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Long-established Asian small-cap specialist

Scottish Oriental Smaller Companies 10 January 2018 Review
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Scottish Oriental Smaller Companies

Long-established Asian small-cap specialist

Investment trusts

10 January 2018

Price

1,075.0p

Market cap

£332.7m

AUM

£371.6m

NAV*

1,200.6p

Discount to NAV

10.5%

NAV**

1,201.0p

Discount to NAV

10.5%

*Excluding income. **Including income. As at 8 January 2018.

Yield

1.1%

Ordinary shares in issue

30.9m

Code

SST

Primary exchange

LSE

AIC sector

Asia Pacific ex-Japan

Benchmark

MSCI AC Asia ex-Japan

Share price/discount performance

Three-year performance vs index

52-week high/low

1,082.5p

915.5p

1,216.1p

1,045.2p

**Including income.

Gearing

Gross*

0.0%

Net cash*

7.8%

*As at 30 November 2017.

Analysts

Helena Coles

+44 (0)20 3077 5700

Mel Jenner

+44 (0)20 3077 5720

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

Scottish Oriental Smaller Companies Trust (SST) was launched in 1995 with the objective of generating long-term capital growth from investing in smaller companies listed in Asia (excluding Japan and Australasia). Its long-term 10-year performance record continues to be strong, although in more recent years SST has lagged the performance of the comparative MSCI AC Asia ex-Japan Index, which has been driven by large-cap and technology stocks in particular. Since Vinay Agarwal became acting (now formal) lead manager in July 2016, the portfolio has become more concentrated and growth orientated. Agarwal believes the trust is well positioned with reasonably valued, quality companies that can grow structurally through economic cycles.

12 months ending

Share price
(%)

NAV
(%)

MSCI AC Asia ex-Japan (%)

MSCI AC Asia ex-Japan Small Cap (%)

FTSE All-Share (%)

31/12/13

5.2

9.1

1.4

5.2

20.8

31/12/14

6.0

11.3

11.7

8.9

1.2

31/12/15

(8.3)

(2.0)

(3.6)

2.3

1.0

31/12/16

25.3

24.4

26.2

16.8

16.8

31/12/17

16.9

15.1

29.8

22.3

13.1

Source: Thomson Datastream. Note: All % on a total return basis in GBP.

Investment strategy: Fundamental stock selection

SST’s investment objective is to achieve long-term capital growth by mainly investing in smaller Asian-listed companies, excluding Japan and Australasia. Its approach is bottom-up, aiming to identify high-quality, well-managed companies in which it can invest with a five-year or longer time horizon. The manager and a well-resourced equity team conduct over 1,000 direct company meetings a year as part of their analytical, absolute return mindset approach. There are no sector and country weighting constraints. Since Agarwal became acting (now formal) lead manager, the portfolio has become more concentrated with around 60 holdings, with more focus on stocks with structural growth potential.

Market outlook: Outperformance has been polarised

Asian equities performed strongly in 2017; the MSCI AC Asia ex-Japan Index rose by 29.8% in sterling terms. This performance was polarised towards large-cap stocks, led by the technology sector in particular, but also exacerbated by inflows from ETFs, which tend to buy the largest names in the index. Valuations are no longer cheap, although continue to look relatively attractive compared with global equities Asian stocks. Meanwhile, International Monetary Fund (IMF) forecasts for Asian economic growth over the next five years are significantly higher than for global GDP growth.

Valuation: 10.8% discount, slightly below average

SST currently trades at a 10.5% discount to cum-income NAV; slightly below its 11.5% three-year average (range of 1.7% to 16.7%). The board does not have a formal discount management policy, although it actively promotes the trust and has the ability to repurchase shares.

Exhibit 1: Trust at a glance

Investment objective and fund background

Recent developments

SST’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 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.

30 October 2017: annual report for 12 months to end-August 2017. NAV TR +15.7% versus benchmark TR +27.2%. Share price TR +19.4%. Announcement at December 2017 AGM that director Janet Morgan will retire.

29 June 2017: appointment of Andrew Baird as non-executive director.

July 2017: Vinay Agarwal assumes permanent role as lead manager. Former lead manager Wee-Li Hee will return from maternity leave as co-portfolio manager.

Forthcoming

Capital structure

Fund details

AGM

December 2018

Ongoing charges

0.99% (FY17)

Group

First State Stewart

Interim results

April 2018

Net cash

7.8%

Manager

Vinay Agarwal

Year end

31 August

Annual mgmt fee

0.75%

Address

10 St Colme Street,

Edinburgh, EH3 6AA

Dividend paid

January/February

Performance fee

Yes (see page 7)

Launch date

March 1995

Trust life

Indefinite

Phone

+44 (0) 131 473 2200

Continuation vote

None

Loan facilities

None (see page 7)

Website

www.scottishoriental.co.uk

Dividend policy and history (financial years)

Share buyback policy and history (financial years)

Dividends paid annually. The board intends to at least maintain the level of dividend, using reserves if necessary, unless company distributions fall sharply.

Renewed annually, the board has authority to repurchase up to 14.99% and allot up to 10% of shares outstanding.

Shareholder base (as at 27 October 2017)

Portfolio exposure by geography (as at 30 November 2017)

Top 10 holdings (as at 30 November 2017)

Portfolio weight %

Company

Country

Sector

30 November 2017

30 November 2016*

SKF India

India

Industrials

3.2

N/A

Concepcion Industrial

Philippines

Industrials

2.9

N/A

Sinbon Electronics

Taiwan

Information technology

2.8

N/A

Towngas China

China

Utilities

3.3

2.6

Blue Star

India

Industrials

2.5

N/A

China Banking

Philippines

Financials

2.5

N/A

Uni-President China

China

Consumer staples

2.3

N/A

Healthcare Global Enterprises

India

Healthcare

2.3

N/A

Raffles Medical Group

Singapore

Healthcare

2.2

2.4

Vitasoy International

Hong Kong

Consumer staples

2.2

2.4

Top 10

25.6

26.4

Source: Scottish Oriental Smaller Companies, Edison Investment Research, Bloomberg, Morningstar. Note: *N/A where not in November 2016 top 10.

Market outlook: Challenging equity valuations

As shown in the left-hand chart of Exhibit 2, Asian and global equities have performed strongly over the past 18 months and many indices are at, or near, all-time highs. This has been in response to synchronous global growth and an unprecedented, extended period of low interest rates. Central banks, including in the US and the UK, have started to increase interest rates; however, market expectations are for monetary conditions to remain reasonably accommodative. Nevertheless, monetary conditions appear to have little scope to become more favourable, while equities valuations are not cheap. As shown in the right-hand chart, Asian equity valuations, however, are lower than global valuations on both P/E and price-to-book measures, while IMF forecasts predict faster compound annual GDP growth in Asia of 5.9% between 2017 and 2022, compared to 3.7% for global GDP growth. Investors looking for exposure to faster-growing economies may be interested in a fund with a bottom-up and disciplined approach to investing in companies on reasonable valuations.

Exhibit 2: Market performance and valuation

Asia ex-Japan and World indices: total returns over five years (in £ terms)

Asia ex-Japan and World valuation metrics (at 3 January 2018)

 

MSCI AC Asia ex-Japan

MSCI AC Asia ex-Japan Small Cap

MSCI AC World

P/E 12 months forward (x)

13.5

14.5

20.8

Price to book (x)

1.8

1.5

2.4

Dividend yield (%)

2.1

2.2

2.3

Source: Thomson Datastream, Bloomberg, MSCI, Edison Investment Research

Fund profile: High conviction, small caps

SST aims to achieve long-term capital growth by investing mainly in smaller Asia ex-Japan listed companies with market capitalisations under $1.5bn at the time of investment. The investment approach is high-conviction and fundamental to building a portfolio of quality companies that can be held for the long term, ideally for five years or more. Vinay Agarwal formally assumed the role of lead portfolio manager in July 2017, having been acting lead manager during Wee-Li Hee’s maternity leave since July 2016. Since her return in July 2017, Hee has assumed the role of co-portfolio manager, in accordance with her wishes, thus providing continuity of the portfolio management team. Agarwal has not changed the investment philosophy and process, although there has been a shift in the portfolio, which has become more concentrated. There are currently around 60 holdings in the portfolio, down from over 80 stocks c 18 months ago, and the manager expects this to settle soon at around 50 stocks. Portfolio turnover has therefore been uncharacteristically high, above 50% in the past year, although should return to the previous norm of 20% or less once restructuring is complete.

Although gearing is permitted, up to 50% of net assets, this has been little used, and as at end-November 2017, the fund had net cash of 7.8%. A £20m loan facility was repaid early in June 2017.

The fund manager: Vinay Agarwal

The manager’s view: Opportunities in smaller markets

Following strong performance by Asian stock markets in 2017, the manager finds it challenging to find attractively valued, high-quality companies. This is reflected in the portfolio’s relatively high cash position of 7.8% as at end-November 2017, and the decision to repay early a £20m loan facility, originally designed to give the fund flexibility to acquire positions opportunistically should markets fall to attractive levels.

Agarwal believes earnings growth has been “lacklustre” outside of a relatively narrow group of mainly technology names, with a trend for margin expansion being driven by falling input prices, which he views as unsustainable. Meetings with companies conducted by the manager and his team have revealed weak volume growth and poor pricing power given consumers’ low inflation expectations. Meanwhile, ‘cheap money’ has resulted in capital misallocations and increased competition, while pushing up levels of household debt. Agarwal notes debt levels are now more worrying in Korea and China and could become a constraint on growth. Leverage is more modest, however, in India, Indonesia, the Philippines and Sri Lanka, which together accounted for 48.5% of the portfolio as at end-November 2017. Agarwal continues to favour domestically oriented companies that have plenty of scope for structural growth, and are less influenced by external factors. He also finds more interesting opportunities in underpenetrated markets where good prospects for volume growth and premiumisation (whereby rising disposable income permits consumers to upgrade to higher-value products and services) can support sustainable long-term earnings growth.

Asset allocation

Investment process: Bottom-up focus on companies

The most significant source of investment ideas comes through country and company visits. The equity team conducts over 1,000 direct company meetings throughout the year to identify those that meet their criteria to allow them to invest with high conviction over a five-year or longer-term time horizon. Company founders and management teams are scrutinised for their integrity, risk awareness and the ability to deploy capital successfully. SST seeks high-quality franchises that have predictable and sustainable growth prospects, at reasonable valuations with a five-year perspective. Macroeconomic and political considerations are not expressly considered, as the manager is looking for well-managed, strong franchises that can perform well through economic cycles. There are no country and sector weighting constraints to portfolio construction, and portfolio risk is mitigated through the team’s in-depth knowledge of its companies and managements and a mind-set to protect capital, generating absolute, not relative returns.

Current portfolio positioning

SST’s managers are focused on stock selection and the portfolio can diverge significantly from its benchmark, as shown in Exhibits 3 and 4. Exhibit 4 also includes sector weights within the MSCI Asia ex-Japan Small Cap Index as a comparator. The portfolio comprises around 60 stocks, well-diversified across countries and sectors.

SST continues to favour industrials (18.6%) and consumer-related sectors (29.1% discretionary and staples combined). At end-November 2017, compared to the previous year, the consumer discretionary sector weight increased by 2.1pp to 17.8%, while consumer staples declined by 3.9pp to 11.3%. This shift reflects Agarwal’s preference for higher growth stocks over lower growth, value stocks in the staples sector. The information technology sector has also declined significantly, by 3.5pp to 9.8%. This is the portfolio’s most significant sector underweight relative to the index weight of 32.3%. Broadly, technology stocks in Asia have performed very strongly and, in the manager’s view, command unjustifiably rich valuations.

Exhibit 3: Portfolio sector exposure vs Asia ex-Japan indices (% unless stated)

Portfolio end-Nov 2017

Portfolio end-Nov 2016

Benchmark weight

Active weight vs benchmark (pp)

MSCI AC Asia ex-Japan Small Cap

Active weight vs small-cap index (pp)

Industrials

18.6

16.2

6.9

11.7

13.4

5.2

Consumer discretionary

17.8

15.7

9.3

8.5

16.6

1.2

Consumer staples

11.3

15.2

4.4

6.9

5.2

6.1

Information technology

9.8

13.3

32.3

(22.5)

20.7

(10.9)

Financials

9.3

8.1

23.2

(13.9)

8.7

0.6

Healthcare

8.3

7.0

2.2

6.1

9.2

(0.9)

Utilities

7.0

6.7

2.9

4.1

2.6

4.4

Materials

6.5

5.8

4.5

2.0

9.2

(2.7)

Real estate

2.1

2.1

5.9

(3.8)

11.4

(9.3)

Telecom services

1.4

1.5

4.3

(2.9)

0.8

0.6

Energy

0.0

0.0

4.2

(4.2)

1.9

(1.9)

Net cash

7.9

8.4

0.0

7.9

0.0

7.9

100.0

100.0

100.0

100.0

Source: Scottish Oriental Smaller Companies Trust, Edison Investment Research

The biggest country weight changes over the past year to end-November 2017 are reductions in China (-5.7pp) and Singapore (-5.3pp) in favour of the Philippines (+4.9pp) and India (+3.2pp). SST also invested, for the first time, in Pakistan and continued to build on initial positions in Bangladesh and Vietnam. These changes reflect the manager’s observations that the more developed countries within Asia have higher household leverage, and growth prospects for companies are more challenged compared to countries with relatively low levels of debt, in particular India, Indonesia and the Philippines. The less-developed countries also have significantly lower levels of penetration of consumer goods and services, which augurs well for long-term structural growth prospects. Recent new purchases reflect these views, including Delta Brac and Indus Motor.

Exhibit 4: Portfolio geographic exposure vs benchmark (% unless stated)

Portfolio end-Nov 2017

Portfolio end-Nov 2016

Change
(pp)

Benchmark weight

Active weight vs benchmark (pp)

Trust weight/ benchmark wgt (x)

India

26.1

22.9

3.2

9.9

16.2

2.6

Taiwan

11.0

10.9

0.1

13.1

(2.1)

0.8

Philippines

10.0

5.1

4.9

1.3

8.7

7.7

China

8.9

14.6

(5.7)

34.5

(25.6)

0.3

Net cash

7.8

8.4

(0.6)

0.0

7.8

N/A

Indonesia

7.6

7.2

0.4

2.5

5.1

3.0

Hong Kong

6.9

6.5

0.4

11.3

(4.4)

0.6

Sri Lanka

4.8

3.8

1.0

0.0

4.8

N/A

Singapore

4.3

9.6

(5.3)

4.4

(0.1)

1.0

South Korea

2.9

3.6

(0.7)

17.9

(15.0)

0.2

Malaysia

2.9

1.1

1.8

2.5

0.4

1.2

Thailand

2.3

5.3

(3.0)

2.6

(0.3)

0.9

Vietnam

1.7

0.5

1.2

0.0

1.7

N/A

Bangladesh

1.4

0.5

0.9

0.0

1.4

N/A

Pakistan

1.3

0.0

1.3

0.1

1.2

13.0

100.0

100.0

100.0

Source: Scottish Oriental Smaller Companies Trust, Edison Investment Research

Housing finance company, Delta Brac is SST’s maiden position in Bangladesh. It is the largest mortgage lender with a 22% market share, where mortgages are 4% of GDP versus 9% in India, and 56% in Singapore. The company was founded by India’s blue-chip, premier housing finance company, HDFC, which is well-known to and highly regarded by the manager. HDFC owns around 15% of Delta Brac and is actively engaged with the company as a strategic shareholder, including the training of its management and assistance in the development of robust risk systems.

SST’s first investment in Pakistan is Indus Motor, a joint-venture with Japanese company Toyota and the country’s largest automotive company with 44% market share. Pakistan has 15 passenger vehicles per 1,000 people, indicating significant scope for growth, compared to 22 in India and 47 in Indonesia. Indus Motor’s valuations are attractive at around a 9x forward P/E multiple and a dividend yield of c 7%.

Agarwal is pleased with the portfolio’s positioning, which is now more skewed towards higher-growth profile companies than before, with attractive long-term prospects over a five-year or longer time horizon. His valuation discipline and the low liquidity levels of some of the new positions demand patience, although he is optimistic that the repositioning process is nearly complete.

Performance: Solid long-term performance

The MSCI AC Asia ex-Japan Index performance over the past few years has been significantly skewed by the strong performance of technology stocks, in particular in South Korea and China, and by ETF inflows, which polarise purchases towards large-cap stocks. These trends have been unfavourable for SST’s relative performance and its NAV total return lags its comparative benchmark over one, three and five years. The trust’s 10-year performance remains strong, showing significant outperformance over its benchmark as well as over the MSCI AC Asia ex-Japan Small Cap and FTSE All-Share indices.

Exhibit 5: Investment trust performance to 31 December 2017

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.

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

1.0

(4.2)

(7.2)

(9.9)

(14.9)

(16.3)

92.9

NAV relative to MSCI AC Asia ex-Japan

(0.5)

(2.3)

(6.7)

(11.3)

(11.1)

(4.7)

71.1

Price relative to MSCI AC Asia ex-Japan Small Cap

1.3

(5.7)

(6.8)

(4.4)

(8.2)

(10.7)

112.2

NAV relative to MSCI AC Asia ex-Japan Small Cap

(0.3)

(3.8)

(6.3)

(5.9)

(4.0)

1.7

88.1

Price relative to FTSE All-Share

(0.9)

(2.0)

(3.9)

3.3

0.7

(8.2)

130.2

NAV relative to FTSE All-Share

(2.4)

(0.0)

(3.4)

1.7

5.2

4.5

104.1

Source: Thomson Datastream, Edison Investment Research. Note: Data to end-December 2017. Geometric calculation.

Discount: Narrower than average

SST currently trades at a 10.5% discount to cum-income NAV, slightly below its three-year average of 11.5% but towards the higher end of the range of 1.7% to 16.7% over this period. As shown in Exhibit 8, this is one of the deeper discounts among its peers, although similar to that of its most comparable peer, Aberdeen Asian Smaller Companies Investment Trust (11.0%). The board does not have a formal discount management policy, although has the ability to help manage the discount through the repurchase of shares and active promotion of the trust.

Exhibit 7: Share price discount to NAV (including income) over three years (%)

Source: Thomson Datastream, Edison Investment Research

Capital structure and fees

SST is a conventional investment trust with one class of share; there are currently 30.9m ordinary shares in issue. During FY17, the company bought back 60,000 shares at a cost of £542k, and subsequent to end-August 2017, a further 12,000 shares have been repurchased. There are 465,500 shares currently held in treasury.

In June 2017, the company repaid early its August 2019 £20m fixed-rate loan with National Australia Bank as its purpose to facilitate opportunistic purchases is unlikely to be utilised, given the manager’s view of unattractive market valuations and the short duration to maturity. After breakage costs, net savings to the company for the remaining term of the loan is £732,000.

First State Investment Management (UK) is paid an annual management fee of 0.75% net assets. In addition, a performance fee is payable if SST’s share price total return exceeds that of the benchmark by 10% over a rolling three-year period, capped at 1.5% of net assets. No performance fee was payable in FY17. The ongoing charge in FY17 was 0.99%, which was a 5bp reduction versus FY16.

Dividend policy and record

The dividend has been maintained at 11.5p per share for FY17, payable on 19 January 2018. The board’s intention is to at least maintain annual dividends by building up revenue reserves when income permits, and draw on them when necessary to accommodate this policy. Income per share in FY17 of 6.77p (9.50p in FY16) represents 59% dividend cover, although revenue reserves at end-August 2017 are 1.4x the annual dividend, reflecting additions to reserves in recent years in FY15 and FY13. Based on the current share price, SST’s dividend yield is 1.1%.

Peer group comparison

Exhibit 8 shows a selected peer group of investment trusts, which are members of the AIC Asia Pacific ex-Japan sector, with market capitalisations over £50m. Within this group, there are many different mandates, including trusts that invest in the Pacific region, as well as income-focused funds. SST has the strongest 10-year NAV total return within this peer group. The discount to ex-par NAV ranks 11th, although this is broadly in line with its most comparable peer, Aberdeen Asian Smaller Companies Trust.

Exhibit 8: Selected peer group as at 9 January 2018*

% unless stated

Market cap £m

NAV TR
1 year

NAV TR
3 year

NAV TR
5 year

NAV TR
10 year

Discount (ex-par)

Ongoing charge

Performance fee

Net gearing

Dividend yield (%)

Scottish Oriental Smaller Cos

332.7

14.7

37.6

66.0

282.8

(10.4)

1.0

Yes

92

1.1

Aberdeen Asian Income

410.3

15.6

36.1

43.0

199.9

(6.1)

1.2

No

107

4.0

Aberdeen Asian Smaller

366.7

9.7

26.5

46.8

270.2

(11.5)

1.7

No

111

1.1

Aberdeen New Dawn

283.8

28.5

46.2

55.1

153.2

(11.7)

0.9

No

108

1.6

Edinburgh Dragon

720.0

24.2

44.8

53.9

161.8

(11.1)

1.0

No

104

0.9

Fidelity Asian Values

270.6

10.2

55.0

96.9

159.0

(4.6)

1.3

No

100

1.1

Henderson Far East Income

464.5

17.2

36.8

55.2

124.3

2.7

1.1

No

103

5.4

Invesco Asia

220.2

32.6

70.2

107.8

203.5

(9.2)

1.0

No

96

1.4

JPMorgan Asian

356.1

38.2

67.1

93.6

97.7

(9.1)

0.7

No

100

3.7

Martin Currie Asia Unconstrained

146.8

23.3

45.4

58.9

69.1

(11.2)

1.1

No

103

1.9

Pacific Assets

316.5

15.4

42.3

87.1

101.1

(3.1)

1.3

No

100

1.0

Pacific Horizon

182.3

51.2

71.3

101.2

124.2

(7.7)

1.1

No

99

0.0

Schroder Asia Pacific

811.0

37.9

74.1

100.2

195.6

(9.0)

1.0

No

113

1.2

Schroder Asian Total Return

316.6

34.5

77.0

89.4

136.1

6.1

1.0

Yes

102

0.0

Schroder Oriental Income

654.8

15.5

51.1

74.6

203.5

0.4

0.9

Yes

107

3.5

Simple average

390.2

24.6

52.1

75.3

165.5

(6.4)

1.1

103

1.9

SST rank in sector

8

13

12

9

1

11

11

15

11

Source: Morningstar, Edison Investment Research. Note: *Performance data to 8 January 2018. TR = total return. Net gearing is total assets less cash and equivalents as a percentage of net assets.

The board

Following the resignation of Dr Janet Morgan, who retired from the board at the December 2017 AGM, SST’s board comprises five independent non-executive directors. Chairman James Ferguson and Alexandra Mackesy were appointed in 2004, and Anne West in 2010. Two new appointments were made in 2017: Jeremy Whitley was appointed in March and Andrew Baird was appointed in June – both bring significant Asian investment experience.

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Copyright 2018 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 Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. 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 2018. “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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority (Financial Conduct Authority). 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 Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 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 Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. 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 2018. “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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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