Closing the Valuation Gap
Record inflows by foreign investors helped Asian stock markets record hefty gains last year. But despite the region's attractions, Asian companies still tend to trade at a discount to Western companies. For instance, at the end of 2004 the median price to earnings ratio for companies in the S&P 500 in the U.S. was 19.9, compared with 11.8 for big listed companies in Hong Kong and 6.8 in Korea. In other words, even if a Western company and an Asian one have the same earnings in any one year, investors tend to be willing to pay more for the shares of the former, believing it will create more shareholder value.
Higher risk factors such as corruption and uncertain regulatory regimes are often cited as the explanation -- and, in some cases, they play a part. But an important and sometimes overlooked reason why many large Asian companies are valued lower than their Western peers is because of their historical focus on growth rather than returns on capital. Asian companies wanting to improve their valuations need to rethink their strategies, carefully considering how best to create sustained shareholder value as well as how to communicate that to investors.
Companies create value when the returns they generate on their invested capital exceed the cost of that capital (which will, itself, take into account any perceived risk). Growth, while an important component of value creation, doesn't automatically create value. The cost of growth -- the goodwill, say, tagged onto the price of an acquisition -- needs to be taken into account. Growth only creates value if it also delivers a decent return on capital.
Though these principles sound simple, they are not always well understood by corporate managers. They are however understood by many investors, and reflected in stock markets valuations. It is not uncommon to find two companies in the same industry with similar growth rates but quite different price-to-earnings ratios -- a measure of investors' expectations of a company's future prosperity -- due to their different rates of return.
The problem is that many Asian companies have often placed more emphasis on growth rather than maximizing their return on invested capital. In the 1980s and much of the 90s, it wasn't uncommon for Asian companies to boast growth rates of 15-20% per year. Size was often equated with prestige and power. But rapid growth didn't necessarily mean better performance. Today, the ROIC of many Asian companies remains relatively low -- about 9% for the typical large Asian company, versus 13% for large U.S. companies, according to analysis by McKinsey.
So Asian companies seeking to create more value for their shareholders need to ensure their corporate strategies strike the right balance between growth and return on invested capital. It also means striking a balance between solid short-term financial results, and the longer-term performance of the company.
As many Western companies have discovered to their cost, there is a noisy section of the investor community that is fixated by short-term financial results. Consequently, executives find themselves tempted to manage their businesses to meet quarterly earnings expectations by, for example, delaying new investments -- even if those projects offer good longer-term returns. Such actions undermine a company's ability to deliver sustained shareholder value.
The goal of the corporate manager should be to deliver solid short-term results while also tending to the longer-term health of the business, i.e., taking the kinds of decisions that will ensure the company performs well year after year. That's what sophisticated investors expect. Hence, in almost all industry sectors in the U.S. and other developed markets, 70 to 90% of stock market value can only be explained by the cash flows predicted beyond three years. Short-term results have far less impact than many executives might imagine.
Finally, senior executives need to explain to investors just where value lies in the business and how they expect to create more -- even if their plans entail sacrificing some short-term profits. The purpose of investor communications is not to simply talk up the share price: overly high aspirations will only tempt executives to make short-term decisions that prop up the stock but damage future prospects. Rather, the objective is to align the share price with the intrinsic value of the company.
Differentiating between various types of investors is also important. A company could, for example, craft a long-term strategic message directed at those investors who are highly focused on corporate fundamentals over a five-year period, and another message for those investors whose interests centre on whether strategic or news events will affect the company's short-run value.
Given the flow of funds into the region, Asian companies will increasingly come under the scrutiny of institutional investors looking for the best investment opportunities. By striking the right balance between growth and return on invested capital, by caring for the long-term health of the company, and by sharing with key investors their value creation strategies, Asian companies should stand up well to such scrutiny.
Mr. Ahn is an associate principal and Mr. Leung a partner in McKinsey & Co.'s Hong Kong office. They specialize in corporate finance.
缩小估值差
去年，外国投资者创纪录的资金涌入推动亚洲股票市场上涨强劲。不过亚洲公司虽然吸引了投资者的目光，但其股票的交易价格仍然低于西方公司。举例来说，2004年年底美国标准普尔500指数(S&P 500)公司的平均本益比为19.9倍，而香港上市大企业的平均本益比只有11.8倍，在韩国这个数字仅为6.8倍。换句话说，如果一家西方公司和一家亚洲公司一年中的利润相同，投资者还是愿意花更多的钱投资前者，因为他相信西方公司能创造出更大的股东价值。
人们对此的解释通常包括腐败和管理制度多变等高风险因素──在有些情况下，这些因素也的确属实。但对于为什么亚洲大公司的估值低于西方公司有个重要的、却时常被忽视的理由，那就是亚洲公司一贯更重视增长而非资本收益。所以希望提高估值的亚洲公司必须重新规划，仔细考虑如何最大限度地创造稳定的股东价值以及如何与投资者沟通。
当投资回报高于投资成本的时候，企业就创造了价值。增长虽然是价值创造过程中重要的一部分，但增长并不会自动产生价值。人们需要考虑到增长的成本──比如收购价格中的商誉支出。只有产生了良好的资本收益，增长才能创造价值。
虽然这些理论听起来非常简单，但企业管理者对此的认识通常并不深刻。不过许多投资者却深谙此道，这也在股市估值中表现出来。我们不难找出属于同一行业、增长率相似而本益比却大不相同的两家公司，这是因为它们的回报率不同。本益比代表投资者对公司未来收益的预期。
问题是许多亚洲公司通常更看重增长而非投资回报率的最大化。在20世纪80年代及90年代的大部分时间里，有些亚洲公司的年增长率达到了15%至20%。规模意味著地位和权力，但是高速增长并不一定意味著出色的业绩。麦肯锡(McKinsey)的分析报告指出，如今许多亚洲公司的投资资金回报率仍然偏低──典型亚洲大公司的回报率只有9%左右，而美国大公司则达13%。
因而寻求创造更大股东价值的亚洲公司必须确保其战略在增长和投资回报率之间以及在短期财务结果和公司长期业绩之间找到适当的平衡点。
当许多西方公司意识到了成本问题的时候，投资领域的一部分人仍然只关注短期财务结果。于是公司管理人士会为了达到季度收益预期而更改计划，比如推迟新的投资项目──虽然这些项目能得到长期回报。这些行为削弱了公司稳定实现股东价值的能力。
公司管理人士的目标应该是既实现稳健的短期财务结果也关注业务的长期健康发展──比如实施可以保证公司长期发展的计划。这也正是精明的投资者希望看到的。这样，在美国及其他发达股市的几乎所有行业类股中，70%至90%的股市估值可以由未来三年内的预期现金流决定。短期财务结果的影响力之小令许多管理人士吃惊。
高层管理人士还应该向投资者讲解公司业务的价值所在以及未来的成长点──即使这些计划牺牲了一部分短期利润。与投资者沟通的目的并非只是抬高股价：过高的希望只会令管理人士注重眼前利益，抬高了股价却损害了未来收益。沟通的目标应该是令股价和公司内在价值相符。
区分不同类型的投资者也很重要。对于那些关注公司五年内基本面的投资者，公司可以向他们公布长期发展策略，而对那些关注公司的策略信息或新闻对公司股价短期影响的投资者，则可以提供另一套信息。
在大量资金涌入亚洲的形势下，那些寻找最佳投资机会的机构投资者会更加密切地关注亚洲公司的表现。如果能在增长和投资回报率之间找到平衡，能够关注公司的长期健康发展，能够和主要投资者分享公司的价值创造计划，那么亚洲公司将会在这种密切关注下蓬勃发展。
（编者按：本文作者James Ahn和Nicolas Leung分别是麦肯锡公司香港代表处的副代表和合伙人。他们的研究领域是企业财务。）
