KUALA LUMPUR (Oct 30): Malaysia ranks seventh globally in terms of number of family-owned businesses, according to the Credit Suisse Research Institute (CSRI), which has released its third edition of the The CS Family 1000 report on family-owned companies globally.
Credit Suisse said the majority of companies included in their database are located in emerging markets, with Asia Pacific ex-Japan alone contributing 536 or 56% of the total and 38% of total market capitalisation.
“This Asian universe consists of companies ranging from US$200 million to US$463 billion in market capitalisation,” it added.
Among the top 25 countries with the largest number of family-owned businesses, 11 are in Asia including Malaysia (7th), Thailand (8th), Indonesia (9th), Philippines (11th), and Singapore (17th), said Credit Suisse.
“Family-owned businesses are outperforming their peers in every region, every sector, whatever their size,” said Eugene Klerk, head analyst of Thematic Investments at Credit Suisse and the report’s lead author.
“Our research seems to suggest that investors are not too concerned about the level of ownership but rather how involved the family owners are in the daily running of the business. This seems to be at the core of the success of family-owned companies in our view,” Klerk added.
The report reviews the investment case for family-owned companies and reveals that they have outperformed broader equity markets in every region and sector by an average of 3.9% per year since 2006, said Credit Suisse.
“Asia Pacific ex-Japan family businesses have also outperformed non-family-owned companies at an annual average of 3.1% across all sectors,” said Credit Suisse.
Meanwhile, in terms of average market capitalisation of family-owned companies, the report pointed out that Malaysia ranks 11th in Asia Pacific ex-Japan at US$3.8 billion.
Within Asia Pacific ex-Japan, in terms of average market capitalisation, Singapore family businesses came in third at US$7.5 billion following Korea and Hong Kong, Philippines is 6th at US$5.6 billion, Thailand 7th at US$5.2 billion, Indonesia 8th at US$5 billion.
Furthermore, the report showed that out of the top 50 family-owned companies globally with market capitalisation above US$2 billion in terms of average revenue growth between 2014 and 2017, 33 are from Asia Pacific ex-Japan with a total market capitalisation of US$883 billion and delivering between 24% and 115% annual average revenue growth.
“Malaysia’s Press Metal is among the top 50 family-owned companies globally with market capitalisation above US$2 billion in terms of average revenue growth since 2014,” said Credit Suisse.
The financial performance of family-owned companies is superior to that of non-family-owned businesses, said Credit Suisse.
“Revenue and EBITDA growth is stronger, EBITDA margins are higher, cash flow returns are better and momentum in gearing is more moderate,” said Credit Suisse, adding that sales growth for family-owned companies also tends to be higher than for non-family-owned corporates across all sectors on 10-year and five-year basis.
Chinese family-owned companies have generated the highest revenue growth of 19% over the last 10 years relative to their respective non-family control group, followed by Singapore-based family-owned companies at 16%, said Credit Suisse.
The report finds that in terms of share price performance by generation, younger family-owned companies (first or second generation) tend to perform much better than older firms, generating share price returns of around 9% per annum, but returns drop as companies move into the third generation of ownership or beyond, to less than 6.5%.
Credit Suisse noted that the drop could be due to younger family-owned companies being on average smaller, reflecting a “small-cap growth” factor.
“At a country level, Chinese, Indian and Indonesian family-owned companies appear to be the most expensive, trading at high absolute multiples, with a 12-month median price-earnings ratio (P/E) of between 15 and 16 times, compared to around 10 to 13 times P/E multiples of companies in Korea, Hong Kong and Singapore,” said Credit Suisse.
Credit Suisse said the report finds that in terms of research and development (R&D), there is a greater focus on future growth by family-owned companies than by non-family-owned companies in Asia Pacific ex-Japan and the US, with firms in Asia Pacific ex-Japan almost tripling their spending on R&D since 2012.