KUALA LUMPUR: Conglomerates have significantly underperformed pure plays in Southeast Asia over the last decade.
According to the 5th edition of Bain & Company's Southeast Asia conglomerates report, from 2013 to 2022, conglomerates' average annualised total shareholder return (TSR) was 4.0 per cent, a 24-percentage point decline compared to 2003-2012, the first decade tracked by Bain.
In comparison, pure plays' 2013-2022 average annualised TSR was 11 per cent to nine percentage points lower than the 2003-2012 period.
Pure plays also outperformed conglomerates on revenue growth, margins, and multiples.
"When the region was less developed, it was easier for conglomerates to prosper, thanks to their size and privileged access to opportunities, capital and talent.
"However, we observed that this privilege started diminishing in the middle of the last decade, and the performance gap between pure plays and conglomerates has widened ever since," said Bain & Company Singapore-based advisory partner Jean-Pierre Felenbok.
The report highlighted that the conglomerate premium eroded first and fastest in developed markets such as Singapore, Malaysia and Thailand, confirming a correlation between market maturity and conglomerate performance.
Conglomerates struggled to adapt to the lower-growth environment, a result of global macroeconomic conditions which started in 2014.
They were slower to expand margins or exercise cost discipline to offset revenue losses, and their price-earnings multiples contracted.
In contrast, young and nimble pure plays were able to attract investors, government support, and talent by developing strong leadership positions in attractive sectors.
Pure plays responded more quickly in the downturn, maintaining revenues, and lowering costs and, consequently, achieved higher TSR than conglomerates.
"However, a subset of conglomerates known as 'all-weather stars' have consistently outperformed their peers and achieved top-quartile status for TSR growth across all economic cycles over the past 20 years.
"Even in lower-growth environments, these conglomerates increased revenue, defended their margins and expanded multiples," Bain & Company advisory partner based in Singapore Till Vestring