22 April 2024
Legal Entity Identifier (LEI):
549300W4KB0D75D1N730
Asia Dragon Trust plc (the
"Company")
Half-Yearly Report 29 February
2024
Capturing growth from world-class
Asian companies
Financial highlights for Company for
the six month reporting period include:
· Net asset value
("NAV") increased by 1.5% in sterling total return terms over the
period, underperforming the MSCI All-Country Asia ex Japan Index
(the "Benchmark"), which delivered a 3.7% increase. The share price
total return was 2%, with dividends reinvested, as the discount to
NAV per share tightened from 16.2% at the end of August 2023 to
16.0%.
· Following the
Company's combination with abrdn New Dawn Investment Trust plc,
effective 9 November 2023, the Company acquired c.£214.7m of net
assets from New Dawn in consideration for the issue of new Asia
Dragon shares.
· Macro factors,
rather than stock fundamentals, dominated market focus and
sentiment over the period and Chinese market exposure remained the
biggest detractor to performance.
· Positive
contributions were seen from the Company's technology holdings and
the Company also increased the portfolio's exposure to India, where
the Company sees tailwinds that are helping to sustain attractive
earnings growth and continued solid economic growth.
Performance Highlights
Net asset value total return
A
|
|
Share price total return
A
|
Six months ended 29 February
2024
|
|
Six months ended 29 February
2024
|
+1.5%
|
|
+2.0%
|
Year ended 31 August 2023
|
-16.7%
|
|
Year ended 31 August 2023
|
-19.5%
|
|
|
|
|
|
Benchmark total return (in sterling
terms)
|
|
Discount to net asset value
A
|
|
Six months ended 29 February
2024
|
|
|
As at 29 February 2024
|
|
+3.7%
|
|
16.0%
|
Year ended 31 August 2023
|
-8.4%
|
|
As at 31 August 2023
|
16.2%
|
A Considered to be an
Alternative Performance Measure as defined below.
|
Total Return Performance (With
Dividends Reinvested)
|
6 months
ended
|
Year
ended
|
01/09/2021 -
|
3 years
ended
|
5 years
ended
|
10 years
ended
|
|
29/02/2024
|
29/02/2024
|
29/02/2024A
|
29/02/2024
|
29/02/2024
|
29/02/2024
|
Net asset value per
shareB
|
+1.5%
|
-8.9%
|
-22.6%
|
-24.7%
|
+8.4%
|
+77.3%
|
Share priceB
|
+2.0%
|
-12.2%
|
-27.6%
|
-29.3%
|
+2.4%
|
+69.7%
|
MSCI AC Asia (ex Japan) Index
(sterling adjusted)
|
+3.7%
|
+0.8%
|
-11.7%
|
-14.2%
|
+16.7%
|
+102.4%
|
A The monitoring period
for the Company's five year performance related conditional tender
commenced on 1 September 2021. See the outside back cover of the
Half Yearly Report for further details.
|
B Considered to be an
Alternative Performance Measure as defined below.
|
Financial Calendar and Additional Financial
Data
Financial Calendar
Financial year end
|
31 August 2023
|
Announcement of annual results for year ending
31 August 2024
|
November 2024
|
Annual General Meeting in London
|
December 2024
|
Final Ordinary dividend payable for year ending
31 August 2024
|
December 2024
|
Additional Financial Data (Capital
Returns)
|
29
February 2024
|
31 August
2023
|
%
change
|
Total shareholders' funds
(£'000)
|
678,832
|
479,169
|
+41.7
|
Net asset value per share (capital
return basis) (p)
|
420.43
|
421.26
|
-0.2
|
Share price (capital return basis)
(p)
|
353.00
|
353.00
|
-
|
Discount to net asset value (%)
A
|
16.0
|
16.2
|
|
MSCI AC Asia (ex Japan) Index (in
sterling terms; capital return basis)
|
946.31
|
918.92
|
+3.0
|
Net gearing %
A
|
8.0
|
5.8
|
+37.9
|
Ongoing charges ratio including
management fee waiver AB
|
0.76
|
0.91
|
|
Ongoing charges ratio excluding
management fee waiver AC
|
0.87
|
0.91
|
|
A Considered to be an
Alternative Performance Measure as defined
below.
|
B 29 February 2024
includes the management fee waiver agreed between the Company and
the Manager following the combination with abrdn New Dawn
Investment Trust plc during the period (see note 13 for further
details).
|
C 29 February 2024 is
calculated on the assumption that the management fee waiver
agreement between the Company and the Manager following the
combination with abrdn New Dawn Investment Trust plc during the
period (see note 13 for further details) is excluded.
|
Chairman's Statement
Significant events during the six
months under review
In my annual statement for the year ended 31
August 2023, I updated shareholders on the progress made in respect
of the proposed combination of the assets of the Company with those
of abrdn New Dawn Investment Trust plc ("New Dawn").
At that time the Company's shareholders had
approved the proposals at the General Meeting held on 25 October
2023 with over 99.9% of votes in favour of all resolutions. This
paved the way for the combination to progress, subject to the
approval of New Dawn's shareholders at its general meeting held on
8 November 2023. With the Scheme duly approved by New Dawn's
shareholders on that date, the Company acquired approximately
£214.7 million of net assets from New Dawn in consideration for the
issue of 52,895,670 new Asia Dragon shares in accordance with the
Scheme.
Furthermore, as anticipated by the proposals, we
were pleased to welcome Nicole Yuen, Donald Workman and Stephen
Souchon, previously directors of New Dawn, to the Board with effect
from 9 November 2023.
The Board and I would like to express our thanks
to the shareholders of both Asia Dragon and New Dawn for approving
the combination by an overwhelming majority and we believe that the
enlarged vehicle will provide further benefits to shareholders,
some of which I highlight below:
· Enhanced
profile and marketability of the enlarged Company;
· Lower
management fee;
· Lower ongoing
charges; and
· Enhanced
liquidity of the Company's shares.
The amendments to the Investment Policy and to
the Articles of Association described in the circular that the
Company asked shareholders to vote upon were also all approved. In
addition, as part of the agreed proposals, the level of any
performance-related conditional tender offer of the Company
(covering the period from 1 September 2021 to 31 August 2026) that
may be triggered, has been reduced in size from up to 25% to up to
15% of the issued share capital of the enlarged Company.
Thereafter, any future five-yearly conditional tender offers
triggered by underperformance would revert back to up to 25% of the
prevailing issued share capital as was set in 2021.
Results
The Company's net asset value ("NAV") rose by
1.5% in sterling total return terms over the period, lagging the
MSCI All-Country Asia ex Japan Index (the "Benchmark"), which
delivered a 3.7% increase. The share price ended the period at
353.0 pence, unchanged from the 31 August 2023 year end, reflecting
a total return of 2.0% with dividends reinvested. The share price
discount to NAV per share tightened marginally to 16.0%.
Market Review
Macro factors, rather than stock fundamentals,
dominated market focus and sentiment over the six months ended 29
February 2024. Initially, the prospect of US interest rates staying
higher for longer and deep concerns over China's property sector
weighed on markets. Subsequently, encouraging news across several
fronts pushed the Asian regional benchmark index to close with
modest gains by the end of the review period. In China, positive
spending and travel data following the Lunar New Year holiday,
together with incremental policy support and intervention to shore
up mainland stock markets, offset concerns over the beleaguered
property sector and a slower-than-expected consumer recovery.
Meanwhile, the US Federal Reserve's policy shift towards rate cuts
in 2024 helped allay concerns over the global growth outlook.
Further support came from solid corporate earnings results,
particularly in the technology sector, with US chipmaker Nvidia's
results indicating that there is real structural momentum behind
artificial intelligence (AI) and the broader technology
sector.
Performance, Portfolio Activity and
Recent Changes
Chinese market exposure remained the biggest
detractor to performance over this interim period. Investor
confidence continued to be very weak with a focus on 'hot' themes
such as AI and state-owned enterprise (SOE) reform instead of stock
fundamentals. The impact on performance was compounded by a
continuation of the market rotation towards value, with a continued
sell-off in quality growth companies also affecting a number of the
Company's holdings, despite them delivering on fundamentals. The
sluggish consumer recovery also led to weakness in the Company's
consumer holdings, including internet group Tencent, insurer AIA
and brewer Budweiser APAC, which in the Manager's view remain
companies with solid underlying operating models. This negative
impact was offset by the positive contributions from the Company's
technology holdings, specifically in the semiconductor and
technology hardware segments such as ASML, ASM International,
Samsung Electronics and Taiwan Semiconductor Manufacturing
Co.
In order to insulate the portfolio from the
near-term headwinds seen in China, the Manager reviewed each of the
Company's Chinese holdings, and sought to resize exposures where
appropriate. As a result, the Manager has scaled back the
portfolio's exposure to the Chinese market materially over the
period, placing an emphasis on earnings visibility and cash flow
generation. While the exposure to China has been scaled back, the
Manager retains high conviction in the holdings that remain and
continues to believe that China remains an attractive investment
proposition for the longer term.
Elsewhere, the Manager also evaluated the
portfolio's exposure to India, where we are seeing several
tailwinds that are helping to sustain attractive earnings growth
and continued solid economic growth. As a result, the Manager has
increased the exposure to India over the period, adding several new
stocks to the portfolio. One such example is Pidilite, a
high-quality consumer and specialty chemicals business, with
exposure to the increasing home improvement theme in India.
The Manager has also introduced some good quality companies in
Australia following the change in Investment Policy.
The Board monitors performance continuously and
closely with the Manager in order to understand the drivers behind
relative performance and actions being taken in the light of that.
Post the Company's combination with New Dawn, the Board discussed
with the Manager at length its concerns regarding the Company's
continuing underperformance against the benchmark. We welcomed the
opportunity to discuss comprehensively the Manager's commitment to
the Company and the changes in investment process being made to
seek to address underperformance.
While adhering to the quality-based investment
approach, the Manager is committed to enhancing aspects of its
investment approach, with a focus on improved portfolio
construction and decision making, including concentrating the
portfolio towards companies where the Manager has greater
conviction. The Manager believes that this, together with enhanced
risk management, should result in better downside resilience while
retaining participation in the upside when growth resumes. The
Manager continues to believe in a number of key structural themes
that will underpin Asia's longer-term growth potential and has
highlighted two of these themes in the Manager's Report -
technology revolution and India. The Manager believes that a
combination of these changes should benefit portfolio performance
over the medium to long-term.
The Manager's Report refers to changes made at
the time of the combination. These include the change in Investment
Policy to give greater geographic flexibility to invest in
Australasia and to invest up to 30% in non-benchmark holdings which
generate more than 50 per cent of their annual turnover or revenue
from the Asia Pacific region excluding Japan. The Manager intends
to take advantage of these flexibilities and has already done
so.
Gearing
The Board continues to believe that the sensible
use of modest gearing should enhance returns to shareholders over
the longer term, making use of one of the benefits of the closed
ended structure. Alongside the increasing opportunities seen in the
market at attractive valuations, the Manager has increased gearing.
The Company has two loan facilities which have been provided by The
Royal Bank of Scotland International Limited; the first is a £25
million fixed rate loan which has been drawn in full and fixed for
two years to July 2024 at an all-in rate of 3.5575% and the second
a £35 million multi-currency revolving credit facility, fully drawn
at the period end, under which the Company had the option to draw a
further £15 million, subject to the lender's credit approval.
Subsequent to the period end, with further investment opportunities
identified by the Manager, the Company obtained bank credit
approval and drew down in Hong Kong dollars £15 million sterling
equivalent on this latter facility, with total borrowings at the
time of writing amounting to £74.9 million representing net gearing
of 10.0%, compared to 5.8% at the end of August 2023.
Discount and Share
Buybacks
The discount level of the Company's shares is
closely monitored by the Board and the Manager and the Company may
buy back shares to improve trading liquidity, reduce discount
volatility and enhance net asset value returns. During the six
months to 29 February 2024, 5.18 million shares were bought back at
a discount for treasury, delivering a 2p accretion to NAV per
share. Since that date, a further 2.2 million shares have been
bought back into treasury. Shares held in treasury can be reissued
at a future date, at a premium to NAV per share, should a suitable
opportunity arise.
Outlook
Asia remains on a resilient footing for the year
ahead. China deserves mention given the challenging period it has
been through. Headwinds remain, but the Manager maintains the view
that there is the potential for further Chinese government policy
support over the short term and continues to be confident of the
country's prospects over the longer run. The other big market,
India, optically looks expensive on near-term valuation multiples,
but, in the context of the longer term structural growth potential,
the Manager continues to see attractive investment opportunities
across a range of sectors including materials, financials and
consumer, supported by significant tailwinds from robust economic
growth.
There are multiple themes that reinforce the
attractiveness of Asia, with growing momentum in the technology
cycle with AI adoption rising rapidly and Asia at the heart of the
global technology supply chain. An increasingly complex
geopolitical landscape is boosting global supply chain
diversification, which is benefiting countries in Southeast Asia.
The Manager's committed focus on quality companies with solid
balance sheets and sustainable earnings prospects should position
the Company to deliver attractive returns for shareholders over the
longer term.
James Will
Chairman
22 April 2024
Investment Manager's Review
Performance
The MSCI AC Asia ex Japan benchmark index rose
by 3.7% over the six months under review, while the Company's net
asset value (NAV) increased by 1.5% in total return terms. China
was the biggest challenge for performance as shown in the
attribution chart on page 7 of the Half Yearly Report for the six
months ended 29 February 2024:
Asia Dragon: Underperformance due
largely to China
Chinese consumer, internet holdings
the key detractors; IT holdings elsewhere mitigate
impact.
Concerns around the Chinese real estate sector,
lacklustre consumer spending and a sluggish macroeconomic
environment dragged down investor confidence towards Chinese
equities (defined here as China, Hong Kong and Macau equity
markets). The retail-dominated mainland market succumbed to risk
aversion, with even quality stocks caught in an indiscriminate, and
in our view excessive, sell-off. Many international investors also
reduced their China risk across the board.
We saw some of our holdings get sold down
aggressively in the market, despite delivering on fundamentals. For
example, AIA Group, the
pan-Asia life insurer that is viewed as a China proxy, reported 33%
growth in value of new business in 2023, but the stock was
nevertheless punished due to the weak macro environment and poor
investor sentiment, highlighting the stark disconnect between stock
fundamentals and share prices.
From a portfolio perspective, we have reduced
our exposure to China over the last six months weeding out stocks
with uncertain near-term earnings visibility. Examples include
JD.com, Tongcheng Travel and WuXi Biologics. On the flip side, where
we view prospects as still solid and valuations attractive, we have
both added to existing holdings and introduced new names. We have
also sought to add to our indirect Chinese exposure, for example
through Australian investment, which is discussed in greater detail
below under the Portfolio Positioning section. Whilst we have
reduced our overall China exposure, China nonetheless remains a
significant driver of returns and risk for the portfolio overall.
This reflects our view that many of our Chinese stocks remain
fundamentally sound, despite the macro headwinds, and are now
trading at substantially discounted valuations. On an
encouraging note, Chinese equities appear to have found slightly
firmer footing going into 2024. This development is underpinned by
robust government support as well as a rebound in consumer activity
and spending around the Lunar New Year period.
Outside of China, the macroeconomic picture has
been far healthier. We continue to uncover attractive opportunities
and are encouraged by the updates from the companies we meet.
Quality companies also appear to be doing better, particularly in
segments such as semiconductor and technology hardware. Our core
holdings here include: ASML, ASM International, Taiwan Semiconductor Manufacturing Co
and Samsung Electronics,
all of which continue to deliver on performance and earnings.
Returns from some of our holdings in India and Southeast Asia also
did well over the review period. They include Power Grid Corporation Of India, online
insurer PB Fintech and
SBI Life Insurance in
India, where the economy is firing on all cylinders. In Southeast
Asia, Philippine property developer Ayala Land was a standout performer,
given the continued strength in its residential and leasing
businesses.
Portfolio Positioning
A "reset" after the merger but
structural growth themes remain unchanged
Following the combination of the Company's
assets with those of abrdn New Dawn Investment Trust plc in
November 2023, we are delighted to be now managing a larger Company
with more liquid shares that has greater flexibility to invest in
Australasia and up to 30% in non-benchmark holdings and with the
benefits that come with greater scale. Overall, the profile will be
enhanced, which should help to generate greater investor interest
in the Company. We are taking advantage of the increased
flexibility to provide differentiated exposures to the Asia growth
story and enhance the Company's future returns. From a risk
standpoint, we are approaching that in a calibrated and cautious
way. For example, there is an opportunity for us to benefit from
China's growth prospects by diversifying into indirect China
exposures, such as Australian mining group BHP which is described in more detail
below.
More broadly, over the longer term, we see the
most attractive opportunities around some key structural themes in
Asia. Rising affluence is spurring growth in premium consumption in
areas including financial services, while urbanisation and an
infrastructure boom is set to benefit property developers and
mortgage providers. Growing technology adoption and integration
means a bright future for plays on gaming, internet, fintech and
tech services like the cloud, with Asia's tech supply chains well
positioned for the rollout of 5G, big data and digital
interconnectivity. In healthcare, Asia is home to some world class
companies in the biotech and medical device technology fields. The
region is also playing a central role in the green transition with
plays on renewable energy, batteries, electric vehicles, related
infrastructure, and environmental management all having a bright
future. We have highlighted two themes in the next section that we
feel have grown in their significance this year from an investment
opportunity perspective.
Portfolio Themes: Two in the
spotlight
1 Technology revolution: Asia well
placed to capitalise on AI boom
Asian tech sector expected to be a
key driver for the region in 2024
Semiconductor cycle turning and rapid
adoption of AI a further catalyst for demand.
You might recall that we restarted our efforts
to build our technology exposure, particularly in technology
hardware and semiconductor, at the beginning of 2023 after
de-risking this substantially in 2022 on rising concerns of a
cyclical downturn for the sector. The decision to add incrementally
to our exposure back then was driven by our view that we had
reached the cyclical bottom. Valuations were looking very
attractive, especially when we look forward to the long term
structural growth opportunities which we thought were not priced in
by the market. What took us, and the broader industry, by surprise
was how rapidly generative artificial intelligence (AI) grew with
its significance increasing as we progressed through the year. This
underpinned our confidence in the pace of the cyclical recovery of
the sector and the overall opportunity size and long term
structural growth prospects this presents from an investment
perspective given Asia is home to the enablers of advanced
technologies.
When it comes to generative AI applications,
ChatGPT is just the tip of the iceberg, and we see Asia as being in
the sweet spot to capitalise on the AI boom. Demand for AI has
accelerated much faster than expected, with Nvidia and the server
and networking supply chain among the winners in this fast-growing
market. Over the longer run, Nvidia has highlighted a big US$1
trillion opportunity in the redesign of the global data centre
architecture. AI, however, is not the only tech story that is
creating waves: technology hardware shipments, including
smartphones, are on the rise, alongside demand for high performance
computing. The Asian semiconductor ecosystem is set to benefit from
these trends, and significant beneficiaries include TSMC, the
world's largest foundry, which is among our core IT
positions.
2 India: Fundamentally compelling
with multi-decade structural growth story
India Macro in the driver's
seat
World's fastest-growing large
economy.
The Indian economy is in the early stages of a
cyclical upswing after a prolonged period of relatively subdued
economic growth. The government is also leading a public capex push
to further support growth, create more jobs, and eventually spur
private capex. India is also one of the most promising consumer
stories globally. It has a large and young population with a
rapidly growing middle class, which makes up about 31% of all
households. This ratio is set to exceed more than 50% in the next
decade.
We believe this is a multi-decade structural
story, which will provide a baseline of support for India for many
years to come. More importantly, India is home to a diverse set of
companies that are well run and well positioned to capture the
growth opportunities highlighted above. It is these high quality
stocks with solid earnings visibility over the medium to long term
that we are invested in. The caveat is that near-term valuation
multiples look quite full, but as a long term investor valuations
are less demanding on a medium term view where we have confidence
in the growth trajectory of our companies.
Australia and Non-Benchmark
Holdings
Taking advantage of the new geographic
flexibility post-merger, 5.5% of the portfolio is now invested in
Australia as at 29 February 2024. The four stocks we hold -
BHP, Cochlear, CSL and Woodside Energy Group - provide us with
exposure to Australia's commodities and healthcare sectors. As the
benchmark for the Company remains the MSCI AC Asia ex Japan Index,
these are all non-benchmark exposures. Whilst Australia and New
Zealand are unlikely to offer the type of growth potential one may
find in Emerging Asia, they are still home to some world-class
companies. These names provide differentiated exposure and factors
that are sometimes hard to access elsewhere in Asia when applying a
quality lens.
Looking at the four stocks more closely,
BHP is a natural resources
group that has a strong suite of assets and diverse earnings
streams, with organic growth opportunities, healthy cash flow and a
solid balance sheet supporting the potential for additional returns
to shareholders. Its core business is in iron ore, making it a
proxy for China and the emerging markets' secular growth story.
Woodside is a high-quality
Australian liquid natural gas operator with its latest results
suggesting a material improvement in the company's balance sheet
and cashflow outlook. Cochlear is the global leader in
hearing implants, such as cochlear, bone conduction and acoustic
implants, to treat hearing loss. CSL is a leader in the global plasma
products market, enjoying superior growth and returns because of
its highly efficient collection and processing system, coupled with
its commitment to research and development.
In addition to these Australian holdings, the
Company is also invested in other non-benchmark holdings in markets
as diverse as Vietnam, the Netherlands and the UK. In essence we
are maximising the opportunity set and seeking out the best quality
proxies for the Asian growth story, wherever they may be
listed.
Other New Holdings
Aside from the addition of the Australian names
mentioned above, we have also been focused on initiating positions
in other quality companies with healthy earnings visibility and
cashflow generation, including the three stocks highlighted below.
These purchases have, in part, been funded by drawing down on
additional debt, although the overall level of gearing on the
Company remains in line with the level seen prior to the
combination with the abrdn New Dawn Investment Trust.
ICICI
Bank is India's second-largest private bank
offering banking and financial services to both corporate and
retail customers. It is also among the leading private players in
both life and non-life businesses. The bank has been delivering
superior growth and returns improvement without compromising on
asset quality. It has leveraged on its scale together with its
retail and digital franchise to expand in mortgages and grow off a
low base in business banking and smaller companies, while its
management gives confidence in articulating its growth
approach.
Pidilite is a
high-quality Indian consumer and speciality chemicals business with
a key niche in adhesives. We like the company for its strong
brands, dominant market position, capable management and robust
balance sheet. All this has enhanced its ability to generate
attractive returns. The Indian adhesives and sealants market is
expected to grow high single-digits over the medium term being
ultimately a play on the home improvement theme and with India in
the early stages of an upcycle in its residential real estate
sector.
Yageo
Corp is Taiwan's leading supplier of passive
components and the world's third largest provider. Passive
components comprise of resistors, capacitors and inductors and are
used by virtually all electronic products across various industries
spanning consumer electronics, automotive, industrial, medical,
aerospace and telecommunications. Yageo's management team have been
executing successfully on its strategy to improve the quality of
the business through astute and bold acquisitions in recent years.
This has enabled Yageo to move away from commoditised products
towards higher-end applications, such as automotive, and to improve
the product mix structure. We view the clarity of strategy and
strength of execution as key competitive strengths. We see its
growth prospects as driven by more cross-selling and the structural
growth of the industry, with demand for passive components rising
in tandem with the need for higher computing power.
Outlook
After a challenging 2023, we are turning
incrementally more positive in our outlook for Asian equities this
year.
In China, sentiment has been far weaker than we
would like, given that the fundamentals of our holdings are intact.
There are still headwinds, especially in the property sector, while
geopolitical risks linger. It is a positive that Beijing signalled
its intent to support the economy at the recent key policymaking
session in March, announcing a reasonably ambitious growth target
of around 5% for 2024. We view China as oversold and we are seeing
value in some quality stocks that have been indiscriminately sold
off despite delivering on growth and earnings.
Meanwhile, we expect a lot more from India.
Earnings growth is running at solid double digits. The direction of
policy and reform looks set to continue with Prime Minister
Narendra Modi likely to be re-elected for a third term in the
upcoming national polls. India, too, is a market of 1.4 billion
people, most of whom are below 35 years old. Such a rich
demographic dividend will see an emerging middle class with rising
affluence, alongside economic growth. Whilst near-term valuation
multiples appear full, the key to taking advantage of India's
promise is careful stock picking and a long term mindset, which
aligns well with how we invest.
Elsewhere, Southeast Asia is often overlooked as
a rich source of quality companies. We continue to regard these
countries as beneficiaries of shifting global supply chains with
supportive government policies and favourable cost structures, and
they also represent a large consumer market of about 700 million
people.
In the Asian technology sector, our stock picks
have been strong. As AI-related apps and chips start to
proliferate, rising demand in terms of usage and complexity will
boost the semiconductor and consumer electronics
segments.
At the portfolio level, the combination with
abrdn New Dawn has broadened the investment universe, which means
that we are now able to invest in quality stocks that we had not
been able to in the past. This potentially offers us further
opportunities to generate alpha.
Taking all the above in aggregate, coupled with
undemanding valuations of Asian equities compared to markets like
the US, we see solid fundamental grounds for corporate earnings
growth and stability to come through. This in turn should translate
into resilient share price performance and returns over the medium
term.
On a personal note, we are both delighted to be
co-Managers of the Company. Having worked together on abrdn's Asian
Equities team for over a decade, we know each other's working style
extremely well and are aligned on how we view quality as the pillar
of our investment philosophy. The occasional differences in our
lines of thinking usually result in rigorous and insightful
discussions that ultimately help us drive better outcomes. We are
also fortunate to be well supported by a 40-strong team across the
Asia Pacific, which allows us to harness first-hand research and
insights generated by our colleagues.
Pruksa Iamthongthong and James
Thom
abrdn (Asia) Limited
22 April 2024
Interim Management Report and Directors' Responsibility
Statement
Principal Risks and
Uncertainties
There are a number of risks which, if realised,
could have a material adverse effect on the Company and its
financial position, performance and prospects. The Board has in
place a robust process to identify, assess and monitor the
principal risks and uncertainties facing the Company and to
identify and evaluate newly emerging risks. A summary of the
principal risks and uncertainties facing the Company is summarised
below under the following headings:
· Investment
Risk
· Operational
Risk
· Governance and
Regulatory Risk
· Major Events
and Geo-Political Risk
· Shareholder and
Stakeholder Risk
Details of these risks and a description of the
mitigating actions which the Company has taken are provided in
detail on pages 19 to 22 of the Annual Report.
In addition to these risks, there are also a
number of international political and economic uncertainties which
could have an impact on the performance of Asian markets and the
Board is monitoring closely the current geo-political risks, market
volatility and uncertainty associated with Russia's invasion of
Ukraine as well as the impact of conflict in the Middle
East.
The Board is also mindful of the risks arising
from emerging environmental, social and governance ("ESG")
challenges and climate change. The Board continues to
monitor, through the Investment Manager, the potential risk that
investee companies may fail to keep pace with ESG and climate
change developments.
In the view of the Board, in all other respects,
the principal risks and uncertainties have not changed materially
during the six months to 29 February 2024. The Board
continues to monitor the risk environment and does not expect the
risks facing the Company to change materially in the second half of
the financial year ending 31 August 2024.
Going Concern
The Directors have undertaken a rigorous review
of the Company's ability to continue as a going concern. The
Company's assets consist substantially of equity shares in
companies listed on recognised stock exchanges and in most
circumstances are realisable within a short timescale.
The Company has a two-year fixed rate loan and a
two year revolving credit facility which both expire in July
2024. The Board has set limits for borrowing and regularly
monitors the Company's covenant compliance and gearing levels and
is satisfied that there is sufficient headroom in place and
flexibility if required. The Board is exploring replacement options
in advance of the expiry of the facilities and, should the Board
decide not to renew the facilities, any outstanding borrowing would
be repaid through the proceeds of equity sales as
required.
The Directors are mindful of the principal risks
and uncertainties disclosed above and, having reviewed forecasts
detailing revenue and liabilities, they believe that the Company
has adequate financial resources to continue its operational
existence for the foreseeable future and for at least twelve months
from the date of this Report. Accordingly, they continue to
adopt the going concern basis of accounting in preparing the
financial statements.
Related Party Disclosures and
Transactions with the Alternative Investment Fund Manager and
Investment Manager
abrdn Fund Managers Limited ("aFML") has been
appointed as the Company's Alternative Investment Fund Manager
("AIFM").
aFML has (with the Company's consent) delegated
certain portfolio and risk management services, and other ancillary
services, to abrdn Investments Limited and abrdn Asia Limited which
are regarded as related parties under the FCA's Listing Rules.
Details of the fees payable to aFML are set out in note 13 to the
condensed financial statements.
Responsibility Statement of the
Directors in respect of the Half-Yearly Financial Report
The FCA's Disclosure Guidance and Transparency
Rules require the Directors to confirm their responsibilities in
relation to the preparation and publication of the Interim
Management Report and Financial Statements.
The Directors confirm to the best of their
knowledge that:
· the condensed
set of financial statements contained within the Half-Yearly
financial report has been prepared in accordance with FRS 104
Interim Financial Reporting and give a true and fair view of the
assets, liabilities, financial position and return of the Company
for the period ended 29 February 2024; and
· the Interim
Management Report, together with the Chairman's Statement includes
a fair review of the information required by:
a) DTR 4.2.7R of the
Disclosure Guidance and Transparency Rules, being an indication of
important events that have occurred during the first six months of
the financial year and their impact on the condensed set of
financial statements; and a description of the principal risks and
uncertainties for the remaining six months of the year;
and
b) DTR 4.2.8R of the
Disclosure Guidance and Transparency Rules, being related party
transactions that have taken place in the first six months of the
current financial year and that have materially affected the
financial position or performance of the Company during that
period; and any changes in the related party transactions described
in the last Annual Report that could do so.
The Half-Yearly Financial Report was approved by
the Board and the above Directors' Responsibility Statement was
signed on its behalf by the Chairman.
For Asia Dragon Trust plc,
James Will
Chairman
22 April 2024
Ten Largest Investments
As at 29 February 2024
Taiwan Semiconductor Manufacturing
Company
|
|
Samsung Electronics
(Pref)
|
As the world's largest pure-play
semiconductor manufacturer, TSMC provides a full range of
integrated foundry services, along with a robust balance sheet and
good cash generation that enables it to keep investing in
cutting-edge technology and innovation.
|
|
One of the global leaders in the
memory chips segment, and a major player in smartphones and display
panels. It has a vertically integrated business model and robust
balance sheet, alongside good free cash flow generation.
|
|
|
|
Tencent Holdings
|
|
AIA Group
|
The internet giant continues to
strengthen its ecosystem and we see great potential in its ability
to balance its multiple revenue streams and monetise its social
media and payment platforms whilst navigating the regulatory
landscape.
|
|
A leading pan-Asian life insurance
company, it is poised to take advantage of Asia's growing
affluence, backed by an effective agency force and a strong balance
sheet.
|
|
|
|
SBI Life Insurance
|
|
HDFC Bank
|
Among the leading Indian life
insurers, SBI Life's competitive edge comes from a wide reach of
SBI branches, highly productive agents, a low cost ratio and a
reputable SBI brand.
|
|
HDFC Bank is known to have the best
retail banking franchise in India, with a high quality wholesale
portfolio, solid underwriting standards and a progressive digital
stance further strengthening its competitive edge.
|
|
|
|
ASML
|
|
ICICI Bank
|
The Dutch company supplies
lithography equipment that enables semiconductor chip makers to
mass produce patterns on silicon, helping to make computer chips
smaller, faster and greener. It earns most of its revenue from
Asia.
|
|
India's ICICI Bank has been
delivering superior growth and returns improvement without
compromising on asset quality. It has leveraged on its scale as
well as retail and digital franchise to grow in mortgages and also
growing off a low base in business banking and
SMEs.
|
|
|
|
Oversea-Chinese Banking
Corporation
|
|
Hong Kong Exchanges &
Clearing
|
A well-managed Singapore bank with a
solid capital base and good cost-to-income ratio. It is diversified
by both geography and service offerings, with interests spanning
Southeast Asia, North Asia, wealth management and
life assurance as well as its core
banking activities.
|
|
The exchange is a good conduit for
investment into and out of China. Its long-term strategic plan to
broaden the product offering and increase revenue opportunities
makes sense and there should be continued improvements to come from
technology in terms of driving innovation and greater
efficiencies.
|
Investment Portfolio
At 29 February
2024
|
|
|
|
|
Total
|
|
|
|
Valuation
|
assets
|
Company
|
Industry
|
Country
|
£'000
|
%
|
Taiwan Semiconductor Manufacturing
Company
|
Semiconductors & Semiconductor
Equipment
|
Taiwan
|
80,116
|
10.8
|
Samsung Electronics
(Pref)
|
Technology Hardware, Storage &
Peripherals
|
South Korea
|
62,819
|
8.5
|
Tencent
|
Interactive Media &
Services
|
China
|
43,249
|
5.8
|
AIA
|
Insurance
|
Hong Kong
|
32,655
|
4.4
|
SBI Life Insurance
|
Insurance
|
India
|
16,859
|
2.3
|
HDFC Bank
|
Banks
|
India
|
16,609
|
2.2
|
ASML
|
Semiconductors & Semiconductor
Equipment
|
Netherlands
|
15,388
|
2.1
|
ICICI Bank
|
Banks
|
India
|
15,200
|
2.0
|
Oversea-Chinese Banking
Corporation
|
Banks
|
Singapore
|
14,748
|
2.0
|
Hong Kong Exchanges &
Clearing
|
Capital Markets
|
Hong Kong
|
14,111
|
1.9
|
Top ten investments
|
|
|
311,754
|
42.0
|
Kweichow Moutai 'A'
|
Beverages
|
China
|
13,904
|
1.9
|
DBS
|
Banks
|
Singapore
|
13,540
|
1.8
|
Bank Central Asia
|
Banks
|
Indonesia
|
12,643
|
1.7
|
Woodside Energy
|
Oil, Gas & Consumable
Fuels
|
Australia
|
12,400
|
1.7
|
Budweiser Brewing Co APAC
|
Beverages
|
Hong Kong
|
12,275
|
1.7
|
Power Grid Corp of India
|
Electric Utilities
|
India
|
12,208
|
1.6
|
Larsen and Toubro
|
Construction &
Engineering
|
India
|
11,778
|
1.6
|
Samsung Biologics
|
Life Sciences Tools &
Services
|
South Korea
|
11,522
|
1.6
|
Chroma ATE
|
Electronic Equipment, Instruments
& Components
|
Taiwan
|
11,375
|
1.5
|
ASM International
|
Semiconductors & Semiconductor
Equipment
|
Netherlands
|
11,340
|
1.5
|
Twenty largest
investments
|
|
|
434,739
|
58.6
|
BHP Group
|
Metals & Mining
|
Australia
|
11,293
|
1.5
|
CSL
|
Biotechnology
|
Australia
|
11,153
|
1.5
|
Ultratech Cement
|
Construction Materials
|
India
|
11,140
|
1.5
|
Sands China
|
Hotels, Restaurants &
Leisure
|
Hong Kong
|
10,849
|
1.5
|
Hindustan Unilever
|
Personal Care Products
|
India
|
9,782
|
1.3
|
ShenZhen Mindray Bio-Medical
Electronics - A
|
Health Care Equipment &
Supplies
|
China
|
9,674
|
1.3
|
Info Edge (India)
|
Interactive Media &
Services
|
India
|
9,292
|
1.2
|
FPT Corp
|
IT Services
|
Vietnam
|
9,052
|
1.2
|
abrdn New India Investment
TrustA
|
Closed End Investments
|
India
|
8,924
|
1.2
|
Delta Electronics
|
Electronic Equipment, Instruments
& Components
|
Taiwan
|
8,706
|
1.2
|
Thirty largest
investments
|
|
|
534,604
|
72.0
|
PB Fintech
|
Insurance
|
India
|
7,919
|
1.1
|
Accton Technology
|
Semiconductors & Semiconductor
Equipment
|
Taiwan
|
7,911
|
1.1
|
Bank of the Philippine
Islands
|
Banks
|
Philippines
|
7,713
|
1.0
|
Yageo
|
Electronic Equipment, Instruments
& Components
|
Taiwan
|
7,606
|
1.0
|
Bank Negara Indonesia
|
Banks
|
Indonesia
|
7,602
|
1.0
|
Nari Technology - A
|
Electrical Equipment
|
China
|
7,510
|
1.0
|
Tata Consultancy Services
|
IT Services
|
India
|
7,456
|
1.0
|
Alibaba Group Holding
|
Broadline Retail
|
China
|
7,301
|
1.0
|
Telekom Indonesia
|
Telecommunication Service
Provider
|
Indonesia
|
7,197
|
1.0
|
HD Korea Shipbuilding & Offshore
Engineering
|
Machinery
|
South Korea
|
7,112
|
1.0
|
Forty largest investments
|
|
|
609,931
|
82.2
|
Godrej Properties
|
Real Estate Management &
Development
|
India
|
7,109
|
1.0
|
Bharti Airtel
|
Telecommunication Service
Provider
|
India
|
6,980
|
0.9
|
Mobile World Investment
Corporation
|
Specialty Retail
|
Vietnam
|
6,611
|
0.9
|
LG Chem
|
Chemicals
|
South Korea
|
6,539
|
0.9
|
China Resources Land
|
Real Estate Management &
Development
|
China
|
6,357
|
0.9
|
Maruti Suzuki India
|
Automobiles
|
India
|
6,326
|
0.9
|
Contemporary Amperex Technology -
A
|
Electrical Equipment
|
China
|
6,287
|
0.8
|
M.P. Evans Group
|
Food Products
|
United Kingdom
|
6,236
|
0.8
|
Yum China Holdings
|
Hotels, Restaurants &
Leisure
|
China
|
6,199
|
0.8
|
China Tourism Group Duty Free
CorpB
|
Speciality Retail
|
China
|
6,174
|
0.8
|
Fifty largest investments
|
|
|
674,749
|
90.9
|
Cochlear
|
Health Care Equipment &
Supplies
|
Australia
|
6,012
|
0.8
|
Silergy Corp
|
Semiconductors & Semiconductor
Equipment
|
Taiwan
|
5,722
|
0.8
|
Aier Eye Hospital Group -
A
|
Health Care Providers &
Services
|
China
|
5,635
|
0.8
|
Pidilite Industries
|
Chemicals
|
India
|
4,691
|
0.6
|
Andes Technology
|
Semiconductors & Semiconductor
Equipment
|
Taiwan
|
4,615
|
0.6
|
Ayala Land
|
Real Estate Management &
Development
|
Philippines
|
4,438
|
0.6
|
Fortis Healthcare
|
Health Care Providers &
Services
|
India
|
4,389
|
0.6
|
Chacha Food - A
|
Food Products
|
China
|
4,190
|
0.6
|
Sungrow Power Supply Co -
A
|
Electrical Equipment
|
China
|
4,113
|
0.6
|
Meituan-Dianping Class B
|
Hotels, Restaurants &
Leisure
|
China
|
3,979
|
0.5
|
Sixty largest investments
|
|
|
722,533
|
97.4
|
Maxscend Microelectronics Company -
A
|
Electronic Equipment, Instruments
& Components
|
China
|
3,900
|
0.5
|
Cisarua Mountain Dairy
|
Food Products
|
Indonesia
|
3,760
|
0.5
|
Shenzhen Inovance Technology -
A
|
Machinery
|
China
|
3,585
|
0.5
|
abrdn Asia
FocusA
|
Closed End Investments
|
Other Asia
|
3,140
|
0.4
|
|
|
|
736,918
|
99.3
|
Net current
assetsC
|
|
|
5,361
|
0.7
|
Total assets less current
liabilitiesC
|
|
|
742,279
|
100.0
|
A Holding also managed by
the abrdn Group but not subject to double charging of management
fees.
|
B Holding includes
investment in both 'A' and 'H' shares.
|
C Excluding bank loan of
£59,521,000
|
Note: Unless otherwise stated,
foreign stock is held and all investments are equity
holdings.
|
Our Investment Manager's Case
Studies
SBI Life Insurance
What does the company do?
Established in 2000 as a joint venture between
Indian public lender, the State Bank of India, and French bank BNP
Paribas' insurance arm, SBI Life is one of the largest private life
insurers in India. The company has an extensive presence across the
country, including in rural and semi-rural areas, comprising over
1,000 offices and a large network of more than 243,000 agents, 74
corporate agents, and 14 bancassurance partners.
Why do we like the
investment?
We see SBI Life as a strong insurance play in
Asia. With a lower average ticket size than peers and backed by a
reputable Indian brand, its affordable premiums help to increase
insurance access to those who would otherwise go without life
protection. Supported by a strong balance sheet, a low cost base, a
productive agency force and an extensive bancassurance distribution
network, SBI Life is able to push into massive unpenetrated areas
of the Indian insurance market. The company has a 27.3% private
market share in individual new policies and a 21.3% share in new
business premiums.
SBI Life's product mix is diverse and improving,
with a focus to increase the share of higher-margin protection and
annuity products. Productivity among agents is also getting better,
with incentives given for the branches that are able to achieve the
fixed number of policies and premiums to be sold for each segment.
In addition, the attrition rate is below that of the average
industry standard due to initiatives undertaken by the company,
including handholding the agents and giving them the necessary
training to succeed.
Overall, the sector is enjoying growth tailwinds
from a low base due to Covid, which has increased awareness on the
need for protection and insurance planning in India and improved
digitisation in both agency and banca channels.
What is our key area of
engagement?
We engaged SBI Life on the implementation and
disclosure of a responsible investment framework and have spoken to
the company about agent retention rates. In 2022, MSCI downgraded
SBI Life's ESG rating from BB to B, with governance weighing on the
headline rating the most. While there are certain issues that are
out of the company's control, some of which are mandated by
regulatory requirements, we impressed upon SBI Life the steps it
can take in other areas to improve its score.
What is the result?
We are pleased to see that the company is
adopting stewardship principles and has a process in place to
analyse, engage, and exercise voting rights for the portfolio
companies. SBI Life understands the importance of better
disclosures. It is in the midst of working with various regulators
to get a better sense of the requirements for the insurance
industry and mapping Global Reporting Initiative (GRI) G4 framework
to its business, which places the concept of materiality at the
heart of sustainability reporting. In FY23, the company issued its
first ESG report that was approved by the board, and in subsequent
discussions, they have expressed intention to do more.
At the same time, we were pleased to hear that
SBI Life is running a 50% lower turnover rate compared to the
industry average due to the various initiatives they have
undertaken, including training and proper
incentivisation.
Yum China
Food for thought: Yum China is one of the
largest restaurant operators in China, running the KFC, Pizza Hut,
East Dawning and Little Sheep chains.
What does the company do?
Yum China is a pure-play Chinese consumer
discretionary company. It is one of the largest restaurant
operators in China, running the KFC, Pizza Hut, East Dawning and
Little Sheep chains. From a single restaurant in 1987, Yum now
operates over 14,000 restaurants in over 2,000 cities and towns
spanning every province and autonomous region across mainland
China.
Why do we like the
investment?
We view Yum China as a solid consumer play. Its
edge comes from branding, scale, consumer know-how and mastery of
the digital channel. The restaurant industry is one with relatively
low barriers to entry, but Yum have built a defensible moat that
has yet to weaken with time.
Yum's efforts to accelerate store openings and
improve returns through better capital efficiency suggest that this
key competitive strength could be improving with scale. Its
management is well seasoned and impressive and has executed well
since the spin-out from Yum Brands in 2016.
The company's strong fundamentals stand out even
more in the current times. Yum is still seeing decent underlying
growth and generating strong cashflows and capital returns to
shareholders despite the overarching weak consumer sentiment in
China. Its free cash flow yield exceeds 4% and its share price is
currently trading cheaply, at more than one standard deviation
below its long-term average price-earnings multiple.
Yum has already announced shareholder returns of
US$1.5 billion in 2024 (US$1.25 billion in share buybacks and
US$250 million in dividends), which represents 8.7% of its current
market cap, as the company sees good value in its own shares after
the previous correction.
What is our key area of
engagement?
We have engaged with Yum consistently through
the years on areas of key material risks, including labour
management, product safety and carbon footprint. Another area would
be executive compensation, specifically with concerns over the
magnitude of variable compensation relative to the fixed component,
although we think management execution has been solid since the
spin-out from Yum Brands.
Condensed Statement of Comprehensive Income
(unaudited)
|
|
Six months ended
|
Six months ended
|
|
|
29
February 2024
|
28
February 2023
|
|
|
Revenue
|
Capital
|
Total
|
Revenue
|
Capital
|
Total
|
|
Note
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
Gains/(losses) on
investments
|
|
-
|
12,907
|
12,907
|
-
|
(44,882)
|
(44,882)
|
Net currency
gains/(losses)
|
|
-
|
375
|
375
|
-
|
(855)
|
(855)
|
Income
|
2
|
3,312
|
-
|
3,312
|
3,218
|
-
|
3,218
|
Investment management fee
|
13
|
(392)
|
(1,175)
|
(1,567)
|
(500)
|
(1,501)
|
(2,001)
|
Administrative expenses
|
|
(624)
|
-
|
(624)
|
(562)
|
-
|
(562)
|
Net return/(loss) before finance
costs and taxation
|
|
2,296
|
12,107
|
14,403
|
2,156
|
(47,238)
|
(45,082)
|
|
|
|
|
|
|
|
|
Interest payable and similar
charges
|
|
(307)
|
(920)
|
(1,227)
|
(263)
|
(791)
|
(1,054)
|
Return/(loss) before
taxation
|
|
1,989
|
11,187
|
13,176
|
1,893
|
(48,029)
|
(46,136)
|
|
|
|
|
|
|
|
|
Taxation
|
3
|
(427)
|
(2,060)
|
(2,487)
|
(369)
|
306
|
(63)
|
Return/(loss) after
taxation
|
|
1,562
|
9,127
|
10,689
|
1,524
|
(47,723)
|
(46,199)
|
|
|
|
|
|
|
|
|
Return per Ordinary share
(pence)
|
4
|
1.08
|
6.30
|
7.38
|
1.29
|
(40.27)
|
(38.98)
|
|
|
|
|
|
|
|
|
The total columns of this statement
represent the profit and loss account of the Company.
|
All revenue and capital items in the
above statement derive from continuing operations.
|
The accompanying notes are an
integral part of the condensed financial statements.
|
Condensed Statement of Financial Position
(unaudited)
|
|
As
at
|
As
at
|
|
|
29
February 2024
|
31 August
2023
|
|
Notes
|
£'000
|
£'000
|
Non-current assets
|
|
|
|
Investments at fair value through
profit or loss
|
|
736,918
|
509,219
|
|
|
|
|
Current assets
|
|
|
|
Debtors and prepayments
|
|
4,740
|
3,114
|
Cash and cash equivalents
|
|
7,757
|
10,942
|
|
|
12,497
|
14,056
|
|
|
|
|
Creditors: amounts falling due
within one year
|
|
|
|
Bank loan
|
10
|
(59,521)
|
(39,992)
|
Other creditors
|
|
(7,136)
|
(2,040)
|
|
|
(66,657)
|
(42,032)
|
Net current liabilities
|
|
(54,160)
|
(27,976)
|
|
|
|
|
Creditors: amounts falling due after
more than one year
|
|
|
|
Deferred tax liability on Indian
capital gains
|
3
|
(3,926)
|
(2,074)
|
|
|
(3,926)
|
(2,074)
|
Net assets
|
|
678,832
|
479,169
|
|
|
|
|
Share capital and
reserves
|
|
|
|
Called-up share capital
|
|
42,501
|
31,922
|
Share premium account
|
|
264,372
|
60,416
|
Capital redemption
reserve
|
|
28,154
|
28,154
|
Capital reserve
|
6
|
308,544
|
317,532
|
Revenue reserve
|
|
35,261
|
41,145
|
Total shareholders' funds
|
|
678,832
|
479,169
|
|
|
|
|
Net asset value per Ordinary share
(pence)
|
7
|
420.43
|
421.26
|
|
|
|
|
The accompanying notes are an
integral part of the condensed financial statements.
|
Condensed Statement of Changes in Equity
(unaudited)
Six months ended 29 February
2024
|
|
|
|
Share
|
Capital
|
|
|
|
|
|
Share
|
premium
|
redemption
|
Capital
|
Revenue
|
|
|
|
capital
|
account
|
reserve
|
reserve
|
reserve
|
Total
|
|
Note
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
Balance at 1 September
2023
|
|
31,922
|
60,416
|
28,154
|
317,532
|
41,145
|
479,169
|
Return after taxation
|
|
-
|
-
|
-
|
9,127
|
1,562
|
10,689
|
Dividend paid
|
8
|
-
|
-
|
-
|
-
|
(7,446)
|
(7,446)
|
Buyback of ordinary shares for
treasury
|
|
-
|
-
|
-
|
(18,115)
|
-
|
(18,115)
|
Issue of shares on
combination
|
14
|
10,579
|
204,150
|
-
|
-
|
-
|
214,729
|
Cost of shares issued in respect of
the combination
|
|
-
|
(194)
|
-
|
-
|
-
|
(194)
|
Balance at 29 February
2024
|
|
42,501
|
264,372
|
28,154
|
308,544
|
35,261
|
678,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended 28 February
2023
|
|
|
|
Share
|
Capital
|
|
|
|
|
|
Share
|
premium
|
redemption
|
Capital
|
Revenue
|
|
|
|
capital
|
account
|
reserve
|
reserve
|
reserve
|
Total
|
|
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
Balance at 1 September
2022
|
|
31,922
|
60,416
|
28,154
|
453,273
|
40,604
|
614,369
|
(Loss)/return after
taxation
|
|
-
|
-
|
-
|
(47,723)
|
1,524
|
(46,199)
|
Dividend paid
|
8
|
-
|
-
|
-
|
-
|
(7,726)
|
(7,726)
|
Buyback of Ordinary shares for
treasury
|
|
-
|
-
|
-
|
(10,490)
|
-
|
(10,490)
|
Balance at 28 February
2023
|
|
31,922
|
60,416
|
28,154
|
395,060
|
34,402
|
549,954
|
|
|
|
|
|
|
|
|
The accompanying notes are an
integral part of the condensed financial statements.
|
Condensed Statement of Cash Flows (unaudited)
|
Six
months ended
|
Six
months ended
|
|
29
February 2024
|
28
February 2023
|
|
£'000
|
£'000
|
Operating activities
|
|
|
Net return before
taxation
|
13,176
|
(46,136)
|
Adjustments for:
|
|
|
(Gains)/losses on
investments
|
(12,907)
|
44,882
|
Currency (gains)/losses
|
(375)
|
855
|
Increase in accrued dividend
income
|
(146)
|
(4)
|
(Increase)/decrease in other
debtors
|
(8)
|
857
|
Decrease in other
creditors
|
(220)
|
(23)
|
Interest payable and similar
charges
|
1,227
|
1,054
|
Overseas withholding tax
|
(127)
|
271
|
Cash from operations
|
620
|
1,756
|
|
|
|
Interest paid
|
(1,153)
|
(1,050)
|
Net cash (outflow)/inflow from
operating activities
|
(533)
|
706
|
|
|
|
Investing activities
|
|
|
Purchases of investments
|
(187,428)
|
(58,759)
|
Sales of investments
|
112,443
|
80,669
|
Capital gains tax on
sales
|
(208)
|
(622)
|
Costs associated with the
combination
|
(800)
|
-
|
Net cash (outflow)/inflow investing
activities
|
(75,993)
|
21,288
|
|
|
|
Financing activities
|
|
|
Equity dividends paid
|
(7,446)
|
(7,726)
|
Buyback of Ordinary
shares
|
(18,091)
|
(10,550)
|
Net cash acquired and received
following the combination
|
79,172
|
-
|
Cost of shares issued in respect of
the combination
|
(194)
|
-
|
Drawdown/(repayment) of bank
loans
|
19,525
|
(5,000)
|
Net cash from/(used in) financing
activities
|
72,966
|
(23,276)
|
Decrease in cash and cash
equivalents
|
(3,560)
|
(1,282)
|
|
|
|
Analysis of changes in cash and cash
equivalents during the period
|
|
|
Opening balance
|
10,942
|
5,094
|
Effect of exchange rate fluctuations
on cash held
|
375
|
(855)
|
Decrease in cash and cash
equivalents as above
|
(3,560)
|
(1,282)
|
Closing balance
|
7,757
|
2,957
|
|
|
|
Represented by:
|
|
|
Money market funds
|
1
|
5
|
Cash and short term
deposits
|
7,756
|
2,952
|
|
7,757
|
2,957
|
Notes to the Financial Statements
As at 29 February 2024
1.
|
Accounting policies
|
|
Basis of preparation. The condensed
financial statements have been prepared in accordance with
Financial Reporting Standard 104 (Interim Financial Reporting) and
with the principles of the Statement of Recommended Practice for
'Financial Statements of Investment Trust Companies and Venture
Capital Trusts'. Given that the Company's portfolio comprises
primarily "Level 1" assets (listed on a recognisable exchange and
realisable within a short timescale), and the Company's relatively
low level of gearing, the Directors believe that adopting a going
concern basis of accounting remains appropriate. The condensed
financial statements have also been prepared on the assumption that
approval as an investment trust will continue to be granted by
HMRC.
|
|
The interim financial statements
have been prepared using the same accounting policies as the
preceding annual financial statements.
|
|
Significant estimates and
judgements. The Directors do not believe
that any accounting estimates or judgements have been applied to
these financial statements that have a significant risk of causing
material adjustment to the carrying amount of assets and
liabilities. However the Directors have made a judgement that the
acquisition of assets and liabilities from abrdn New Dawn
Investment Trust plc outlined in Note 14 does not meet the
definition of a business combination under FRS 102 and accordingly
have not accounted for it as such in these financial
statements.
|
2.
|
Income
|
|
|
|
|
Six
months ended
|
Six
months ended
|
|
|
29
February 2024
|
28
February 2023
|
|
|
£'000
|
£'000
|
|
Income from investments
|
|
|
|
Overseas dividend income
|
3,052
|
3,148
|
|
UK dividend income
|
66
|
-
|
|
|
3,118
|
3,148
|
|
|
|
|
|
Other income
|
|
|
|
Deposit interest
|
159
|
58
|
|
Interest from money market
funds
|
35
|
12
|
|
|
194
|
70
|
|
Total income
|
3,312
|
3,218
|
3.
|
Taxation
|
|
The taxation for the period
represents withholding tax suffered on overseas dividend income and
a movement in provision for Indian Capital Gains
Tax.
|
|
An amount of £427,000 of withholding
tax was suffered in the six months to 29 February 2024 (28 February
2023 - £369,000). The Indian Capital Gains Tax accrual has
increased by £1,852,000 (28 February 2023 - £928,000) since the
year end with a balance outstanding at 29 February 2024 of
£3,926,000 (28 February 2023 - £1,473,000).
|
4.
|
Return per Ordinary share
|
|
|
|
|
Six
months ended
|
Six
months ended
|
|
|
29
February 2024
|
28
February 2023
|
|
|
p
|
p
|
|
Basic
|
|
|
|
Revenue return
|
1.08
|
1.29
|
|
Capital return
|
6.30
|
(40.27)
|
|
Total return
|
7.38
|
(38.98)
|
|
|
|
|
|
The figures above are based on the
following:
|
|
|
|
|
£'000
|
£'000
|
|
Revenue return
|
1,562
|
1,524
|
|
Capital return
|
9,127
|
(47,723)
|
|
Total return
|
10,689
|
(46,199)
|
|
|
|
|
|
Weighted average number of Ordinary
shares in issue
|
144,763,506
|
118,509,837
|
5.
|
Transaction costs
|
|
|
|
During the period expenses were
incurred in acquiring or disposing of investments classified as
fair value through profit or loss. These have been expensed through
capital and are included within gains/(losses) on investments in
the Condensed Statement of Comprehensive Income. The total costs
were as follows:
|
|
|
|
|
|
|
Six
months ended
|
Six
months ended
|
|
|
29
February 2024
|
28
February 2023
|
|
|
£'000
|
£'000
|
|
PurchasesA
|
211
|
78
|
|
Costs associated with the
combinationB
|
816
|
-
|
|
SalesA
|
208
|
162
|
|
|
1,235
|
240
|
|
A Costs associated with
the purchases and sale of portfolio investments in the normal
course of the Company's business comprising stamp duty, financial
transaction taxes and brokerage.
|
|
B Costs associated with
the acquisition of assets from New Dawn, comprising £138,000
relating to stamp duty and financial transaction taxes and £678,000
relating to professional fees.
|
6.
|
Capital reserves
|
|
The capital reserve reflected in the
Condensed Statement of Financial Position at 29 February 2024
includes gains of £101,769,000 (31 August 2023 - £32,413,000) which
relate to the revaluation of investments held at the reporting
date.
|
7.
|
Net asset value per share
|
|
|
|
The net asset value per share and the
net assets attributable to the Ordinary shareholders at the period
end were as follows:
|
|
|
As
at
|
As
at
|
|
|
29
February 2024
|
31 August
2023
|
|
Net assets attributable
(£'000)
|
678,832
|
479,169
|
|
Number of Ordinary shares in
issueA
|
161,460,656
|
113,745,386
|
|
Net asset value per share
(pence)
|
420.43
|
421.26
|
|
A Excluding shares held
in treasury.
|
|
|
8.
|
Dividends
|
|
|
|
|
Six
months ended
|
Six
months ended
|
|
|
29
February 2024
|
28
February 2023
|
|
|
£'000
|
£'000
|
|
2022 final dividend -
6.5p
|
-
|
7,726
|
|
2023 final dividend -
6.6p
|
7,446
|
-
|
|
|
7,446
|
7,726
|
|
|
|
|
|
There will be no interim dividend
for the year to 31 August 2024 (2023 - nil) as the objective of the
Company is long-term capital appreciation.
|
9.
|
Fair value hierarchy
|
|
|
FRS 102 requires an entity to
classify fair value measurements using a fair value hierarchy that
reflects the significance of the inputs used in making the
measurements. The fair value hierarchy has the following
classifications:
|
|
|
Level 1:
unadjusted quoted prices in an active market for identical assets
or liabilities that the entity can access at the measurement
date.
|
|
|
Level 2: inputs other than quoted prices included within Level 1 that
are observable (i.e. developed using market data) for the asset or
liability, either directly or indirectly.
|
|
|
Level 3: inputs are unobservable (i.e. for which market data is
unavailable) for the asset or liability.
|
|
|
All of the Company's investments are
in quoted equities (31 August 2023 - same) which are actively
traded on recognised stock exchanges, with their fair value being
determined by reference to their quoted bid prices at the reporting
date. The total value of the investments as at 29 February 2024 of
£736,918,000 (31 August 2023 - £509,219,000) has therefore been
deemed as Level 1.
|
|
10.
|
Bank loans
|
|
At 29 February 2024, the Company had
a £35 million multicurrency facility with The Royal Bank of
Scotland. This agreement was entered into on 29 July 2022 with a
termination date of 29 July 2024. At the period end, HKD
341,900,000, equivalent to £34,525,000, of this facility had been
drawn down at a rate of 5.5381% which matured on 14 March 2024. An
option to draw down a further £15 million under an accordion
facility was exercised after the period end. At the date of this
Report the Company had drawn down HKD 485,900,000, equivalent to
£49,888,000 at a rate of 5.30964%.
|
|
On 29 July 2022, the Company entered
into a new fixed loan facility agreement of £25,000,000 at an
interest rate of 3.5575% with The Royal Bank of Scotland
International Limited, London Branch, with a termination date of 29
July 2024. The facility has been drawn down in full. The
agreement of this facility incurred an arrangement fee of £18,140
which is being amortised over the life of the loan.
|
|
The agreements contain the following
covenants:
|
|
- the net asset value of the Company
shall not at any time be less than £375 million.
|
|
- consolidated gross borrowings
expressed as a percentage of adjusted portfolio value shall not
exceed 25% at any time.
|
|
- the number of eligible investments
shall not be less than 30 at any time.
|
|
All covenants have been complied
with throughout the period.
|
11.
|
Called-up share capital
|
|
In the six months to 29 February
2024, the Company bought back 5,180,400 (28 February 2023 -
2,485,204) Ordinary shares to be held in treasury, at a total cost
of £18,115,000 (28 February 2023 - £10,490,000).
|
|
During the period 52,895,670 Ordinary
shares were also issued in exchange for £214,729,000 of net assets
from abrdn New Dawn Investment Trust plc (note 14).
|
|
At the end of the period there were
212,507,347 (28 February 2023 - 159,611,677) Ordinary shares in
issue, of which 51,046,691 (28 February 2023 - 42,410,880) were
held in treasury.
|
|
Since the period end a further
2,192,736 Ordinary shares of 20p each have been purchased by the
Company at a total cost of £9,355,000 all of which were held in
treasury.
|
12.
|
Analysis of changes in net
debt
|
|
|
At
|
Currency
|
Cash
|
Non-cash
|
At
|
|
|
31 August
2023
|
differences
|
flows
|
movements
|
29
February 2024
|
|
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
|
Cash and short term
deposits
|
10,942
|
375
|
(3,560)
|
-
|
7,757
|
|
Debt due within one
year
|
(39,992)
|
-
|
(19,525)
|
(4)
|
(59,521)
|
|
|
(29,050)
|
375
|
(23,085)
|
(4)
|
(51,764)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
|
Currency
|
Cash
|
Non-cash
|
At
|
|
|
31 August
2022
|
differences
|
flows
|
movements
|
28
February 2023
|
|
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
|
Cash and short term
deposits
|
5,094
|
(855)
|
(1,282)
|
-
|
2,957
|
|
Debt due within one
year
|
(35,000)
|
-
|
5,000
|
-
|
(30,000)
|
|
Debt due after one
year
|
(24,983)
|
-
|
-
|
(4)
|
(24,987)
|
|
|
(54,889)
|
(855)
|
3,718
|
(4)
|
(52,030)
|
|
|
|
|
|
|
|
|
A statement reconciling the movement
in net funds to the net cash flow has not been presented as there
are no differences from the above analysis.
|
13.
|
Related party transactions and
transactions with the Manager
|
|
The Company has an agreement in place
with abrdn Fund Managers Limited ("aFML" or "Manager") for the
provision of management and administration services, promotional
activities and secretarial services.
|
|
For the period 1 September 2023 to 7
November 2023 the management fee has been calculated at 0.85% per
annum of net assets up to £350 million and 0.50% per annum of net
assets over this threshold. For the period 8 November 2023 to 7 May
2024, there is a management fee waiver in place as a result of the
combination with New Dawn. For this period the fee will be
calculated at 0.509449% of net assets up to £350 million and
0.339633% of net assets over this threshold. After this waiver
period has ended the fee will be calculated at 0.75% per annum of
net assets up to the value of £350 million and 0.50% per annuum of
net assets over this threshold. For the period to 29 February 2024
the value of the management fee waiver was calculated to be
£425,000. Management fees are calculated and payable on a quarterly
basis, and are charged 75% to capital and 25% to revenue. During
the period £1,567,000 (28 February 2023 - £2,001,000) of management
fees were payable to the Manager, with a balance of £721,000 (28
February 2023 - £2,001,000) due to aFML at the period end. Should
the Company terminate the management agreement within three years
of the date of the combination with New Dawn, then the Company
undertakes to repay all or a proportion of the management fees
waived by the Manager based on the time elapsed since completion of
the combination.
|
|
The management agreement is
terminable by the Company on three months' notice or in the event
of a change of control in the ownership of the Manager. The notice
period required to be given by the Manager is six
months.
|
|
At the end of the period the Company
had £1,000 (28 February 2023 - £5,000) invested in Aberdeen
Standard Liquidity Fund (Lux) - Sterling Fund which is managed and
administered by abrdn plc. The Company pays a management fee on the
value of these holdings but no fee is chargeable at the underlying
fund level. The Company also held investments in abrdn New India
Investment Trust PLC of £8,924,000 (28 February 2023 - £nil) and
abrdn Asia Focus of £3,140,000 (28 February 2023 - £nil) which are
managed and administered by abrdn plc. The value of these holdings
is excluded from the management fee calculation.
|
|
Promotional activities costs are
based on current annual amount of £248,000 (28 February 2023 -
£240,000), payable quarterly in arrears. During the period £123,000
(28 February 2023 - £116,000) of fees were payable, with a balance
of £103,000 (28 February 2023 - £99,000) being due at the period
end.
|
14.
|
Transaction with abrdn New Dawn
Investment Trust plc ("New Dawn")
|
|
On 8 November 2023, the Company
announced that it had acquired £214,729,000 of net assets from New
Dawn in consideration for the issue of 52,895,670 new Ordinary
shares based on the respective formula asset values of the two
entities on 2 November 2023.
|
|
|
|
|
Net assets acquired
|
£'000
|
|
Investments
|
135,557
|
|
Cash
|
79,172
|
|
Net assets
|
214,729
|
|
Satisfied by the value of new
Ordinary shares issued
|
214,729
|
|
|
|
|
There were no fair value adjustments
on completion of the combination made to the above figures.
|
15.
|
Segmental information
|
|
The Company is engaged in a single
segment of business, which is to invest in equity securities. All
of the Company's activities are interrelated, and each activity is
dependent on the others. Accordingly, all significant operating
decisions are based on the Company as one segment.
|
16.
|
Half-Yearly Financial
Report
|
|
The financial information contained
in this Half-Yearly Financial Report does not constitute statutory
accounts as defined in Sections 434 - 436 of the Companies Act
2006. The financial information for the six months ended 29
February 2024 and 28 February 2023 has not been audited. The
Company's external auditor, PricewaterhouseCoopers LLP has not
reviewed the financial information for the six months ended 29
February 2024.
|
|
The information for the year ended
31 August 2023 has been extracted from the latest published audited
financial statements which have been filed with the Registrar of
Companies. The report of the auditor on those accounts contained no
qualification or statement under Section 498(2) or (3) of the
Companies Act 2006.
|
17.
|
This Half-Yearly Financial Report
was approved by the Board on 22 April 2024.
|
Alternative Performance Measures
Alternative Performance Measures
("APMs") are numerical measures of the Company's current,
historical or future performance, financial position or cash flows,
other than financial measures defined or specified in the
applicable financial framework. The Company's applicable financial
framework includes FRS 102 and the AIC SORP. The Directors assess
the Company's performance against a range of criteria which are
viewed as particularly relevant for closed-end investment
companies.
|
Discount to net asset value per
Ordinary share
|
The difference between the share
price and the net asset value per Ordinary share expressed as a
percentage of the net asset value per Ordinary share.
|
|
|
|
|
|
|
29
February 2024
|
31 August
2023
|
NAV per Ordinary share
(p)
|
a
|
420.43
|
421.26
|
Share price (p)
|
b
|
353.00
|
353.00
|
Discount
|
(a-b)/a
|
16.0%
|
16.2%
|
|
|
|
|
Net gearing
|
|
|
|
Net gearing measures the total
borrowings less cash and cash equivalents divided by shareholders'
funds, expressed as a percentage. Under AIC reporting guidance cash
and cash equivalents includes net amounts due to and from brokers
at the year end as well as cash and short term deposits.
|
|
|
|
|
|
|
29
February 2024
|
31 August
2023
|
Borrowings (£'000)
|
a
|
59,521
|
39,992
|
Cash (£'000)
|
b
|
7,757
|
10,942
|
Amounts due to brokers
(£'000)
|
c
|
5,415
|
-
|
Amounts due from brokers
(£'000)
|
d
|
3,205
|
1,425
|
Shareholders' funds
(£'000)
|
e
|
678,832
|
479,169
|
Net gearing
|
(a-b+c-d)/e
|
8.0%
|
5.8%
|
|
|
|
|
Ongoing charges
|
|
|
|
The ongoing charges ratio has been
calculated in accordance with guidance issued by the AIC as the
total of investment management fees and administrative expenses and
expressed as a percentage of the average published daily net asset
values with debt at fair value published throughout the year. The
ratio for 29 February 2024 is based on forecast ongoing charges for
the year ending 31 August 2024.
|
|
|
|
|
|
29
February 2024A
|
29
February 2024B
|
31 August
2023
|
Investment management fees
(£'000)
|
3,440
|
4,119
|
3,839
|
Administrative expenses
(£'000)
|
1,231
|
1,231
|
1,056
|
Less: non-recurring
chargesC (£'000)
|
-
|
-
|
(7)
|
Ongoing charges (£'000)
|
4,671
|
5,350
|
4,888
|
Average net assets
(£'000)
|
636,827
|
636,827
|
538,331
|
Ongoing charges ratio (excluding
look-through costs)
|
0.73%
|
0.84%
|
0.91%
|
Look-through
costsD
|
0.03%
|
0.03%
|
-
|
Ongoing charges ratio (including
look-through costs)
|
0.76%
|
0.87%
|
0.91%
|
A Calculated including
the investment management fee waiver agreed between the Company and
the Manager following the combination with abrdn New Dawn
Investment Trust PLC during the period (see note 13 for further
details).
|
B Calculated on the
assumption that the investment management fee waiver agreement
between the Company and the Manager following the combination with
abrdn New Dawn Investment Trust PLC during the period (see note 13
for further details) is excluded.
|
C Comprises legal and
professional fees which are not expected to recur.
|
|
|
|
D Calculated in
accordance with AIC guidance issued in October 2020 to include the
Company's share of costs of holdings in investment companies on a
look-through basis.
|
|
|
|
|
The ongoing charges ratio provided
in the Company's Key Information Document is calculated in line
with the PRIIPs regulations which among other things, includes the
cost of borrowings and transaction costs.
|
|
|
|
|
Total return
|
|
|
|
NAV and share price total returns
show how the NAV and share price has performed over a period of
time in percentage terms, taking into account both capital returns
and dividends paid to shareholders. Share price and NAV total
returns are monitored against open-ended and closed-ended
competitors, and the Benchmark Index, respectively.
|
|
|
|
|
|
|
|
Share
|
Six months ended 29 February
2024
|
|
NAV
|
Price
|
Opening at 1 September
2023
|
a
|
421.26p
|
353.00p
|
Closing at 29 February
2024
|
b
|
420.43p
|
353.00p
|
Price movements
|
c=(b/a)-1
|
-0.2%
|
0.0%
|
Dividend
reinvestmentA
|
d
|
1.7%
|
2.0%
|
Total return
|
c+d
|
+1.5%
|
+2.0%
|
|
|
|
|
|
|
|
Share
|
Year ended 31 August 2023
|
|
NAV
|
Price
|
Opening at 1 September
2022
|
a
|
513.32p
|
446.00p
|
Closing at 31 August 2023
|
b
|
421.26p
|
353.00p
|
Price movements
|
c=(b/a)-1
|
-17.9%
|
-20.9%
|
Dividend
reinvestmentA
|
d
|
1.2%
|
1.4%
|
Total return
|
c+d
|
-16.7%
|
-19.5%
|
A NAV total return
involves investing the net dividend in the NAV of the Company with
debt at fair value on the date on which that dividend goes
ex-dividend. Share price total return involves reinvesting the net
dividend in the share price of the Company on the date on which
that dividend goes ex-dividend.
|
|
|
|
| |
Copies of the Company's Half Yearly Report for
the six months ended 29 February 2024 will be posted to
shareholders in May 2024 and will be available thereafter on the
Company's website: asiadragontrust.co.uk*.
Please note that past performance is not
necessarily a guide to the future and that the value of investments
and the income from them may fall as well as rise and may be
affected by exchange rate movements. Investors may not get
back the amount they originally invested.
* Neither the content of the Company's website
nor the content of any website accessible from hyperlinks on the
Company's website (or any other website) is (or is deemed to be)
incorporated into, or forms (or is deemed to form) part of this
announcement.
abrdn Holdings Limited
Company Secretary
22 April 2024