tailwinds

Softcare’s own financials, while compelling, don’t tell the full story. The Company is uniquely positioned to tap into the vast underserved African market, where hygiene products are still in the early stages of adoption. That gap, combined with rapid population growth, urbanization, e-commerce growth, and shifting social norms, is what makes the macro story a key differentiator in Softcare’s value proposition.

This baseline convergence drives steady, predictable market growth. Frost & Sullivan projects the African baby diaper market to grow at 6.8% annually to USD 2.9 billion by 2029, with sanitary pads growing even faster at 7.2%. These projections don’t require economic miracles, but rather the gradual normalization of consumption patterns.

The Company states that the African market for its products is worth USD 3.8 billion and is growing at 6.8%, expected to rise to 7.9% in 2029, positioning it well against peers specializing in lower growth markets like in Europe (0.7%), US (1.2%), and China (1.2%), where populations are ageing and distribution networks are mature, and the products are hardly novel.

The opportunity is stark: while 36% of global births occur in Sub-Saharan Africa, baby diaper usage sits at just ~20%, compared to 70-86% in developed markets. Sanitary pad penetration is only ~30%.

Demographics maintain consumer base growth

Africa has the youngest demographics and fastest population growth of any continent. 14% are under the age of four, 60% are under 30, and population growth of ~2.4% offers a steady pipeline of diaper demand. With over 30 million newborns annually, the baseline market expands even before penetration gains are factored in.

Urbanization and e-commerce unlock access

While Softcare’s distribution reach is expanding beyond large cities, these hubs themselves are seeing population influx. According to the UN, Africa’s urban population is projected to double to 1.5 billion by 2050, with 64% living in cities. Urban households have easier access to retail outlets, pharmacies, and e‑commerce platforms, while rural logistics can add 30%+ to product costs.

E-Commerce itself is also a promising direct sales avenue for Softcare, with channel expansion noted among the Company’s strategic platform. Adoption is only just taking off, and user numbers are already growing at 17.9% CAGR according to the US International Trade Administration. A quick review of leading platforms showed their brands already have healthy representation online, although in many cases they appear sold by third-party distributors.

Rising incomes drive premiumization

The World Bank expects Africa’s consumer spending to reach USD 2.5 trillion by 2030, up from USD 1.4 trillion in 2015. Softcare’s core markets show steady GDP per capita growth. While not world-beating at first glance, the figures are solid: Ghana (3.7%), Senegal (4.4%), Côte d’Ivoire (3.4%), Kenya (2.5%), Tanzania (2.6%), and Uganda (3.3%). As incomes rise, an increasing number of consumers will switch to higher quality diapers and pads with comfort, absorption, and skin‑friendly materials.

The Prospectus claims that sustainability concerns are driving demand for eco-friendly products, but we see this as more PR spin than reality in these price-sensitive markets.

Sociocultural shifts to drive sanitary product adoption

Softcare’s sales of menstrual products are also set to benefit from shifting cultural attitudes. In many African countries, women stay home from work or school due during their periods due to social taboos. Awareness campaigns and NGO initiatives are breaking the stigma and urbanization and growing GDP are driving more women into the workforce, driving general demand uplift for sanitary product on the continent.

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This piece challenges these narratives by focusing on the lynchpin: polysilicon, which is entering a phase of consolidation after a well-publicized supply glut.

If you track the energy transition, you may have seen the fundamentals analysis of key polysilicon player Daqo New Energy (DQ.N; “Daqo”) from last year. Daqo currently boasts a market cap of ~USD 2.2 billion, and the piece sums up the the Company as an undervalued investment opportunity, emphasizing its rock-bottom costs, cash-rich balance sheet, and positioning to thrive as industry cycles turn upward amid bankruptcies of weaker players.

DeepValue Capital

Daqo New Energy | The Cheap Polysilicon Stock

Solar has fallen a long way from grace. And for good reason, most companies are unprofitable with deteriorating balance sheets. In this article I break down one company being tossed out like a diamon…

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a year ago · 15 likes · 9 comments · DeepValue Capital

We’re also drawing from ’s (paywalled) insightful take on the Company, which also dives into China’s push for polysilicon consolidation and managed pricing to curb overcapacity (a lingering issue in the wider supply chain). The analysis highlights how government-backed funds could reshape the sector and favor efficient survivors like Daqo.

Apeconomics

Daqo New Energy (DQ US)

Introduction…

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8 months ago · 22 likes · 11 comments · Taro Sakamoto

Adding to the good work already done in this space, we compile the numbers that showcase why demand could close the gap faster than expected, especially as emerging markets drive adoption, and how Beijing’s reforms accelerate the shakeout. That said, Chinese solar isn’t risk free with tariffs, sanctions and policy shifts loom. But for those willing to look beyond the headlines, we add further color as to why the industry giants appear well-equipped to navigate industry headwinds.

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Current state: Surging demand yet to close the overcapacity gap

Even the most pessimistic observers wouldn’t deny that end user demand for solar power is booming. It’s emerging as the most cost effective renewable in most use cases, and probably the easiest for individuals and businesses to independently install.

Global cumulative solar photovoltaic (PV) capacity surged from around 230 GW in 2015 to over 2,200 GW by end-2024, a CAGR of about 29% and nearly a tenfold increase in a decade. Recent years have been even more dramatic: Annual additions in 2023-2024 matched or exceeded the entire global fleet from just a few years prior.

China has a powerful grip on solar power, supplying 80% of the world’s panels and 93.5% of global polysilicon production in 2025. The vast majority of polysilicon production goes into solar, so all in all Chinese companies control the key raw material fueling this boom.

The polysilicon industry, powered by subsidies and private capital chasing demand, has built capacity outpacing actual needs. Global polysilicon nameplate capacity (fixed installed potential) is expected to hit around 3.5 million tonnes (MT) in 2025, while effective demand (tied to PV installs) hovered at 1.5-2.4 MT, driving utilization down to 50-60%.

This glut crushed polysilicon prices, falling dramatically from over ~ CNY 200,000 (~USD 28,000) p/MT in early 2023 to ~ CNY 42,000 (~USD 5,900) p/MT mid-2025, before rebounding to CNY 52,000 (~USD 7,300) p/MT as of October 2025. Chinese firms have been forced to dump below cost amid expanding polysilicon capacity and maintain market share, thereby significantly eroding profits.

Since early 2024, average production capacity utilization has collapsed from 98% to below 40%, forcing half of the industry’s major companies (9 out of 18) to halt production. This has led to a 44% yoy decline in domestic output in H125. The industry’s inability to form a cohesive cartel to manage supply, due to divergent interests and downstream fragmentation, underscores the intensity of the competitive pressures and the absence of a near-term self-correcting mechanism.

The financial toll became evident in the first half of 2025 with the leading listed Chinese players in the space continuing to report significant net losses. Low utilization hiked per-unit costs, turning a once-profitable sector into a money pit despite China’s solar dominance.

Solar demand is only accelerating with surprise bright spots

’s thesis alludes to the broad tailwind of growing demand for polysilicon’s core end-use – solar panels.

“Despite this bleak picture, the average of 5 industry forecasts suggest demand will grow by about 12.8% per year globally.”

Quote from Daqo New Energy | The Cheap Polysilicon Stock

We see this tailwind as underappreciated in the broader market, especially with headline-grabbing demand surprises from the developing world, where solar adoption isn’t optional but essential.

Taking a global view first, growth in solar PV capacity isn’t linear; it’s consistently smashing forecasts due to plummeting costs (down 90% since 2010), energy crises, and net-zero goals. The IEA now projects 4,600 GW of renewables added from 2025-2030, with solar PV claiming 80%. Similar bullishness can be derived from BNEF which sees 2025 installs at similar levels, building to near 1 TW/year by 2030, while SolarPower Europe tallied 597 GW added in 2024, is now forecasting up to 930 GW annually by 2029.

This isn’t just policy-driven; in frontier markets, it’s consumer-led. Dirt-cheap panels enable leapfrogging unreliable grids, much like mobile phones obviated the need for expensive landline infrastructure in many developing markets. In Africa and Asia, landline penetration stalled at 10-20%, while mobiles hit 80-90% by 2010. Solar appears to be following suit: No waiting for shaky state grids, households are now installing panels for immediate, affordable power.

Take Pakistan’s “solar revolution”: Frustrated by 155% electricity bill hikes and blackouts, consumers imported 17 GW of panels in 2024, more than the US or Germany, making it the world’s third-largest importer globally and number one across emerging markets. Similar dynamics brew in Nigeria, Indonesia, Bangladesh, and the Philippines, where patchy supply and high costs push self-reliance.

Africa’s growth is only just picking up, and the trajectory may prove even more striking. Imports from China were up 60% yoy in June 2025. The continent added 12x more solar in 2023 than the prior decade’s total, with rooftop installs doubling and utility projects booming. With 600 million lacking electricity, USD 5.7 billion in financing (up 50% yoy), and costs down 80% in 18 countries via tenders, solar could grab 40% of Africa’s USD 100 billion energy spend by 2030.

Where surging demand meets supply: The polysilicon bottleneck

Overcapacity talk often fixates on panel assembly lines but often lumps upstream polysilicon production in with this. While the polysilicon industry may currently face overcapacity, when we break down the numbers this seems unlikely to persist as demand will catch up quicker here than for downstream panel makers.

While the world’s solar panel factories have a theoretical estimated module manufacturing capacity of ~1,405 GW p/annum (if running 24/7 with unlimited materials), the actual limit is set by the availability of polysilicon, the key raw material for over 95% of panels.

With nameplate capacity of 3.5 million MT of polysilicon globally this year, and modern manufacturing using just 2.1-2.5 grams p/watt of panel power, this caps real-world buildable panels at around 1,400-1,670 GW in theory.

But in practice, it’s much lower (~780 GW) due to polysilicon factories shuttering production capacity amid oversupply. To forecast when supply and demand align, it’s best to think in “polysilicon-equivalent GW”, focusing on this upstream constraint rather than downstream factory hype.

Even with the International Energy Agency’s (IEA) track record of consistently underestimating of demand growth (which contradicts conservative industry estimates of 10-15%), we see a convergence of polysilicon supply and end user demand for solar panels.

Based on our adapted estimates, we tend to align with the view that mild oversupply is anticipated to linger through 2027, with poly-demand convergence expected by 2028, preceding full module resolution, with potential shortfalls in 2029-2030 should demand accelerate, with upside coming from the Global South and stalled production investments. The key risks to this are the delayed rollout state-led of capacity restrictions, US Uyghur Forced Labor Prevention Act (UFLPA) tariffs and slower adoption if the cost of traditional fuels falls further.

Wheat to be separated from the chaff amid government reforms and industry shakeout

Beijing’s “supply-side reform 3.0” (starting 2026) targets “involution” across manufacturing, with polysilicon as a focal point via energy controls, self-regulation, and below-cost bidding curbs. The Chinese government’s anti-involution push, launched July 1, 2025, echoes 2016 reforms.

At the end of July 2025, Caixin had reported major producers were working towards developing a proposed CNY 50 billion (USD 6.4 billion) fund aimed at retiring over 1 million MT of obsolete capacity (from 3.5 million MT total), endorsed by the National Development and Reform Commission (NDRC) and the Ministry of Industry and Information Technology. While no specific timeline and hard details was attached to this, the fund rollout launch was expected in Q325 with purchases starting in Q425. Cutting a third of Chinese PV production capacity could increase the global polysilicon utilization rate up to 78%.

Furthermore, the Chinese government is advancing its polysilicon sector reforms through two key regulatory drafts over the past two months. On September 5, 2025, the State Administration for Market Regulation (SAMR) released for public comment a proposed update to the “Norm of Energy Consumption per Unit Production of Polysilicon and Germanium”, aiming to impose stricter energy efficiency limits for the polysilicon segment.

This was followed on October 9, 2025, by a joint draft amendment from the NDRC and SAMR announced a draft amendment on curbing disorderly price competition, which specifically targeted the prevention of “below-cost bidding” and other forms of disorderly pricing. The measure is designed to establish clearer rules for market price order and curb cut-throat competition.

Concurrently with these regulatory moves, industry players are taking action. On October 10, 2025, GCL Technology (3800.HK; “GCL”) announced it had completed the first closing of a private placement, raising approximately USD 700 million, with 33% of the net proceeds to be used directly for “structural adjustment of the polysilicon production capacity,” directly validating the ongoing industry-wide consolidation.

Consolidation favors the efficient in this market; Q325 results recap

China’s polysilicon consolidates around low-cost leaders, with the top five holding over 80% of output.

Driven by the rebound in polysilicon prices and industry-wide “self-discipline”, the four major Chinese polysilicon producers showed marked sequential improvements in Q325, with profitability metrics initially turning positive across the board.

• Tongwei (600438.SS; market cap: ~USD 15.4 billion): While revenues dipped 2% yoy to ~USD 3.4 billion, the Company’s operating margin saw improvement and operating cashflow turned positive at ~USD 67 million, a sharp reversal from the previous quarter, attributed to polysilicon price rebound amid self discipline. However, net loss widened to ~USD 44 million [Stock: ~ +17% post-earnings (as of November 7, 2025)].

• GCL Technology (3800.HK; market cap: ~USD 5.4 billion): Revenue grew 31% yoy to ~USD 198 million with EBITDA turning positive and PV materials segment showing a profit of ~USD 135 million (boosted by disposal gains) [Stock: ~ +11% post-earnings (as of November 7, 2025)].

• Daqo New Energy (DQ.N; market cap: ~USD 2.2 billion): The Company staged a strong financial recovery with revenue up 23% yoy to ~USD 245 million. It returned to positive EBITDA of ~USD 40 million and its net loss narrowed substantially to ~USD 15 million [Stock: ~ +29% post-earnings (as of November 7, 2025)].

• Xinte Energy (1799.HK; “Xinte”; market cap: ~USD 1.6 billion): The Company showcased a strong annual recovery, narrowing its net loss by 82% yoy to ~USD 38 million despite an 8% drop in revenue. This result, however, moderated from the sequential profit of ~USD 6.7 million seen in Q225 [Stock: ~ +10% post-earnings (as of November 7, 2025)].

China steel industry parallel provides transitionary blueprint

China’s steel industry provides a compelling blueprint for how polysilicon could turn around amid its current overcapacity crisis. Back in 2015, the sector faced a similar glut: nameplate capacity hit 1.2 billion MT against demand of just 800 million MT, driving prices down by 56% and plunging many firms into losses.

This “involution” with competition fueled by state-backed expansions mirrors today’s polysilicon market, where rapid buildouts have led to utilization rates as low as 50-60% and prices crashing over 80% since 2023.

The reforms, rolled out from 2015 to 2020 under Beijing’s supply-side initiative, targeted the root causes. Capacity was slashed by 150 million MT (12-15% reduction) through enforced shutdowns of inefficient plants, stricter environmental standards, and consolidation around stronger players. The outcomes were transformative with industry utilization rising from 70% to 78% and prices rebounding 116% between 2016 and 2017, and industry profitability swung from operating losses to gains. Government enforcement was key, with penalties for non-compliance and incentives for survivors, ultimately reshaping the market into a more sustainable structure.

Polysilicon shares striking parallels. Both industries suffered from state-supported booms that bred overinvestment and price wars. Just as steel’s utilization improved post-cuts, polysilicon could see the same transformation with Beijing’s role in enforcing exits via anti-involution measures would similarly boost remaining leaders.

However, a key difference favors polysilicon: While steel demand merely stabilized after reforms, polysilicon benefits from explosive solar growth, PV module additions led by the Global South over the next 3-5 years potentially accelerating recovery. If polysilicon follows steel’s path, prices could double within 1-2 years once restructuring gains traction, rewarding efficient survivors and easing the sector’s pain.

Structural reforms improving equity quality and to drive re-ratings

’s deep dive on Daqo and ’ reform analysis highlight intriguing tailwinds, but our broader view suggests that if industry compliance with anti-involution measures strengthens and supply-demand convergence materializes as projected, well-positioned polysilicon firms could see a meaningful re-rating. With the sector trading at secular lows amid cycle-bottom conditions, polysilicon prices down over 75% since 2023 and valuations compressed, this presents an opportunity for exposure at potentially attractive entry points if you believe the upturn unfolds, which we tend to believe so. As an upstream segment, polysilicon stands to benefit indirectly from downstream surges in Global South demand through increased panel exports and sales that boost polysilicon consumption, amplifying revenue look-through for efficient producers.

Leaders like Tongwei, GCL, Daqo and Xinte show resilience in the shakeout, with Q325 reports indicating momentum. As we highlighted above, Tongwei and GCL reported margin improvements on price stabilization, while Daqo swung to positive EBITDA.

Broader policy shifts, including legal and regulatory pushes for enhanced shareholder returns via dividends and buybacks among listed companies, add to the upside, which could potentially mark the start of a new bull phase for Chinese equities if anti-involution drives sustained capacity rationalization across sectors like polysilicon. Only time will tell whether we’ve bottomed out in this cycle.

Key risks do remain, such as delayed fund implementation, UFLPA tariffs disrupting exports, or slower emerging-market adoption tempering demand growth.

We hold a small position in one of the players the polysilicon industry.

Disclaimer: This research piece above is for informational, entertainment, educational, and/or study or research purposes only. The information contained herein or discussed does not, should not, and cannot be construed as or relied upon and, for all intents and purposes, does not constitute or provide professional financial, investment, or any other form of advice. This research does not and should not be construed as an offer to sell or the solicitation of an offer to buy any securities or any other financial instruments in any jurisdiction, including where such actions are illegal. This research is not intended for publication in jurisdictions where it would violate laws. The research does not consider individual investment objectives or financial positions and merely expresses the opinions of its authors. Any investment involves taking substantial risks, including (but not limited to) the complete loss of capital. Every investor has different strategies, risk tolerances, and time frames. You are advised to perform your own independent checks, research, or study, and you should consult a licensed professional before making any investment decisions. The assumptions and parameters discussed or used are not the only reasonable ones, and no guarantee is given for their accuracy, completeness, or reasonableness. No promise is made that any indicative performance return will be achieved. The research is derived from public information sourced by Pyramids and Pagodas. No representation or warranty is given for the reliability, completeness, timeliness, accuracy, or fitness of this research, nor is any responsibility or liability accepted for any loss or damage. The authors (Pyramids and Pagodas) shall in no event be held liable to any party for any direct, indirect, punitive, special, incidental, or consequential damages arising directly or indirectly from the use of any of this material.

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Our first successful foray into Indonesia was state-owned miner PT Aneka Tambang Tbk (ANTM.JK, ATM.AX; “ANTAM”), covered in our 2023 deep dive with an update in July 2025 (~83% total return).

ANTAM’s growth story remains intact and valuations undemanding, but we have since trimmed the position with an eye on other opportunities to park some of our Rupiah loot.

The Indonesian plastics player covered in the piece is another byproduct of Altraman’s recent work in this space. Last month’s Shandong trip report, where we highlighted a discounted Chinese wood panel manufacturer poised for regulatory upside in a sector marred by overcapacity.

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Local resin trader turned packaging titan

Founded in 1979 by a humble resin trader, Djonny Taslim, Panca Budi is an integrated manufacturer and distributor of plastic packaging and resins that has evolved into Indonesia’s integrated plastic packaging leader, listing on the IDX in 2017 with a current market cap of ~ USD 220 million. It manufactures and distributes products like food-grade bags, heavy-duty sacks, and resins, serving everyone from street vendors to multinationals such as Coca-Cola (KO.N).

With 12 factories and 6 warehouses across Indonesia and Malaysia, boasting 157,000 tons of annual capacity and a workforce of over 5,600, Panca Budi holds niche leadership in consumer packaging. Plastic packaging drives 67% of revenue, with the other 27% and 6% coming from resins and other products, respectively. Domestic focus (85% of sales) insulates from export volatility, with export markets including the UK, Germany, the Netherlands, Spain, UAE, Nigeria, USA, and Taiwan.

Indonesia plastic paradox: Growth and catch-up potential amid green gripes

Indonesia’s plastic packaging industry, valued at USD 10.47 billion in 2025, is expected to grow at a 6.7% CAGR to USD 14.45 billion by 2030. The landscape is fragmented, with thousands of small players and no single firm dominating more than a small fraction of the market. Reliable data is scarce in this space, but based on public sources and historical reports, Panca Budi is a leading local player among mid-tier firms, though it trails multinationals.

At the subsegment level, data from 2018 indicates that Panca Budi held a ~32% share of the plastic consumer packaging market, including nearly half (47%) of the market in the Greater Jakarta region. While access to new data has been limited, we suspect the Company has either maintained or grown its market share further given trajectory of its revenues and earnings.

The sector stands as a bellwether of progress and peril, where urbanization and consumer booms collide with environmental imperatives in Southeast Asia’s largest economy. Dominated by packaging, resins, and end-products for wholesale and retail trade and heavy industries (~40% of GDP), surging demand juxtaposes evolving regulations curbing pollution.

Indonesia’s per capita plastic consumption has risen from 17kg in 2018 to ~29kg in 2024, reflecting brisk business for packaged goods and e-commerce. However, the average per capita plastic consumption across ASEAN, Japan, and South Korea sits at ~67kg, highlighting ample headroom for growth and convergence as incomes rise.

If Indonesia continues on its development trajectory (and recycling policies emulate those of regional peers), consumption is likely to approach levels seen in Malaysia and Thailand (38kg and 45kg per capita, respectively).

Even without aggressive anti-plastic policies, economies with stricter regulations exhibit higher plastic consumption, with Singapore leading the region by this metric. Policies often target leakage from plastic recycling chains, e.g. banning single use plastics (SUPs), rather than demand suppression. Consumption has continued to grow in Singapore, Malaysia, and Thailand despite SUP and plastic import bans, largely off the back of robust FMCG and e-commerce activity.

Indonesia’s plastic policies emphasize reduction of SUP use, reuse, and circularity through a mix of national roadmaps, phased bans, and producer accountability. The approach favors incentives and education over penalties, with measures targeting import restrictions, mandatory recycling funding, and content standards. Local initiatives complement national goals, aiming for substantial waste cuts and increased use of recycled materials by the end of the decade.

These ambitious milestones position adaptive players well. For Panca Budi, alignment comes via recycling (subsidiary Politek Grin Packindo produced 11,040 tons of rPE/rPP in 2024, ~7% of output), appealing to eco-conscious clients. Stricter enforcement supports Panca Budi’s integrated model, helping it manage costs and market shifts more effectively. Domestic focus (85%) insulates the Company from import bans elsewhere, accelerating growth in underserved East Indonesia.

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In the process – unearthing an interesting investment thesis buried beneath the rubble of China’s overbuilt wood panel sector. While most players struggle amid overcapacity and razor-thin margins, one vertically integrated manufacturer is quietly ticking along despite industry headwinds, thanks to tightening environmental standards, rural distribution dominance, and enviable financial discipline. In a market where survival often hinges on political favor and access to subsidies, this Company is innovating with potential to emerge as a rare winner in China’s industrial reshuffle.

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Private markets, public crossovers, and the art of squeezing blood from stones

As some readers may know, my (Altraman) job revolves around private markets, or in industry parlance “Merchant Banking”. This sounds glamorous until you’re grinding through mid-market deals in today’s risk-averse climate. Asian SMBs and early-stage ventures are still reeling from COVID and are in need of repositioning, restructuring, capital, and yes, sometimes rescuing. The irony? This should be prime time for problem-solvers. The discounts are there for the patient and bullish on a turnaround story. Bringing investors around to this view can be tricky – liquidity is hoarded, risk appetites are anorexic, and the "wait-and-see" brigade has never been more populous. The gap between theoretical opportunity and executable reality has never felt wider.

In these testy waters, businesses need alternatives to attracting capital. Value-added services, such as establishing strategic relationships, business development, and local market insight can reduce friction around capital raising. Hence, when opportunity to do just this in China’s northeastern rustbelt beckoned, I jumped at the opportunity.

Merchant banker's homecoming? Maotai, particleboards and China’s green industrial machine

The trip to Shandong was my first extensive sojourn to the Mainland since COVID (excluding short hops across to Guangdong province). My last China trip before the pandemic was as an equity analyst chasing the dairy and infant formula gold rush, when China's consumption story still sparkled with infinite potential.

This time, I arrived as a strategic advisor to a small foreign tech venture hawking an improbable alchemy: transforming plastic waste into industrial adhesives for wood panels. The assignment was straightforward – ink an MoU with one of Shandong's particle board giants. The execution, as always in China, was anything but.

What followed was a masterclass in the three currencies that actually grease China's industrial wheels:

• Political capital,

• Baijiu tolerance, and

• An eye for subsidies.

Days blurred together in a whirlwind of municipal government and business meetings where the agenda always seemed secondary to the ceremonial Maotai shots. Between toasts with cadres who could drink me under the table before breakfast, I glimpsed the machinery behind China's version of industrial policy.

While the Party leadership in Beijing changes every five years (in theory), the real action for dealmakers happens at provincial and municipal levels, where rotations follow a less synchronized rhythm. Newly appointed local government officials typically operate on 3-5-year tenures, but with a critical nuance – their "achievement clock" starts ticking the moment they arrive, and every new leader is on the lookout for showcase projects.

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Today, we mark our third anniversary with a performance snapshot: an honest accounting of what’s worked, what surprised us, and what continues to shape our thinking.

A sincere thank you to our supporters – many of whom we are fortunate to call friends, colleagues, and fellow travelers on this journey. While content production has taken a dip due to personal and professional reasons in the past few months, we remain committed to pushing out a high-quality content every 4-8 weeks.

Our subscription pricing is deliberately set at the low end of the spectrum to avoid the pressure of churning out content for content’s sake. The pyramids weren’t build in a day, and neither are our best ideas – but we are still laying bricks.

That said, we are proud of the evolution of our content over the past three years, including our track record of organic idea generation and finding emerging market opportunities. The goal isn’t to flood inboxes but to ensure each piece counts – whether that’s through interviews with business leaders and investors, ideation from travels, macro musings, or by putting our own capital to work based on these insights.

A mix of eclectic trades, long-shot bets, and the occasional multi-bagger (with mercifully few lemons) has made the journey worthwhile.

Performance doesn’t always reveal itself quarter by quarter – it unfolds over time, in subtle signals and stubborn convictions. As we step back and examine the numbers, we aim not just to tally returns, but to understand what they reflect about our processes. What surprised us most? That some of our “least consensus” names outperformed despite initial discomfort. What challenged us most? Knowing when to trim winners and reallocate – especially in thin liquidity pockets. Each lesson has quietly reshaped how we evaluate opportunity cost.

If our cadence resonates, subscribe for future insights. If you’re new, scroll through the archives. The story’s best told in chapters.

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VaNeck Gold Miners ETF (GDX)

Reference articles:

Since our initial analysis in March 2022, VaNeck Gold Miners ETF (GDX; “GDX”) has delivered a 42% total return, with much of the rally driven by a confluence of macroeconomic, geopolitical, and structural factors – particularly the resurgence of gold as a preferred hedge against global instability. Before 2022, GDX had lagged behind physical gold, but the ETF has since closed this gap, benefiting from strong ETF inflows as investors sought liquid exposure to gold and improved sentiment as mining stocks realigned with soaring bullion prices.

1. Record gold prices fueling miner profits

   Gold has soared to all-time highs in 2025 (>USD 3,300/oz as of today), providing a powerful tailwind for gold mining companies. Unlike physical gold, miners offer operational leverage, meaning their earnings expand disproportionately as gold prices increase, given relatively fixed production costs.

2. Cocktail of geopolitics, central bank buying sprees, and dollar weakness

   EM central banks diversifying: Emerging market central banks have been aggressively diversifying away from US treasuries since the start of the Russia-Ukraine conflict. Western powers’ weaponization of the Dollar and the seizure of Russian assets abroad had an unintended consequence: it signaled to the world that FX reserves abroad are not immune to geopolitical risks. This realization, among other factors, has driven central banks to accumulate gold at record levels. The Federal Reserve’s pause on rate hikes in late 2024 coupled with a softening the Dollar have further bolstered gold’s attractiveness.

3. Weakening confidence among the world’s central bankers in US fiscal stability

   A recent UBS survey of global central bankers highlighted a growing unease with traditional reserve assets and monetary policy stability. Key findings include:

   1. Half believed a US debt restructuring is inevitable.

   2. Two-thirds expressed concerns over the Fed’s independence amid politicized fiscal policies.

   3. Nearly half question the reliability of US economic data, signaling eroding confidence.

   4. While 80% still view the dollar as the dominant reserve currency, many view gold as the top-performing asset through 2030.

This shift has prompted institutions to increase allocations to gold as well as emerging market assets, as hedges against stagflation and geopolitical risk.

For now, we think GDX continues to stand out as a high conviction vehicle on sustained gold demand – driven by monetary uncertainty, de-dollarization trends, and persistent global instability.

We hold shares in VanEck Gold Miners ETF (GDX).

China Jushi (600176.SH)

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China Jushi (600176.SH; “Jushi”) was one of our earliest investments driven by an emerging markets lens, inspired by our on-the-ground experience in Egypt. While the thesis – a vertically integrated Chinese fiberglass leader with global scale (20-25% market share) and cost advantages – remains valid, thus far, the stock has returned a disappointing -3% total return since our initial write-up.

Where our thesis stumbled was around the unexpected challenge of Egypt's currency crisis. The EGP's sharp depreciation significantly eroded revenue from Jushi’s local factory, despite its strategic importance for tariff hedging and renewable energy infrastructure. We maintain conviction in Egypt's long-term infrastructure demand but acknowledge that margin compression (from rising costs), China's property sector downturn, and global fiberglass oversupply have outweighed the Company's advantages in high-end product specialization in the near term.

We are seeing some encouraging signposts this year that may signal an inflection point. Jushi has successfully implemented 15-23% yoy price increases on key products like wind blade fibers, coinciding with China's 19% yoy growth in wind capacity – a combination that should drive margin recovery. Furthermore, Egypt’s currency crisis has eased and GDP growth is on the up and clipping along at 4.3%.

Simultaneously, the AI-driven boom in data centers is pushing up demand for some of Jushi’s products. We see room for potential re-rating should price hikes stick and its offshore (including Egypt and the US) facilities provide a geopolitical hedge and revenue diversification. The stock trades at a forward blended P/E and EV/EBITDA of 14.5x and 9.8x respectively, with a dividend yield of 3%.

We hold shares in China Jushi (600176 SH).

Pax Global (0327.HK)

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Pax Global (0327.HK), a leading electronic payment terminal provider, has delivered a 19% total return since our initial write-up, with the bulk coming from dividends and the recent share price recovery. The Company faced significant challenges over the past two years, with revenue declining 25% and net profit plunging 44% over the 2022–2024 period. This downturn was driven by softening global demand for payment terminals, particularly in Europe and the US (51% of sales), and market maturation in LATAM (31% of sales). The stock hit 52-week lows of HKD 3.97 in August 2024 (briefly trading at a 12% yield) but has rebounded notably since April 2025. This recovery appears likely to be driven by:

1. Cautious optimism ahead of H125 earnings: We don’t think there are any major upside surprises to be expected in the near term other than revenue stabilization, margin improvements and continued corporate activity.

2. July 2025 leadership changes: The Chairman assumed the dual CEO/Chairman role after the incumbent CEO’s resignation earlier this month, reducing executive compensation costs by USD 3.1 million. Notably, the four top executives (including the outgoing CEO) collectively cost USD 7.37 million in 2024 (8% of net profit).

Perhaps more to trickle through to shareholders? Let’s see…The stock trades at a forward blended P/E and EV/EBITDA of 8.2x and 3.5x respectively, with dividend yield of 8% (assuming last year’s dividend is maintained).

We hold shares in Pax Global (0327.HK).

Aneka Tambang (ANTM.JK)

Reference article:

Our deep dive and investment in PT Aneka Tambang Tbk (ANTM.JK, ATM.AX; “ANTAM”) marked our first – and certainly not last – foray into Indonesia. While our initial timing proved a bit premature, with 2023 results falling short of expectations, we recognized this as a multi-year story from the outset. The Company's diversified operations and hidden optionality provided conviction to weather short-term volatility, including the opening of a large nickel matte facility Pomalaa, among other value-added projects.

ANTM's dramatic turnaround gained momentum through 2024, culminating in record revenues of USD 4.22 billion (+69% yoy), powered by two key drivers:

1. Gold's breakout performance, leveraging both safe-haven demand (>USD 3,300/oz) and distribution through its digital platform.

2. Strategic cost restructuring that transformed the balance sheet to a net cash position in H224.

This operational momentum accelerated into this year, with Q125 revenue surging 203% yoy to USD 1.6 billion and net income multiplying tenfold to USD 142 million. Preliminary Q225 data suggests another record quarter, potentially supporting enhanced shareholder returns.

While our original nickel-centric thesis remains valid – evidenced by record production and progress in EV partnerships (notably with Contemporary Amperex Technology (300750.SZ; “CATL”)) – gold has unexpectedly emerged as the dominant profit driver (83% of Q125 sales). The market has increasingly priced ANTAM as a gold proxy, though its nickel optionality retains significant value. With substantial reserves and government alignment, ANTAM is strategically positioned to expand its EV value chain partnerships. The Company plans to secure additional funding for its CATL joint venture, targeting projects that could add 10 million tons of nickel ore sales volume by 2027 through downstream development. The stock trades at a forward blended P/E and EV/EBITDA of 11.3x and 7.2x respectively, with dividend yield of 5%

We hold shares in PT Aneka Tambang Tbk (ANTM.JK).

Alibaba (BABA.A, 9988.HK), TSMC (2330.TW) and SK Hynix (000660.KS)

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When NVIDIA Corporation’s (NVDA.O, “NVIDIA”) AI boom ignited market euphoria, our back-to-basics approach targeted key suppliers trading at cyclical lows has paid off.

• Alibaba (BABA.A, 9988.HK; “Alibaba”) (cloud/application layer)

• Taiwan Semiconductor Manufacturing Company (2330.TW; “TSMC”) (chip fabrication)

• SK Hynix (000660.KS; “SK Hynix”) (AI memory)

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Mobile operators bear significant upfront costs building cell towers to enhance network coverage, and later recoup investments from selling data plans and other services to customers. After many years of heavy investment, Hutchison Telecom has claimed a decent slice of the Hong Kong market. Hutchison Telecom, with a market cap of HKD 4.77 billion (USD 615 million), is a subsidiary of CK Hutchison (0001.HK; “CKH”) and holds a 17% share of the Hong Kong mobile network market. It operates under the brand “3 Hong Kong”. Locally it’s the second largest telecom operator by customers behind China Mobile and provides mobile and fixed-line services.

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Taking in the positives amid a lackluster performance

In FY24A, Hutchison Telecom’s total revenue decreased by 2% yoy to HKD 4.78 billion (USD 616 million). Local service revenues, which accounted for 60% of total revenues, declined slightly by 4.3% yoy to HKD 2.88 billion (USD 371 million), impacted by competitive pressures from the value-driven segment.

On a positive note, within just a year, the proportion of Hutchison Telecom’s subscribers on 5G packages also grew from 46% to 54% due to extensive promotion of its 5G subscription services, while the monthly churn rate remained steady at 1%. Hutchison Telecom’s customer base also increased by 17% yoy to 4.64 million, along with a 30% yoy increase in roaming revenues to HKD 684 million (USD 88 million), which accounted for 14% of total revenues. This growth was largely driven by a 36% yoy increase in its total outbound roaming revenue (Hong Kongers going abroad and buying data packages from Hutchison Telecom), signaling a return to pre-pandemic levels.

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One unintended consequence of Trump’s unpredictable and heavy-handed negotiating tactics is that customers of US defense manufacturers (both in countries with friendly and not-so-friendly US ties) are increasingly looking elsewhere to mitigate the risk of being cut off from US technology. This also comes at a time when geopolitical tensions in Asia are ramping up, with Korean and Japanese defense manufacturers enjoying robust demand domestically and from neighboring countries.

Additionally, investors fearful of tariff risks may be unfairly penalizing Hong Kong or Chinese companies with robust US manufacturing and supply chains tariff risks, despite their relative insulation from such impacts. Some companies are more agile than others when it comes to navigating the evolving trade environment – and those that invested early in manufacturing outside of China are likely to benefit.

Although we have not performed comprehensive screening and analysis of the companies we are about to mention, we consider them interesting due to their alignment with policy or established presence in North America.

We picked up a few interesting names that caught our eye across three emerging and mature markets in Asia, namely Japan, South Korea, and Hong Kong/China. This article explores how these international players are navigating the evolving landscape and positioning themselves for growth.

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Korea

Hanwha Aerospace (012450.KS; “Hanwha”), a South Korean defense and aerospace company with a market cap of USD 19.45 billion, is streamlining operations to focus on defense technologies across land, sea, air, and space. With South Korea aiming to rise from ninth to fourth in global defense exports by 2027, Hanwha is positioned to meet growing demand amid geopolitical tensions.

With a stellar run-up prior to their most recent Q424 results, the stock surged another 18% after reporting on February 18, with revenue up 56% YoY to USD 3.29 billion and operating profit soaring 222% to USD 608 million. This growth exceeded market expectations, driven by strong domestic and export volumes, especially in the ground defense sector. Ground defense sales rose 75%, with exports making up 55% of total sales, reflecting strong international demand. The order backlog, largely for export, supports this trend. Despite ongoing losses in the aerospace segment, management expects 20% YoY growth in ground defense for FY25e, boosted by domestic production and exports to Poland and Romania. The aerospace sector is expected to improve with increased military volumes.

Despite the recent stock run-up, Hanwha gave back some of its gains following a well-timed share issue shortly after the rally to raise USD 2.7 billion to bolster overseas and domestic production to meet international demand. While Hanwha’s top executives have vowed to purchase USD 4.4 billion of stock as part of the raise, this planned issuance hasn’t been well received by the market, reflecting a recurring theme prevalent in Korea: the “Korea discount.” This phenomenon occurs when South Korean companies, particularly those under the chaebol (large family-owned conglomerates), trade at lower valuations compared to their global peers due to a lack of accountability and governance practices regarding capital allocation and shareholder rights aimed at maximizing shareholder value.

The South Korea Financial Supervisory Service (FSS) has put a halt on approving the rights offering for now to gain further clarity as the Company itself has plenty of ammunition and cashflow to fund their own expansion. It’s noteworthy that Hanwha recently acquired an additional 7.3% of Hanwha Ocean from Hanwha Energy and Hanwha Impact for USD 886 million on March 13, increasing its stake to 30%. This raises questions about the timing of the acquisition. Hanwha Energy is entirely owned by the three sons of Hanwha Group, while Hanwha Impact is 52% owned by Hanwha Energy. Some view this as a strategic move towards streamlining operations in defense, while others speculate it may serve to secure funding for the heirs.

It is a case of “wait and see”. If the issues mentioned above blow over and shaky corporate governance can be accepted, focus will shift back to Hanwha’s operational performance and pipeline in the coming years, which could help bridge some of its discount gap should good results be achieved. The stock remains reasonably priced compared to its US counterparts, with a blended 12-month forward P/E of 17x and an EV/EBITDA of 12x, effectively trading at discounts of 41% and 33% to international names. President Trump’s call for NATO members to increase defense spending to 5% of GDP from 2%, combined with NATO countries already de-leveraging from US policy volatility, enhances Hanwha’s European prospects.

Hong Kong / China

Notably, we identified two companies from Hong Kong/China: Continental Aerospace Technologies Holding Limited (0232.HK; “Continental Aerospace”) and Cirrus Aircraft (2507.HK; “Cirrus”) with market caps of USD 136 million and USD 1.78 billion respectively. Both firms are engaged in the manufacturing and sale of aviation components and aftermarket operational services for both retail and institutional clients. There is some overlap between these companies, as they both operate within the civilian sector; intriguingly, the parent company of each is owned by the sanctioned Aviation Industry Corporation of China (AVIC), holding 46% of Continental Aerospace and 85% of Cirrus.

Trump’s “America First” policy, which emphasizes strengthening military capabilities and supporting capital-intensive domestic industries, is somewhat ironic. In 2023, Raytheon’s CEO said that while the company can "de-risk," they cannot fully "de-couple from China." Raytheon itself relies on thousands of suppliers based in China, and with over 95% of rare earth materials sourced or processed there, particularly for critical supply chain components, the US would face significant repercussions if it withdrew in a manner similar to its actions concerning Russia. This highlights the intricate nature of the military-industrial complex. What about the civilian side?

Interestingly, Continental Aerospace generates approximately 78% of its total revenues (over USD 180 million) from the US market, while Cirrus, the largest private jet manufacturer globally, derives all of its revenues (over USD 1.2 billion) from the US. Both companies boast well-established supply chains in the US, which helps them circumvent potential issues related to tariffs. They also maintain strong capital positions, with net cash balances of 48% and 24% relative to their market caps.

Both Continental Aerospace and Cirrus are trading at over 40% discounts compared to their international counterparts, with their 12-month blended forward P/E and EV/EBITDA holding at around 15x and 3x respectively at current levels. They exhibit similar margin profiles, featuring low to mid-30% gross margins, mid-low teens EBITDA margins, and mid-high single-digit net margins, alongside anticipated earnings growth in the high-single digit to low teens. Even with applying a corporate discount on these entities, there is potentially some value uplift so long as they show continued growth – one would just have to be comfortable with their parent, AVIC.

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Plover Bay manufactures routers and sells subscriptions for always-on 5G connectivity, accessible from anywhere in the world. Put simply, the Company leverages satellites to deliver internet to far flung corners of the earth or for one-off use cases. For example, mines in the desert, research bases in Antarctica, or disaster zones, and increasingly for planes, trains, and ships.

In this piece, we cover Plover Bay’s FY24A results and earnings calls (announced 27 Feb 2025) as a follow up to our coverage of the Company last year, when we met and interviewed its Founder Alex Chan:

and detailed their FY23A results:

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As of today, the stock is up over 100% since we started writing about the business and remains undemanding at a forward P/E of 15x with anticipated earnings trajectory of low-twenties-high-teens over the next couple of years. Shares had a nice run-up into the result, but have remained about flat since then.

Robust growth on a solid foundation lays the groundwork for more to come

Early-on in the call, management hinted at positive momentum for the first two months of 2025, reinforcing expectations for continued organic growth. The trajectory also aligns well with product interest trends for Peplink. Our good friend @ArenaManCapital creatively noted an almost 1-to-1 correlation between Plover Bay’s revenue versus a smoothed simple moving average for Google search interest in the Company, providing a helpful indicator on the Company's performance.

A quick search of media and public social media mentions of Peplink also shows 68% growth YoY.

The Company achieved record overall revenues and profit, with strong growth in recurring revenues from subscription-based software licenses (up 12.4% YoY) and warranty and support services (up 6.4% YoY). These segments now make up 29% of the business. The subscription take-up rate increased to 34% from 31% last year. Management aims to grow recurring revenue to around 35%. Recurring revenue, partly deferred due to hardware sales growth from the previous year, showed modest growth in FY24A, reflecting FY23A’s equipment growth. A stronger pick-up is expected this year, driven by a 30% YoY increase in 2024 equipment sales.

Reflecting confidence in its financial health and trajectory, Plover Bay declared a second-interim dividend of HKD 13.37 cents, along with a special dividend of HKD 5.65 cents to reward shareholders. In the first half of the year, the Company had already distributed a dividend of HKD 10.83 cents, resulting in a full year dividend payout of 111%. At current price levels, the stock is indicating ~6% dividend yield on a forward basis assuming continued earnings growth trajectory and a base payout of 90%.

Strategic partnerships drive expansion

One of the most significant drivers of Plover Bay's growth has been its cooperation with Starlink, which has strengthened through new enterprise-focused solutions.

According to management, the Company has been expanding its channel partner network, now exceeding 400 partners, to deepen its presence in markets such as transportation (aircraft, trains, vessels), mining, and construction. These partnerships will continue to enable seamless mobile connectivity in remote and challenging environments.

Additionally, the Better Together program with T-Mobile allows the bundling of 5G plans with Peplink routers, further enhancing adoption and providing customers with integrated solutions.

Product innovations continue to set Plover Bay apart from competitors

The Company continues to diversify its product offerings to align with evolving market needs:

• Starlink-compatible solutions: A growing range of products integrate with the Starlink ecosystem, making low-earth orbit (“LEO”) satellite deployments simpler and more accessible. Management commented that there is robust demand for these solutions, particularly in maritime and remote enterprise applications.

• Switches and data plan business: The December launch of switches has yet to generate significant revenue, though enhancements based on channel partner feedback are underway.

• SpeedFusion: Embedding data plans in devices is gaining traction as a scalable and recurring revenue model.

• Antenna business growth: After a slow start in 2019, the Company’s antenna business is now seeing steady expansion.

• Edge computing: Offering simplified deployment for IoT and managed service providers. With global IoT connections growing at a 16% CAGR, this represents a significant opportunity. Management specified that capabilities are still early-stage but could significantly differentiate Plover Bay in the future.

Competitiveness and supply chain help the Company navigate geopolitical risks

Unlike competitors that either lack certification across multiple regions or do not focus on Plover Bay’s niche connectivity solutions, the Company continues to dominate in specialized verticals.

Due to this unique positioning, Plover Bay has some impressive flagship deployments. For example, the Royal Caribbean (RCL.N) cruise line uses the Company’s devices across its entire fleet. The US government has approved Plover Bay’s routers for airlines, providing a significant growth runway (pardon the pun). Another notable deployment was on fire services vehicles during the 2024 LA fires, building good press around the Company as a reliable partner for the US public sector.

Indeed, many may wonder if the Company suffers from the negative connotations of being a China-based tech company. Unsurprisingly, concerns over US tariffs were raised in the earnings call, but management clarified that the Company remains largely unaffected due to its Taiwan-based supply chain and efficient operational model.

One area where Plover Bay may be underselling its potential is in the developing world. Much like how some countries skipped landlines for mobiles, and more are leapfrogging traditional power grids to distributed solar, internet connectivity is another area where such leapfrogging could occur.

A joint Peplink-Starlink solution installed for telcos in Africa has replaced costly fiber links and satellite earth stations, achieving speeds of 200-350 Mbps while significantly reducing operational costs. We believe such trends are likely to provide significant tailwinds for the Company in the medium to long term. This also provides a hedge against US tariffs targeting Taiwan, but so far these are only being discussed for chip exports.

Another overlooked aspect that was noted, but not thoroughly addressed during the call is the opportunity to engage with the broader consumer (retail) market. Although Plover Bay’s applications are primarily B2B-focused, there is significant potential to access and penetrate this market with their high-quality technology products. This is an area the team is actively exploring and in the pipeline in the coming years.

Looking ahead, the sky is the limit

With strong financials, expanding partnerships, and a focus on innovation, Plover Bay remains optimistic about 2025. The Company prioritizes product competitiveness and R&D investment over short-term financial engineering, emphasizing organic growth rather than artificial revenue inflation. Plover Bay sits on a solid net cash position of ~8% of its market cap – the Founder remains very open to M&A opportunities, but as noted in our interview with him last year:

Our mindset around M&A is evolution from organic growth to view connectivity-as-a-service holistically. As opposed to acquiring distributors or other networking firms of similar sizes, I prefer seeking out partnerships or acquisitions demanding reliable connectivity to continue building and strengthening our customer base.

Even small opportunities can be interesting to us, due to our experience integrating remote teams globally. Financial risk is low as deals would be pursued for synergistic value creation rather than because there is private equity backing forcing the Company to do it. When evaluating M&A, I prioritize cultural compatibility and strategic fit on top of financial metrics. Deals enhancing Plover Bay's solution scope in new industries or markets are most appealing.

Shareholder value ultimately remains the priority. In the same light, the Board and I will always entertain attractive overtures that fully recognize Plover Bay's intrinsic worth – these are assessed objectively on how they serve shareholder interests. However, the priority remains scaling operations through continual reinvestment in technology and staff. Simply accepting premium bids that undervalue long-term potential or disrupt our strategic roadmap would not be sufficient.

Pyramids and Pagodas interview with Alex Chan, Founder and Chairman of Plover Bay Technologies (1523.HK)

For a Hong Kong-listed company, Plover Bay remains a star-performer among the pack, in what has been a depressing and lackluster market. The shares are not as cheap as it once used to be, particularly from a valuation perspective. With a majority of its business (64% of revenues) and growth (38% YoY) coming from the US, to us, we think it could be advantageous to do a secondary listing in the US to enhance liquidity, tap into a different shareholder base, as well as increase overall visibility for the business. Of course, that said, we do not have any foresight of whether management plans to do this, but reckon if they did proceed with this, it probably would be very well received, contrary to more mature names attempting the same.

In any case, Plover Bay’s ability to deliver repeatable, scalable results makes it a standout player in the evolving connectivity space. Many will be watching closely as the Company continues to shape the future of seamless mobile networking.

Full disclosure: We hold shares in Plover Bay Technologies (1523.HK).

Disclaimer: This research piece above is for informational, entertainment, educational, and/or study or research purposes only. The information contained herein or discussed does not, should not, and cannot be construed as or relied upon and, for all intents and purposes, does not constitute or provide professional financial, investment, or any other form of advice. This research does not and should not be construed as an offer to sell or the solicitation of an offer to buy any securities or any other financial instruments in any jurisdiction, including where such actions are illegal. This research is not intended for publication in jurisdictions where it would violate laws. The research does not consider individual investment objectives or financial positions and merely expresses the opinions of its authors. Any investment involves taking substantial risks, including (but not limited to) the complete loss of capital. Every investor has different strategies, risk tolerances, and time frames. You are advised to perform your own independent checks, research, or study, and you should consult a licensed professional before making any investment decisions. The assumptions and parameters discussed or used are not the only reasonable ones, and no guarantee is given for their accuracy, completeness, or reasonableness. No promise is made that any indicative performance return will be achieved. The research is derived from public information sourced by Pyramids and Pagodas. No representation or warranty is given for the reliability, completeness, timeliness, accuracy, or fitness of this research, nor is any responsibility or liability accepted for any loss or damage. The authors (Pyramids and Pagodas) shall in no event be held liable to any party for any direct, indirect, punitive, special, incidental, or consequential damages arising directly or indirectly from the use of any of this material.

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Macau was the most internationally visited city in 2016, when it welcomed over 31 million tourists. This has since decreased due to the pandemic, competition from new gaming destinations, and crackdowns on money laundering in China, but it remains a top 10 global destination (18 million visitors in 2024).

A turnaround appears to be underway, with arrivals rising 26% YoY in 2024. In 2022, COVID-19 lockdowns in China raised doubts around casino license renewals and increased debt. However in 2022, licenses for Macau’s six casino operators – Sands China (1928.HK), MGM China (2282.HK), Galaxy Entertainment (0027.HK), Wynn Macau (1128.HK), SJM Holdings (0880.HK), and Melco Resorts (MLCO.OQ) – were renewed for 10 years.

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High debt levels continue to spook investors and many concessionaires have yet to restore their net debt-to-equity ratios to pre-2020 levels. Yet these operators are addressing debt levels amid a a gradual recovery in the industry.

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We believe potential reconstruction efforts (with an estimated price tag of USD 400 billion) present significant opportunities for Turkish companies – especially in sectors such as construction, cement, steel, and logistics. We outline how one company may have been overlooked in the post-Assad Turkish construction equities rally, with a brief look at its performance in a market with similar geopolitical considerations, as well as the how-to and pitfalls of investing in this market.

Before we dive into that, we emphasize that this article is based on best case scenario thinking, based on hopes that the shaky coalition of rebel forces can cooperate in governing Syria, whatever form that may take.

We would need to see a sustained reconciliation among major factions, stabilization of economic indicators, as well as full international recognition of a new government and buy-in to reconstruction efforts before acting on the idea outlined below. Such progress is by no means a given after a decade plus of traumatic conflict, nor are they impossible. The Syrian people’s hard-earned victory deserves, at the very least, some level-headed optimism.

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How is Turkey uniquely positioned in Syria’s new landscape?

Turkey has been a key power broker among Syrian opposition groups during the 13-year civil war and has now openly vowed to help rebuild the country. Ankara was one of the first countries to reopen its embassy in December, and its foreign minister and intelligence chief were the first foreign dignitaries to meet with Syria's de facto leader Ahmed al-Sharaa.

However, there’s no denying that the group which spearheaded Assad’s ouster, Hay’at Tahrir ash-Shaam (“HTS”) wasn’t exactly Ankara’s winning horse in this race. Prior to the regime change, the relationship between Turkey and HTS was marked by pragmatic coexistence despite ideological differences.

Turkey’s support for HTS rivals (other rebel groups more willing to do Ankara’s bidding, i.e. fight the Kurds and stop refugee flows) created a frosty relationship without direct confrontation. While Turkey designates HTS as a terrorist group, it tolerated its governance in rebel-held areas to maintain stability and deter Syrian government advances. Turkish diplomats cozying up to HTS now suggests much of this is in the past anyway.

Turkey is now cozying up to the HTS-led government in Damascus. HTS will undoubtedly need to bring Turkish-backed rebel factions into the government if they want a smooth relationship with their most politically and economically influential neighbor.

Turkish construction companies look set to outpace local and international rivals in Syria

So, what is the return on Turkey’s longstanding investment in Syrian opposition factions if they can all get along and start the hard work of rebuilding Syria?

With a direct line to much of the newly appointed political leadership and broad public support, Turkish companies are likely to get preferential treatment when it comes to the tender process or licensing for private ventures. They are also no strangers to the Syrian market, and had an extensive presence before the war, so it will be a homecoming of sorts. Reports from contacts on the ground in Damascus say Turkish goods are already flooding the market and there is concern that local industries can’t compete.

Syria’s limited manufacturing and construction capacity was essentially decimated by the war (save for Assad’s narco-state amphetamine empire) – it’s unlikely that major domestic players will step in anytime soon. We believe Turkish construction and materials companies would be the logical go to for large scale infrastructure work, particularly for ramping up Syria’s severely diminished oil production capacity, badly needed to shore up the new government’s finances.

Turkey's construction companies have long established themselves as dominant players in the Middle East. Their ability to deliver complex projects, such as airports, bridges, refineries, and hospitals, has earned them a reputation for reliability and cost-effectiveness.

The Gulf states (particularly Qatar, Saudi, and the UAE) were also key backers of the Syrian rebels, but had fewer boots on the ground, were less consistent, and failed to win hearts and minds—a topic worthy of its own analysis. Despite their financial resources, which may bankroll much of Syria's postwar reconstruction, their companies are poorly positioned for direct involvement.

Without shared borders, Gulf states must rely on Jordan or lengthy sea routes for trade and logistics, while Iraq remains an unreliable transit option due to security concerns and strained relations. Moreover, their limited domestic capacity in construction, oil services, and manufacturing often leaves them dependent on Turkish companies and materials for infrastructure projects.

Investors piled into Turkish construction on Assad’s downfall, but may have overlooked some gems

The day after the regime fell on 8 December, shares in Turkey's largest construction, cement and steel companies rose by 5-10%. Since then, we have largely seen sustained positive momentum across these companies, although we note Syria is not the only factor at play here.

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Management was taken over by Ka-shing’s son Victor in 2018 and has shown signs of creating shareholder value since then, particularly by buying up depressed assets overseas and turning them around – in his own words:

“We are in an advantageous position now with choices. Currently, we have a number of investments overseas, generating double-digit returns. And when opportunities present themselves in Hong Kong and should the need arise, we can generate substantial liquidity from these assets to take on very large projects in Hong Kong or the Mainland.”

Victor Li, H124A interim call

Yet as with all Hong Kong conglomerates, sentiment is poor and there is an inherent discount to this stock. Even without applying any discount, the share price reflects fair value for overseas non-property holdings and REITs, investors seem to have written off the potential for a longer term rebound in the HK / China property market.

Case in point – even looking at CK Hutchison (0001.HK), the market isn’t rewarding high quality businesses with no local property exposure. CK Hutchison owns an array of high quality (albeit low returns in the current environment) overseas infrastructure assets and benefits from recent catalysts such as the merger between its two subsidiaries Vodafone UK and Three UK .

CK Asset benefits from a well-timed overseas shopping spree, which saw it picking up high quality infrastructure, utilities and hospitality assets just before COVID-19 and the China property downturn. We feel CK Asset has been dragged down by the resulting negative sentiment around Hong Kong property conglomerates, as most of its revenues come from overseas non-property businesses. On the property front, we feel CK Asset has been unfairly penalized over the China real estate downturn, as the business historically took a conservative approach to Mainland real estate and this part of the business remains profitable.

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Looking beyond the bond sale, a broadening of bilateral investment flows may signpost a more significant shift in how Beijing and Riyadh conduct trade. We explain how increased transaction volumes could pave the way for more CNY-denominated trade, and uncover how China plans to lend credibility to an internationalized Yuan. We wrap up by showcasing how we are capitalizing on the shifting macro landscape with a straightforward play.

Recent developments show Sino-Saudi financial ties permeating beyond the state level

Although international dollar bond sales comprise a relatively small portion of China's government financing, they serve as a key benchmark, allowing global investors a straightforward path to engage with Chinese sovereign debt. The bond listing is expected to capture the interest of Saudi and regional investors who historically have limited access to Chinese debt markets. The implications of Saudi Arabia’s potential emergence as a recurring partner in Chinese debt issuance could be significant. The bond sale follows a series of recent milestones highlighting deepening financial ties between the two nations.

Notably, the SAB Invest Hang Seng Hong Kong Exchange-Traded Fund (ETF) (SAB HK; 9411) recently launched on Saudi Arabia’s Tadawul Stock Exchange, issued by Saudi investment firm SAB Invest. Similarly, alongside it, the Albilad CSOP MSCI Hong Kong China Equity ETF (ALBILAD Hong Kong China; 9410) debuted with an initial size exceeding USD 1.2 billion, making it the largest ETF in the Middle East.

That’s not to mention the launch of the CSOP Saudi Arabia ETF (2830.HK) launched in November 2023, which we wrote about and bought into shortly after its launch though performance have largely been flat since its inception.

By offering Saudi investors access to a diversified HK/China basket of companies, and Chinese investors to buy the Saudi basket, both sides are offered international alternatives to the traditional Western markets.

The first half of 2024 also saw the launch of two Saudi ETFs on the A-share market, along with the Kingdom’s USD 925 billion sovereign wealth fund (Public Investment Fund – PIF) signing six MoUs of up to USD 50 billion with major Chinese financial institutions, including four state-owned banks in August to encourage two-way capital flows via both debt and equity.

Prior to 2015, the PIF, primarily focused on domestic infrastructure investments, which accounted for 98% of AUM. Fast forward to date, overseas investments contribute 20%. The PIF already have a QII license in a place for Chinese investments. This enables then to directly invest in CNY-denominated stocks, rather than having to go through third parties.

Publicly-available data on PIF investments in China may only show the tip of the iceberg, with the fund holding stakes in:

• PDD Holdings (PDD.N) - position market value ~USD 169 million

• Alibaba (BABA.N, 9988.HK) - position market value ~USD 138 million; and

• Flat Glass Group (6865.HK) - position market value ~USD 37 million.

However, as of July 2024, their investments in the Chinese market reached around USD 22 billion, mostly focusing on emerging fields such as autos, healthcare and technology. Saudi Aramco (2222.SE), of which PIF is a main shareholder, also appears to be recycling its revenues from oil sales to China, back into that market with significant direct investments into petrochemicals and oil-related projects.

The flourishing bilateral investment landscape leads us to the main thrust of this article - how will China’s trading partners, now flush with Yuan, deploy their newfound reserves if all goes to Beijing’s plan? How are China’s policymakers paving the way for a more trustworthy and credible internationalized Yuan? And what does this mean for investors looking to capitalize on this trend?

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Episode Summary:

In this episode, we sit down with Dan Rupp, Founder and CIO of Hong Kong-based Parkway Capital (“Parkway”), to explore their unique investment philosophy, how they navigate emerging markets, and their views on the evolving landscape in Hong Kong and China.

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The "Farm" of Companies and Investment Strategy

Parkway's approach is rooted in a “farm” of companies - a pool of potential investments they actively track. While the universe of investible companies in Asia starts with about 10,000 companies, Rupp’s team narrows it down to a focused watchlist of up to 160 companies that meet a liquidity threshold of at least USD 500,000 in daily trading volume. Each company must fit into one of three key categories:

• Compounders: These are companies with earnings growth of over 12% that demonstrate strong long-term compounding potential.

• Defensives: These investments provide stability during bear markets, characterized by high yields but lower growth prospects.

• Deep Value: These include special situations with specific catalysts, shorter duration holdings that could offer asymmetric returns upon re-rating.

To maintain a balanced portfolio, Parkway maintains checks and balances on sector and geographic exposure. While they aren't forced to sell holdings if thresholds are breached, they can't allocate additional dollars to such positions once limits are exceeded.

Parkway establishes target entry prices for investments, primarily anchored to their appropriate valuation multiples, whether be it EV/EBITDA or P/E multiples, ensuring a disciplined risk-reward approach. Rupp emphasizes their vigilance in monitoring buybacks on down days, using corporate buybacks as indicators of potential mispricing.

Screening emerging market companies and Southeast Asia strategy

Screening for emerging market opportunities involves a meticulous analysis of earnings growth, dividend yield, and potential foreign exchange (FX) gains or losses. Parkway imposes higher earnings growth targets in these markets due to FX risks. Their portfolio’s exposure to Southeast Asia stands at 18%, reflecting a strategy focused on long-term growth rather than defensive plays. Rupp asserts,

“Southeast Asia is where you play offense, not defense”

underscoring its potential compared to more stable high-yield opportunities in Hong Kong-dollar-denominated assets.

Opportunities in a beaten-down Hong Kong market

Rupp paints an optimistic picture of Hong Kong’s market recovery. Post-2019 unrest and the pandemic has left the Hong Kong market as the second cheapest in Asia after South Korea, and Rupp highlights strong earnings growth potential with limited downside risk from further valuation compression. He believes that recent U.S. Federal Reserve rate cuts (with more in the pipeline) represent the first real economic stimulus Hong Kong has seen since COVID-19 (barring minor measures like consumption-focused cash handouts), which will particularly benefit its property-centric economy.

Finding value in Asia’s REIT landscape

Discussing Parkway’s approach to identifying winning real estate investment trusts (REITs) among a crowded field of 145 such funds in Asia, Rupp shares how they prioritize maximizing dividend yield, minimize FX risks, and ensure stable underlying distributions.

A standout example is their investment in one Hong Kong-listed industrial REIT, SF Real Estate Investment Trust (2191.HK), which proved resilient against declining office rents.

This segment of the market, often unfairly grouped with struggling office REITs, offers upside potential with downside protection. As U.S. Federal Reserve rate cuts take effect, industrial REITs remain mispriced compared to similar U.S. assets, where minimal leverage doesn’t offer the 600-basis-point spread over five-year treasuries seen in Asia. Rupp contrasts this with persistent preference of Hong Kong investors for residential real estate, with a cap rate of 4% (factoring in maintenance, time, and tax costs).

China’s macro shift: a more pragmatic approach to investors

Rupp sees signs of change in China’s approach to both domestic and foreign investors. He believes the days of Beijing penalizing its own companies - like Alibaba (BABA.N; 9988.HK) and the EdTech sector - are coming to a close, as the country seeks to stabilize employment and bolster capital markets. This shift reflects China's need to maintain internal stability and strengthen investor confidence.

Further emphasizing China’s evolving trade dynamics, Rupp points out that China now exports more to ASEAN countries than to the U.S., underscoring its pivot to strengthening economic ties with its neighbors and the need to manage geopolitical tensions.

Audio time-stamps:

00:53 Intro to Dan Rupp.

03:20 Identifying quality compounders in Asia.

09:58 Evaluating investments in Asian emerging markets vs developed markets.

13:24 How Parkway thinks about managing FX risk.

15:00 Risk management on the upside and downside at Parkway.

19:27 Risks and opportunities of having a large exposure to Mainland China and Hong Kong.

23:46 Parkway capitalizing on macro trends in light of further U.S. rate cuts.

26:41 Primer on SF REIT (2191.HK).

32:47 Discussion around risks pertaining to the stock.

37:26 How to think about the fair value of the stock.

39:37 Overall views on China macro picture going forward.

44:42 Ambitions for Parkway over the coming year.

47:19 Getting in touch and concluding remarks.

Additional Resources:

Dan Rupp – Linkedin

Parkway Capital Website (contact via email)

Disclaimer: This research/podcast is for informational, entertainment, educational, and/or study or research purposes only. The information contained herein or discussed does not, should not, and cannot be construed as or relied upon and, for all intents and purposes, does not constitute or provide professional financial, investment, or any other form of advice. This research/podcast does not and should not be construed as an offer to sell or the solicitation of an offer to buy any securities or any other financial instruments in any jurisdiction, including where such actions are illegal. This research/podcast is not intended for publication in jurisdictions where it would violate laws. The research/podcast does not consider individual investment objectives or financial positions and merely expresses the opinions of its authors. Any investment involves taking substantial risks, including (but not limited to) the complete loss of capital. Every investor has different strategies, risk tolerances, and time frames. You are advised to perform your own independent checks, research, or study, and you should consult a licensed professional before making any investment decisions. The assumptions and parameters discussed or used are not the only reasonable ones, and no guarantee is given for their accuracy, completeness, or reasonableness. No promise is made that any indicative performance return will be achieved. The research/podcast is derived from public information sourced by Pyramids and Pagodas. No representation or warranty is given for the reliability, completeness, timeliness, accuracy, or fitness of this research/podcast, nor is any responsibility or liability accepted for any loss or damage. The authors (Pyramids and Pagodas) and/or key persons involved shall in no event be held liable to any party for any direct, indirect, punitive, special, incidental, or consequential damages arising directly or indirectly from the use of any of this material.

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Mr. Salvador Escaño, the driving force behind Pryce, shares how he built one of the Philippines’ largest gas distributors from humble beginnings. He emphasizes the business's staying power – customers remain loyal to Pryce due to high switching costs and its extensive B2C distribution network. The pandemic illustrated that domestic demand for LPG is inelastic, even amid energy price volatility. Pryce's business model demonstrates remarkable long-term resilience, fueled by the unaffordability of electric cooking systems, the lack of piped gas networks throughout the archipelago, and new regulations poised to drive market consolidation.

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This deep-dive leverages insights from a wide-ranging interview with Pryce Chairman and Founder, Salvador Escaño, which we will publish for our readers shortly.

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We also had the pleasure of presenting this idea at Graham Rhodes’ Longriver Gathering 2024 in Shenzhen in September – a great opportunity to re-connect with familiar faces and meet brilliant investing minds.

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Insights and nuance from my two weeks of travel

I had always wanted to explore Georgia, a country with stunning landscapes, delicious cuisine and a promising future. As one of the oldest civilizations in the world, the people are keenly aware of their rich history and are proud of their identity – so all in all quite a cohesive society.

As tends to be the case with many trips involving me and Altraman, we have a knack for coinciding with adverse geopolitical events, so I was unsurprised when anti-Russian protests broke out in Tbilisi weeks before I was set to fly. While this might have deterred many, it was hardly our first rodeo having lived in the Middle East during the Arab Spring. I have a fairly well-tuned sense of what is hysterical Western media reporting and what is a genuine cause for concern (can often be boiled down to – “does the opposition have guns and deep pockets backing them?”).

The Tbilisi protests were portrayed as a situation in which the government was facing broad opposition and a legitimacy crisis that could lead to its ouster – this was simply not the case as we will explain in more detail later. In fact, my two weeks there during this historical time provided a fascinating ground view of one of the many frontlines in the broader battle for influence between Russia and the West. Travelling with a Russian speaker also meant that I could derive more insights and nuance from my conversations there, as much of the older population is proficient in the language.

I was also keen to travel to Georgia as I believed it showed economic promise, more than all the negative press would have one believe. Its economy has shown resilience and growth over the past decade, with a GDP per capita increase from USD 9,580 in 2010 to USD 15,880 in 2022. The country has made significant strides in income growth and poverty reduction. The poverty rate has declined from 70.6% in 2010 to an estimated 47.7% in 2022, reflecting fairly sound macroeconomic management. Unemployment rates have also improved, dropping to a record low of 11.6% in 2023.

However, challenges remain, such as weak productivity and limited creation of high-quality jobs. A third of the workforce is still engaged in low-productivity agriculture, and there is a notable skills mismatch in the job market. Georgia's economy is highly open to trade and reliant on tourism, making it susceptible to external shocks. I noticed this openness with the ease of entry into the country. For example, UK citizens get an entire year visa free.

Uncovering the nuanced realities behind the Georgia protests

For those less familiar with the situation in Georgia, some background is needed. In a significant development, Georgia was granted candidate status by the European Union (EU) in December 2023, which was expected to drive reforms and economic convergence with EU member states.

In 2024, Georgia experienced significant anti-Russian protests in response to a controversial law perceived as aligning with Russian-style legislation. This law, aimed at curbing “foreign influence”, was met with widespread opposition, as it threatened the country's aspirations for EU membership and was seen as a step back from democratic principles. In reality, the law simply stipulated that local NGOs divulge foreign sources of funding. Yes…the same type of NGOs that the US has conveniently used as vehicles for regime change in other parts of the world suddenly in need of “democratic awakening”.

Similar laws exist in the countries that were so vehemently opposed to this new Georgian law, for example the US Foreign Agents Registration Act. This raises questions about double-standards and selective criticism. Certainly, there were legitimate concerns expressed about the potential for democratic backsliding and abuse of the new Georgian law by the ruling pro-Russia Georgian Dream party, which has faced its own controversies. However, it is an oversimplification to characterize this as a wholesale collapse of democracy in the country. It was also not surprising to see that Western countries had a bone to pick with Georgian Dream for not taking a more hardline stance against Russia post Ukraine invasion.

Despite Georgian Dream being pro-EU membership and fostering rapid economic growth and Western-style development, it aims to avoid provoking Russia. They believe that a hostile stance towards Russia benefits only their EU/US partners, not Georgia itself. The US has a well-documented history of funding and training opposition groups of regimes it doesn’t like, often portraying rebel groups positively and condemning government actions.

As pointed out by fellow fintwit commentator Lyall Taylor (LT3000Lyall), a strangely high number of NGOs operate in this small country (25,000 in fact). Some of these, armed with western funding, spread anti-government rhetoric and influence local and global media. Across the world, these groups cultivate grievances and organize protests, aiming to provoke government reactions that can be used to depict the government as oppressive. While grassroots participation is crucial for a revolution, it doesn’t require a majority; a small, passionate minority can be enough. In Georgia, around 30,000 protestors, less than 1% of the population, were involved, many influenced by anti-government NGOs.

Economically, while Georgia faced an economic slowdown, it did enter a recession by the time protests concluded in June with the passing of the law. The country's economic forecast suggested a resilience attributed to recent development successes and strong demographics, despite the political turmoil. The labor market remained robust, and household finances were stable, which supported continued economic expansion.

How Russia came to be such a hot topic in Georgia – for some more than others

The Russian presence in Georgia has been a significant factor in the country's economic development, particularly since the outbreak of the Russia-Ukraine war. Many wealthier Russians have moved to Tbilisi to dodge the draft or escape a stifling political climate, and this is well-reflected in the property prices and language overheard at cafes in the pricier locales of the capital. It seemed that younger, more liberal-minded Georgians were all-too-willing to speak out against Russian influence, yet the landlord and business owner class were happy to cash in on the influx.

The real estate market in Georgia has experienced significant growth, with house prices soaring by 12.78% in 2023, following substantial increases in previous years. This surge is attributed to strong economic growth and falling interest rates, alongside robust property demand. The influx of Russian investment has been a notable factor, especially in the wake of geopolitical events that led to a marked increase in Russian nationals purchasing property in Georgia. The capital, Tbilisi, has seen varied price movements across different districts, with some areas witnessing price hikes up to 35.8% yoy.

Despite the protests, there did not appear to be any overt hostility against the many Russian emigrees, with most protestors seeming to understand the differences between Russian government policy and the personal lives of those who chose to de-camp to Georgia. This was laid bare as anti-Russian slogans emanated from downtown as I sat alongside Russian digital nomads tapping away on their laptops in pricey cafes just streets away from the commotion.

Perspectives on Russia can vary significantly between generations and regions. In my time there, it became quite apparent that anti-Russian sentiment was concentrated in a younger, more educated and urban demographic. Older generations, who may have more vivid memories of the Soviet era, might hold different views that are shaped by Georgia’s once-privileged position in the USSR. For example, in the Soviet era, Georgia had the highest education, savings, car and home ownership levels in the Union.

I was struck by older Georgians who mostly expressed disapproving views of the protests. This became more pronounced when leaving the capital – those in rural areas were nothing but welcoming to my Russian friend. In one region we travelled to, Kazbegi, local people were notably reliant on goods and fuel from Russia, often hopping across the border to stock up on much cheaper commodities.

China’s footprint in Georgia’s infrastructure evolution

Speaking of foreign influence, I also sensed China’s presence in a big way. A free trade agreement and slew of Belt and Road infrastructure investments such as the Anaklia deep seaport and the Rikoti pass have spurred close economic ties. The Rikoti Pass is a massive undertaking featuring dozens of bridges and tunnels, representing USD 1 billion in investment. There were many PRC nationals residing long term in Tbilisi, as well as businesses catering to them.

It was surprising to see China Railway Group (0390.HK; 601390.SH) billboards around a massive highway project in a remote mountain pass. Turns out the currently congested two lane road is one of the main arteries into Russia, with this mountain pass a particular bottleneck. The USD 558 million project is funded by the Asian Development Bank and European Bank for Reconstruction and Development, both western-leaning institutions and yet a Chinese contractor was selected, presumably for their local knowledge and speed of implementation.

This SOE stock looks cheap, trading at a blended 12-month forward P/E of 2.5x, about 1 standard deviation below its five-year historical averages, with a dividend yield of 6.7% at the current price (HKD 3.62 as of 30 August 2024). Most of its revenues come from its stable domestic “Engineering construction” segment, involving major contracts in railways, energy, and water infrastructure. Its offshore business is surprisingly only 6% of Group revenues; one would expect a larger portion in emerging markets given media headlines of new projects announced yearly. The overall net margin is 3%, which makes sense given the high upfront investment and long ramp-up periods, but also very long useful lives. There are unlikely to be significant surprises in the Group’s mid-to-high single-digit revenue growth rate, supported by domestic infrastructure spending forecasted to align or exceed the ~4.4% GDP growth this year. The stock performance since its listing in 2007 has been a sulky -51%. This year, it seems we have hit the bottom (HKD 3.16 on 23 January 2024). There were slight EPS downgrades in Q124A and FY24e guidance, leading to near-term share price weakness.

However, we do like the fact that its fundamentals rank ahead of other SOE construction peers such as CRCC (1186.HK, 601186.SH) and CCCC (1800.HK, 601800.SH) in cashflow, profitability and ROE. In addition, interestingly, China Railway Group has stowed away a resources business under “Other business” segment. They have 5 operational mines delivering copper, cobalt and molybdenum, contributing only 0.7% of Group revenues, but generates 14% of the Group’s profit contribution and growing. This is somewhat similar to TCL Electronics (1070.HK) trade setup we covered earlier in the year, where revenue growth and profitability in its auxiliary businesses supersede its core bulk of the business, and among the catalysts sparking a re-rating (though realization may take longer for the case here).

We see potential for improvement in China Railway Group, though not to the same extent as TCL. The market hasn’t fully priced in better fundamentals, operational efficiencies, and growth in the resources business. This could be a good entry point after resetting expectations, but our conviction is low due to limited visibility. We’ve taken a small trading position with a target range of HKD 4.50–5.25 (top-end implies 3.5x P/E, around the historical 5-year average).

The digital shift – Payment technologies on the rise

Another thing that struck me was the proliferation of electronic payment availability. Cards were accepted at almost all sit down restaurants and small convenience stores, with mostly Verifone and Pax Global (0327.HK) terminals in use. As covered in our investment brief on Pax back in November 2022, the CIS market only makes up a small portion of the Group’s revenue, but no doubt many terminals imported into Georgia, most likely end up in Russia as highlighted in Altraman’s Russia insights in September 2023. The fintech landscape in Georgia is experiencing a significant transformation with the proliferation of payment machines like 1pay, TBC Pay, and Cryptal, which I encountered more frequently than ATMs on the streets of Tbilisi. 1pay and TBC Pay are mostly used for e-commerce, bills, and transfers whereas Cryptal machines are used for buying and selling cryptocurrency.

This digital shift is not just modernizing the transactional framework of the country but also unveiling new investment opportunities within the fintech sector. We took a deeper look into TBC Bank (TBCG.L), the operator of TBC Pay machines, given that its London-listed stock took a beating during the protests, and was down around 30% from ATH earlier in the year.

Banking on Georgia – the case for TBC Bank

TBC Bank stock has shown resilience and adaptability in a dynamic market environment. Its fundamentals were strong and offered robust dividend yield of over 7%. Unlike the picture portrayed in Western media, the reality on the ground told us that the protests, in fact, did not have broad support and we believed they would be short-lived. Furthermore, Georgia did not bear the hallmarks of dysfunctional institutions and a government teetering on the edge of collapse. The state does not face fundamental issues with its legitimacy, and has sufficient resources to quell disorganized protests – obviously heavy-handed police tactics are not to be condoned, but we were just being realistic about the situation.

Hence we bought the stock, which has now recovered to near its ATH level, netting us a nice 20% short-term gain (it could have been even more, but impossible to time the bottom in these situations.) There is of course room for the stock to run further, but think there are cheaper emerging market fintech/banking alternatives. A cheaper peer that we’ve seen floating around the fintwit sphere is Kazakhstan’s Halyk Bank (HSBK.L) although we haven’t done any work around it.

Be sure to follow our account on X (Twitter), as we occasionally do post some short-term tactical or interesting ideas and musings that don't make it as part of a longer post given general timing of events etc.

Full disclosure: Currently, both me @TheAltraman and @Desertfox have an established position in China Railway Group. We still hold Pax Global, and have sold TBC Bank.

Disclaimer: This research piece above is for informational, entertainment, educational, and/or study or research purposes only. The information contained herein or discussed does not, should not, and cannot be construed as or relied upon and, for all intents and purposes, does not constitute or provide professional financial, investment, or any other form of advice. This research does not and should not be construed as an offer to sell or the solicitation of an offer to buy any securities or any other financial instruments in any jurisdiction, including where such actions are illegal. This research is not intended for publication in jurisdictions where it would violate laws. The research does not consider individual investment objectives or financial positions and merely expresses the opinions of its authors. Any investment involves taking substantial risks, including (but not limited to) the complete loss of capital. Every investor has different strategies, risk tolerances, and time frames. You are advised to perform your own independent checks, research, or study, and you should consult a licensed professional before making any investment decisions. The assumptions and parameters discussed or used are not the only reasonable ones, and no guarantee is given for their accuracy, completeness, or reasonableness. No promise is made that any indicative performance return will be achieved. The research is derived from public information sourced by Pyramids and Pagodas. No representation or warranty is given for the reliability, completeness, timeliness, accuracy, or fitness of this research, nor is any responsibility or liability accepted for any loss or damage. The authors (Pyramids and Pagodas) shall in no event be held liable to any party for any direct, indirect, punitive, special, incidental, or consequential damages arising directly or indirectly from the use of any of this material.

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