Scottish Oriental Smaller Companies — Update 14 April 2016

Scottish Oriental Smaller Companies — Update 14 April 2016

Scottish Oriental Smaller Companies

Melanie Jenner

Written by

Mel Jenner

Director, Investment Trusts

Scottish Oriental Smaller Companies

Exposure to quality Asian small-cap stocks

Investment trusts

14 April 2016

Price

780.5p

Market cap

£243m

AUM

£305m

NAV*

897.7p

Discount to NAV

13.1%

NAV**

897.1p

Discount to NAV

13.0%

*Excluding income. **Including income. As at 12 April 2016.

Yield

1.5%

Ordinary shares in issue

31.1m

Code

SST

Primary exchange

LSE

AIC sector

Asia Pacific – ex-Japan

Share price/discount performance

Three-year cumulative perf. graph

52-week high/low

898.5p

663.0p

998.7p

761.5p

**Including income.

Gearing

Gross*

7.7%

Net cash*

4.5%

*As at 29 February.

Analysts

Mel Jenner

+44 (0)20 3077 5700

Sarah Godfrey

+44 (0)20 3681 2519

Scottish Oriental Smaller Companies Trust is a research client of Edison Investment Research Limited

Scottish Oriental Smaller Companies Trust (SST) is a well-established Asian trust investing in small-cap companies in the region, excluding Japan and Australasia. Following the 2015 division of First State Stewart into two companies, SST comes under the umbrella of FSS Asia and continues to be managed by Wee-Li Hee, working alongside Martin Lau and Scott McNab. Stocks are selected on a bottom-up basis with a focus on quality companies with good long-term growth prospects. The portfolio is conservatively run with a view to preserving/increasing capital rather than outperforming a benchmark.

12 months
ending

Share price
(%)

NAV
(%)

MSCI AC Asia
ex-Japan (%)

MSCI AC Asia
ex-Japan Small
Cap (%)

FTSE All-Share
(%)

31/03/12

16.6

6.4

(6.5)

(12.7)

1.4

31/03/13

40.0

37.9

13.0

18.6

16.8

31/03/14

(17.7)

(7.5)

(6.1)

(5.0)

8.8

31/03/15

17.3

19.7

24.7

17.9

6.6

31/03/16

(8.8)

(5.4)

(8.7)

(6.8)

(3.9)

Note: Twelve-month rolling discrete £-adjusted total return performance.

Investment strategy: Quality, long-term investment

Stock selection is bottom up rather than macro driven and, as a result, sector and geographic exposure may vary considerably from the benchmark. The manager seeks to invest in reasonably priced Asian small-cap companies that have strong franchises, solid balance sheets, robust cash flows and where managements’ interests are aligned with shareholders. There is a large emphasis on proprietary research and meeting with company management teams is a key part of the research process. Intrinsic values of potential investments are calculated, with a view to being realised over three to five years.

Market outlook: Potential for better performance

Despite the underperformance of Asian markets versus the rest of the world in recent years as a result of strong returns from the US market and macroeconomic issues in the Asian region, including concerns about slowing GDP growth in China, the longer-term outlook of above average economic growth remains intact. Population growth and rising disposable income remain powerful investment themes.

Valuation: Discount wider than historical average

SST’s discount has been on a widening trend over the last couple of years as Asia has fallen out of favour with investors. The current share price discount to cum-income NAV of 13.0% compares to the 12-month range of 1.7% to 16.2% and is wider than the average discount over the last one, three, five and 10 years (range of 5.5% to 11.7%). However, it is roughly comparable to its closest peer. The board does not have a formal discount control policy, but has been accelerating the pace of share repurchases. At the current price, the shares are yielding 1.5%.

Exhibit 1: Trust at a glance

Investment objective and fund background

Recent developments

Scottish Oriental Smaller Companies Trust’s objective is to provide shareholders with long-term capital growth through investment in smaller Asian (excluding Japanese and Australasian) quoted companies. Its assets are invested in a diversified portfolio of securities, substantially in the form of equities. While the manager takes account of cultural, political and economic factors, stock-specific features are the main driver of portfolio selection with the aim of identifying good-quality companies with solid long-term growth prospects.

13 April 2016: Results for the six months ended 29 February 2016 – NAV TR of 5.9% compared with 3.1% for MSCI AC Asia ex-Japan index.

28 October 2015: Results for the 12 months ended 31 August 2015 – NAV TR of -8.5% compared with -9.1% for MSCI AC Asia ex-Japan index.

28 April 2015: Board confirms new management arrangements post Stewart Investors/FSS Asia split on 1 July 2015: Wee-Li Hee to be supported by Scott McNab and Martin Lau.

Forthcoming

Capital structure

Fund details

AGM

January 2017

Ongoing charges

1.01% (excl. performance fee)

Group

First State Stewart (Asia)

Interim results

April 2016

Net gearing

-4.5%

Manager

Wee-Li Hee

Year end

31 August

Annual mgmt fee

0.75%

Address

10 St Colme Street,
Edinburgh, EH3 6AA

Dividend paid

February

Performance fee

Yes (see page 7)

Launch date

March 1995

Trust life

Indefinite

Phone

+44 (0) 131 473 2200

Continuation vote

No

Loan facilities

£20m at 3.135% (see page 7)

Website

www.scottishoriental.co.uk

Dividend policy and history

Share buyback policy and history

One annual dividend paid in February. The board intends to at least maintain this level of dividend, using reserves if necessary, unless company distributions fall sharply

The board has a repurchase authority (14.99%), which can be used where it judges it is necessary to manage the discount.

Shareholder base (as at 13 April 2016)

Geographical allocation of portfolio (as at 29 February 2016)

Top 10 holdings (as at 29 February 2016)

Portfolio weight %

Company

Country

Sector

29 February 2016

28 February 2015*

Marico

India

Consumer products

3.0

3.0

Raffles Medical

Singapore

Healthcare services

3.0

N/A

Taiwan FamilyMart

Taiwan

Convenience stores

3.0

2.6

Tong Ren Tang Technologies

China

Traditional medicine

3.0

N/A

Standard Foods

Taiwan

Food products

2.9

N/A

Petra Foods

Singapore

Food products

2.7

2.3

AmorePacific

South Korea

Consumer products

2.6

3.0

Interplex Holdings

Singapore

Industrials

2.4

N/A

Lu Thai Textiles

China

Textiles

2.3

N/A

Towngas China

Hong Kong

Gas distribution

2.2

2.3

Top 10

27.0

25.4

Source: Scottish Oriental Smaller Companies Trust, Edison Investment Research, Morningstar, Thomson. Note: *N/A where not in February 2015 top 10.

Market outlook: Relatively higher economic growth

Over the last five years, Asian markets have lagged the performance of the world index (Exhibit 2, left-hand side). This is due to the strong performance of the US market in recent years (its weighting is now c 60% of the MSCI World index) and more recently due to weakness in the Chinese stock market. The Shanghai Composite index fell by more than 40% between mid-June and late-August 2015, which has affected sentiment in the region; the market has struggled to recover and is now once again around the same level as the late-August low. Reasons for this have included concerns about slower Chinese economic growth, its currency and higher-margin calls for retail investors who had participated in the stock market rally earlier in the year. Despite near-term challenges, the longer-term outlook for investment in Asian equities remains positive. Rising disposable income and infrastructure spending are contributing to higher economic growth in the region versus the rest of the world. In its latest World Economic Outlook, the IMF is projecting GDP growth of 6.4% and 6.3% for 2016 and 2017 in emerging and developing Asia respectively versus 3.2% and 3.5% for world output. Looking at valuations in the region (Exhibit 2, right hand side), both large- and small-cap Asia ex-Japan indices are trading at a discount to the world index on both a forward P/E and price-to-book basis.

Exhibit 2: Indices and valuation

Asia ex-Japan and World indices: total returns over five years

Asia ex-Japan and World valuation metrics

End March

MSCI AC
Asia ex-Japan

MSCI AC Asia ex-Japan Small Cap

MSCI
World

P/E year forward (x)

12.1

13.1

15.8

Price/book (x)

1.4

1.2

2.1

Dividend yield (%)

2.8

2.5

2.7

Source: Thomson Datastream, MSCI, Edison Investment Research

Fund profile: Long-term view on quality small-caps

The Scottish Oriental Smaller Companies Trust (SST) was launched in March 1995 and invests in small-cap companies in the Asia Pacific region excluding Japan and Australasia. Currently holding c 80 positions, stock selection is bottom up and companies are selected for long-term capital growth. The market cap of portfolio holdings at the time of investment is generally below $1.5bn, although up to 20% may be in companies between $1.5-3.0bn. There are no absolute limits for the size of individual stock/sector exposures. Since 2003, the benchmark has been the MSCI AC Asia ex-Japan index. This is not an ideal comparator as it is dominated by larger companies; however, it is the most widely recognised regional index and pre-dates SST’s inception in March 1995. The MSCI AC Asia ex-Japan Small Cap index (created in 2007) may also be used for comparative purposes as it covers the relevant markets with the exception of Pakistan and Sri Lanka.

In March 2015, First State Stewart (FSS) announced its intention to split into two teams allowing each to move forward as smaller, flexible businesses: one primarily based in Hong Kong (FSS Asia) and the other in Edinburgh (Stewart Investors) with both teams having their own identity and autonomy. Post separation on 1 July 2015, SST continues to be managed by Wee-Li Hee, part of the FSS Asia team, who is supported by Martin Lau (managing partner) and Scott McNab (senior investment analyst); collectively, they have 40 years’ experience at FSS. There is also the ability to draw on the resources of the rest of the FSS Asia team. Hee and McNab are based in Edinburgh and Lau is based in Hong Kong. The manager reports that the transition into two teams has been smooth, with no client losses or consultant downgrades, and it is very much business as usual; the FSS team is well established and remains well resourced.

The fund manager: Wee-Li Hee

The manager’s view: Importance of “sticking to the knitting”

Manager Wee-Li Hee comments that growth is scarce and companies that can deliver predictable growth are trading on relatively expensive valuations. However, in line with SST’s strategy of many years, the manager and her team seek investments in quality companies that have the potential to deliver capital growth over the long term. The top 10 holdings in the portfolio are all well known to the team and although they are currently quite expensive, they are continuing to grow and position sizes are likely to be increased following any period of significant share price weakness. It is a tough environment in which to invest so the manager states that it is very important to “stick to the knitting” and focus on quality companies with good franchises, strong balance sheets and cash flows, where managements’ interests are aligned with those of shareholders.

Asset allocation

Investment process: Seeking long-term growth potential

SST aims to invest in attractively priced, good-quality companies with solid, long-term growth prospects. Stocks are selected on a bottom-up basis and sector and country weightings are not reflective of the benchmark. There is a strong emphasis on high-quality proprietary research, which includes meeting with company managements; the team conducts more than 800 direct company meetings each year. Conversations include details of the companies’ competitive environment, which may lead to further ideas to be researched. Team members gain a deep understanding of companies from looking at their history, rather than relying on financial models. There is not a heavy reliance on sell-side research; one reason is that small-cap Asian companies are not always well covered by analysts. The investment approach focuses on absolute return and is inherently conservative, mindful of capital preservation as well as capital growth. There is a valuation discipline in place, but the team members are not ‘value investors’. A risk team monitors the characteristics of the portfolio including liquidity and exposure to growth versus value, but risk is essentially contained by the focus on well-managed companies with strong balance sheets plus sector and geographic diversification within the portfolio. For each of the quarterly board meetings, the managers provide the directors with detailed information about the portfolio, which gives another level of risk oversight. In line with the long-term focus of the fund, turnover is less than 50% pa.

Current portfolio positioning

There are currently 78 holdings in the portfolio; as at 29 February, the top 10 holdings represented 27.0%. This was a modest increase in concentration versus 25.4% one year ago. The largest position was in Marico, a leading Indian consumer products company. Its key products are the Parachute and Nihar brands of coconut oil haircare (with a combined market share of 57%) and Saffola premium refined edible oil (58% market share). Over the last 10 years sales have grown by more than four times and net income by nearly six times as a result of increased market share, expanded distribution and new product development. After a period of strong performance, the position was recently trimmed to keep it at c 3% of the portfolio.

There have been selected opportunities to add to existing names such as Singamas Container, a manufacturer of shipping containers and related products and logistics provider. The stock fell on concerns about slowing growth in China, resulting in an attractive valuation. The manager knows the company well; it is family owned and she believes that the business is run with passion and integrity.

Exhibit 3: Sector portfolio weightings (%)

Portfolio
29 February 2016

Portfolio
28 February 2015

MSCI AC Asia
ex-Japan weight

Active weight
vs
benchmark

MSCI AC Asia ex-Japan Small Cap
weight

Active weight
vs small-cap
index

Consumer staples

19.0

17.8

5.8

13.3

5.7

13.3

Consumer disc.

16.1

19.2

8.9

7.2

18.5

-2.4

Industrials

15.2

14.2

8.6

6.6

15.5

-0.3

Info technology

12.3

9.5

23.9

-11.6

18.2

-5.9

Financials

11.8

11.4

30.4

-18.6

19.3

-7.5

Healthcare

8.0

6.2

2.7

5.3

9.1

-1.1

Materials

5.2

7.1

4.5

0.7

8.6

-3.4

Telecom services

3.7

4.2

6.6

-2.9

1.1

2.6

Utilities

3.5

3.5

4.3

-0.8

2.5

1.1

Energy

0.7

2.0

4.2

-3.5

1.5

-0.8

Net cash

4.5

4.9

0.0

4.5

0.0

4.5

100.0

100.0

100.0

0.0

100.0

0.0

Source: Scottish Oriental Smaller Companies Trust, Edison Investment Research, MSCI. Note: Benchmark is MSCI Asia ex-Japan index and small-cap index is MSCI Asia ex-Japan Small Cap index.

Over the last 12 months the largest changes in sector exposure were a 2.8% increase in information technology and a 3.1% decrease in consumer discretionary, which has outperformed more cyclical sectors. However, both the consumer sectors remain the largest overweights versus the benchmark; the managers feel the best smaller company franchises are still in these sectors.

Exhibit 4: Geographical portfolio weightings (%)

29 February 2016

28 February 2015

Change

MSCI AC Asia ex-Japan index

Active weight vs index

Trust weight/
index weight

Singapore

18.1

17.0

1.1

5.2

12.9

3.5

India

22.2

25.3

-3.1

9.3

12.9

2.4

Sri Lanka

2.1

2.9

-0.8

0.0

2.1

N/A

Thailand

4.4

3.1

1.3

2.7

1.7

1.6

Philippines

2.1

1.2

0.9

1.7

0.4

1.2

Indonesia

3.5

2.2

1.3

3.4

0.1

1.0

Taiwan

14.4

12.6

1.8

15.0

-0.6

1.0

Malaysia

2.7

3.2

-0.5

4.1

-1.4

0.7

Hong Kong

6.9

7.8

-0.9

12.5

-5.6

0.6

China

15.7

15.0

0.7

28.2

-12.5

0.6

South Korea

3.4

4.8

-1.4

17.9

-14.5

0.2

Net cash

4.5

4.9

-0.4

0.0

4.5

N/A

100.0

100.0

0.0

100.0

0.0

Source: Scottish Oriental Smaller Companies Trust, Edison Investment Research. Note: Ranked by active weight, excluding cash.

As investments are made for the long term, exposures to individual countries do not vary significantly over time. The largest change over the last year has been a 3.1% reduction in the exposure to India; this is on valuation grounds. However; the manager notes that this is a country where attractive investment opportunities are still available. A recent addition to the portfolio is Mphasis, an IT outsourcing company. It is 60% owned by Hewlett Packard Enterprise, but has been decreasing its dependence on the parent. The company has a good management team and a strong balance sheet with net cash. Its shares trade at a discount to its competitors and there is the potential for the company to be acquired. Singapore is the other large active weight in the portfolio. Exposure here is varied with some domestic and some overseas exposure; the position size should not be viewed as a positive call on the country. The manager considers the combined exposure to Greater China (China, Hong Kong and Taiwan) as their political and economic futures are interlinked. Over the past 12 months, exposure to Greater China has increased by 1.6%, although SST is still underweight the benchmark by a combined 18.7%. The manager focuses on the companies that have the potential to build longstanding franchises, or have already built them.

Performance: Long and short-term outperformance

The manager comments that smaller companies’ share prices often see large moves in periods of market volatility. By investing for the long term, focusing on companies with good management teams and strong balance sheets and cash flows, the manager aims to achieve long-term capital growth. SST has a “distinct, predictable return profile”, according to FSS Asia. Since inception on 28 March 1995 to end-December 2015 it has outperformed the MSCI AC Asia-ex Japan index in 59.8% of months (39.1% in months when the market rallied and 83.6% where the market fell).

Exhibit 5: Investment trust performance to 31 March 2016

Price, NAV and benchmark total return performance, one-year rebased

Price, NAV and benchmark total return performance (%)

Source: Thomson Datastream, Edison Investment Research. Note: Three-, five- and 10-year performance figures annualised.

As illustrated in Exhibit 6, SST has outperformed its benchmark MSCI AC Asia ex-Japan benchmark in NAV total return terms over one, five and 10 years. It has also outperformed the more relevant MSCI AC Asia ex-Japan Small Cap index over all periods shown.

Exhibit 6: Share price and NAV total return performance, relative to indices (%)

 

One month

Three months

Six months

One year

Three years

Five years

10 years

Price relative to MSCI AC Asia ex-Japan

(2.8)

(1.4)

(2.2)

(0.2)

(17.6)

27.2

66.0

NAV relative to MSCI AC Asia ex-Japan

(1.7)

(0.0)

0.4

3.6

(2.0)

36.1

78.7

Price relative to MSCI AC Asia ex-Japan Small Cap

(0.6)

2.0

0.3

(2.2)

(15.6)

33.0

64.1

NAV relative to MSCI AC Asia ex-Japan Small Cap

0.5

3.4

2.9

1.5

0.4

42.3

76.6

Price relative to FTSE All-Share

2.8

3.4

5.3

(5.1)

(21.0)

8.9

120.4

NAV relative to FTSE All-Share

4.0

4.8

8.1

(1.6)

(6.0)

16.5

137.2

Source: Thomson Datastream, Edison Investment Research. Note: Data to end-March 2016. Geometric calculation. All indices in sterling terms.

Exhibit 7: SST NAV total return vs MSCI AC Asia ex-Japan total return over 10 years, rebased to 100

Source: Thomson Datastream, Edison Investment Research

Discount: A widening trend over the last two years

At the current share price, SST’s shares are trading at a 13.0% discount to cum-income NAV. This compares to a discount range of 1.7% to 16.2% over the last 12 months and is wider than the average over the last one, three, five and 10 years (range of 5.5% to 11.7%). SST is at a roughly comparable discount to its closest peer, the Aberdeen Asian Smaller Companies Trust.

Exhibit 8: Share price premium/discount to NAV (including income) over three years (%)

Source: Thomson Datastream, Edison Investment Research. Note: Negative values indicate a discount, positive values a premium.

Capital structure and fees

SST is a conventional investment trust with one class of share; there are currently 31.1m shares in issue. The board has no formal discount control mechanism, but will buy back shares opportunistically and issue new shares at a small premium to NAV when advantageous to existing shareholders. During FY15, 0.15m shares were repurchased at an average 14.2% discount to NAV. As shown in Exhibit 1, share repurchases have accelerated year to date in FY16.

While the trust had a net cash position of 4.5% at the end of February, it does have a borrowing facility. It has a £20m sterling-denominated, five-year fixed loan at 3.135% with National Australia Bank, which is due for repayment on 14 August 2019.

FSS Asia receives an annual management fee of 0.75% of net assets, payable quarterly in arrears. In addition a performance fee is payable if the share price total return exceeds that of the benchmark by 10% over a rolling three-year period. The fee is 10% of the excess return and is capped at 1.5% of net assets. In FY15, a performance fee was earned for the sixth year in succession; this increased the ongoing charges from 1.01% to 1.05% of NAV.

Dividend policy and record

In FY15, revenue returns per share increased to 15.58p from 9.59p in the previous year. This was due to a special dividend from Asia Satellite Telecom, which added 6.08p. The board has a desire to increase or maintain the annual dividend, using revenue reserves if necessary, which stood at 22.4p per share at the end of FY15. The 2015 annual dividend of 11.5p was maintained for the third year in succession. At the current share price this represents a dividend yield of 1.5%.

Peer group comparison

Exhibit 9 shows the AIC Asia Pacific ex-Japan investment trusts with a market cap above £50m. It is a group with diverse objectives including income and small-cap specialists, and mandates including and excluding Australasia. SST’s NAV total return ranks above the sector-weighted average over one, three, five and 10 years. It is the best performing fund in the group over the last decade. The ongoing charge is lower than average but, unlike most of the peers, a performance fee is payable. The discount is currently one of the widest in the group (although roughly in line with its one small-cap peer Aberdeen Asian Smaller Companies Trust) and the dividend yield is lower than average. In terms of risk-adjusted returns as measured by the Sharpe ratio, SST is in line with the average over one and three years.

Exhibit 9: Selected peer group as at 12 March 2016

% unless stated

Market cap £m

NAV TR 1 year

NAV TR 3 year

NAV TR 5 year

NAV TR 10 year

Ongoing charge

Perf.
fee

Discount (ex-par)

Net gearing

Yield

Sharpe 1 year (NAV)

Sharpe 3 year (NAV)

Scottish Oriental Smaller Cos

236.4

(7.3)

7.8

56.2

282.3

1.0

Yes

(15.1)

96.0

1.5

(1.0)

(0.0)

Aberdeen Asian Income

306.6

(12.0)

(10.4)

34.2

156.2

1.3

No

(9.6)

111.0

5.3

(1.1)

(0.6)

Aberdeen Asian Smaller

288.5

(7.0)

(4.3)

57.5

251.1

1.5

No

(14.3)

113.0

1.9

(1.3)

(0.5)

Aberdeen New Dawn

184.8

(18.8)

(8.6)

5.6

105.0

1.1

No

(13.5)

112.0

2.5

(1.5)

(0.4)

Asian Total Return Inv Company

148.3

(4.9)

14.8

13.1

110.0

1.1

Yes

(8.3)

106.0

1.6

(0.9)

0.2

Edinburgh Dragon

476.4

(15.7)

(4.7)

12.2

121.9

1.2

No

(12.4)

110.0

1.2

(1.3)

(0.3)

Fidelity Asian Values

176.8

(5.5)

33.4

37.8

171.0

1.4

No

(11.8)

97.0

0.8

(0.7)

0.7

Henderson Far East Income

326.4

(11.2)

0.9

25.4

113.7

1.1

No

(2.9)

103.0

6.7

(0.9)

(0.1)

Invesco Asia

160.1

(8.6)

23.3

30.9

143.7

1.1

No

(10.8)

102.0

2.0

(0.7)

0.5

JPMorgan Asian

207.2

(15.7)

8.7

1.2

76.3

0.9

No

(12.2)

103.0

1.0

(1.1)

0.1

Martin Currie Asia Unconstrained

101.3

(12.3)

(2.0)

13.0

46.2

1.2

No

(13.7)

103.0

2.7

(1.0)

(0.2)

Pacific Assets

243.4

(7.8)

28.1

58.1

134.0

1.3

No

2.1

100.0

1.3

(1.1)

0.6

Pacific Horizon

100.6

(14.6)

9.5

13.1

91.6

1.0

No

(11.2)

88.0

0.2

(1.0)

0.1

Schroder AsiaPacific

457.2

(11.0)

10.5

34.7

143.7

1.1

No

(12.5)

105.0

2.6

(0.9)

0.2

Schroder Oriental Income

442.6

(6.1)

8.5

50.4

170.0

0.9

Yes

(1.4)

109.0

4.3

(0.6)

0.1

Sector weighted average

(10.6)

6.2

32.2

149.0

1.1

(9.3)

105.4

2.7

(1.0)

(0.0)

Rank

8

5

9

3

1

13

15

14

10

7

9

Source: Morningstar, Edison Investment Research. Note: TR = total return. Sharpe ratio is a measure of risk-adjusted return. The ratios shown are calculated by Morningstar for the past 12- and 36-month periods by dividing a fund’s annualised excess returns over the risk-free rate by its annualised standard deviation. Net gearing is total assets less cash and equivalents as a percentage of net assets.

The board

There are four members on the board of SST; all are non-executive and independent of the manager. Chairman James Ferguson was elected in 2004. The other board members and their year of election are Alexandra Mackesy (2004), Dr Janet Morgan (1995) and Anne West (2010). Interests are aligned as all board members hold shares in SST.

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. Edison is authorised and regulated by the Financial Conduct Authority (www.fsa.gov.uk/register/firmBasicDetails.do?sid=181584). Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Scottish Oriental Smaller Companies and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2016. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place,

88 Phillip Street, Sydney

NSW 2000, Australia

Wellington +64 (0)4 8948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place,

88 Phillip Street, Sydney

NSW 2000, Australia

Wellington +64 (0)4 8948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Research: Industrials

paragon — Update 14 April 2016

paragon

Continue Reading

Subscribe to Edison

Get access to the very latest content matched to your personal investment style.

Sign up for free