South-east Asian conglomerates’ returns fall at end of ‘golden age’

The returns of south-east Asia’s conglomerates have plummeted, marking the end of a golden age for the sprawling businesses that are among the biggest drivers of the region’s $3.6tn economy.

After decades of outperforming global peers, conglomerates from countries including Indonesia, Thailand, Malaysia and the Philippines have “lost their edge”, according to research by management consultancy Bain & Company.

Bain said for roughly 100 conglomerates in the region with a listed parent or at least one listed subsidiary, the average annual total shareholder return was 4 per cent between 2013 and 2022, a 24-percentage point decline from the preceding decade.

The conglomerates are diversified companies that have operations in mining, property, telecoms, banking and other businesses. They account for nearly a third of capital expenditure in south-east Asia.

Bain said advantages conferred by their size, diversification and close government relationships had declined as the region’s economies matured. Many struggled with the global economic slowdown and digitalisation; even more lacked the agility to navigate the Covid-19 pandemic.

Jean-Pierre Felenbok, chair of Bain in south-east Asia, said it was the “end of a golden age” for the traditional conglomerates it tracks, which together make up 17 per cent of the market capitalisation of listed companies in the region.

“That age is over and I don’t think it is coming back,” Felenbok said. “They were caught by surprise by slowdown and had trouble . . . adjusting to a less fertile growth environment. Then Covid happened.”

The Bain research, which is published every three years, showed conglomerates’ annualised total shareholder return for the decade to 2022 had plunged 63 per cent compared with the 10 years to 2020.

The research is a reality check for the region’s conglomerates and the wealthy families that own them.

South-east Asian conglomerates were global outliers in the 2000s. EY, another consultancy, said the 10-year average annual total shareholder return between 2002 and 2011 of conglomerates in south-east Asia was 34 per cent, compared with 14 per cent for counterparts in the rest of the world.

Felenbok warned that falling returns had growth implications for the region’s developing economies. “The [conglomerates] are big actors and if they don’t do well . . . we do see economic impact,” he said.

Among the worst performers according to a share price analysis over the period are Boustead, one of Malaysia’s oldest diversified conglomerates; Lopez Holdings, a Philippines banking conglomerate; and Lippo Group, one of the region’s largest and most diversified conglomerates from Indonesia.

Pure-play conglomerates — those with 80 per cent of their activity in one industry — had an average annual total shareholder return of 11 per cent over the past decade, significantly outperforming diversified groups. This was the opposite of the situation in the previous 10 years, Bain said.

Traditional strengths, such as good government relations, were prized less than before, said Till Vestring, a Singapore-based advisory partner at Bain.

“The air had already gotten a lot thinner for conglomerates as the region has matured. It is harder to get talent, and governments are more wary of sprawling companies,” he said.

Some diversified conglomerates have managed to do well by expanding into areas such as green business, financial services and healthcare, Bain said, citing Adaro in Indonesia, Phinma in the Philippines, Emtek in Indonesia and Vietnam’s Vingroup.

Some conglomerates’ returns have improved after they split their businesses, such as Malaysia’s Sime Darby Berhad, which separated into three in 2017.

“I think we will see more unwinding,” Vestring said.