Bargain Hunting in Asia

06/15/2010 11:39 am EST


Yiannis Mostrous

Editor, The Capitalist Times

Fast Retailing is capitalizing on Japan's frugality while Anhui Conch Cement is helping to build China, writes Yiannis G. Mostrous in The Silk Road Investor.

Fast Retailing (Tokyo: 9983, OTC: FRCOY) operates the UNIQLO casual wear outlets in Japan. Since opening its first outlet at the end of 1998, the company has achieved nationwide brand recognition.

For its UNIQLO brand, the company has vertically integrated its operations from materials procurement through to design, production, and sales. The company has other lines of clothing sold under different brand names in Japan and abroad as well.

Since more than 80% of the company’s business is the UNIQLO line, management has picked it to lead its overseas expansion. Fast Retailing has been expanding to the UK, the US, France, China, Hong Kong, South Korea, and Singapore. It's UNIQLO’s long-term potential as a strong clothing retailer on a global level that makes this investment story unique.

The company has been a pioneer in Japan, offering quality clothing at affordable prices. Fast Retailing is considered a good marketer also, and has been able to capitalize on a relatively new trend among younger Japanese—thriftiness, the idea being that you buy as you need and at relatively low prices, which is a significant departure from the conspicuous consumption of previous generations.

The company’s management prowess is such that Fast Retailing has achieved sales per square foot (a measure of retail success) of $1,122. In comparison, the similar numbers for Gap (NYSE: GPS) and Urban Outfitters (Nasdaq: URBN) are $372 and $805, respectively.

The company’s margins are around 17%, which is in line with the global retail average, and it has no debt. Buy up to JPY18,000 in Tokyo and below $18 in the OTC market.

Anhui Conch Cement (Hong Kong: 0914, OTC: AHCHY) is China's largest cement producer. Its major markets are in the coastal area of China, where construction has been going gangbusters for years. Now, it's planning to expand into western China.

The new move should be a growth driver for the company, as development in rural China is still strong. The company should also benefit from investments in infrastructure, as well as the expected increase in low-price housing construction that remains a policy goal for the government.

China’s cement stocks have been hit hard since mid-April because of fears of the fallout from the government’s policies to slow growth to a sustainable level. Consequently, it's a great time to buy, since the violent move seems to have priced in all but the unlikely worst-case scenario. Buy Anhui Conch Cement up to HK$26 in Hong Kong, and $20 in the OTC market.

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