Yet Another Value Podcast - Michael Fritzell from Asian Century Stocks on T. Hasegawa

Episode Date: May 27, 2022

Michael Fritzell, founder of Asian Century Stocks, goes through his thesis on T. Hasegawa. T. Hasegawa trades at a huge discount to its domestic peers like IFF despite similar or better growth and margins, and Michael thinks some recent changes and shareholder pressure could set the company up to rerate.Michael's T. Hasegawa write up: https://www.asiancenturystocks.com/p/deep-dive-2022-8-t-hasegawa?s=wChapters0:00 Intro2:25 T. Hasegawa overview6:45 Why fragrance and flavors are so sticky9:35 T. Hasegawa's small cost to large value15:25 What is Michael seeing that the market is missing in T. Hasegawa17:30 Are continued lockdowns a risk to the business?19:00 What do you need to believe for T. Hasegawa to continue to grow?20:55 Why will T. Hasegawa realize value from their Chinese investments?22:40 Is T. Hasegawa the classic Japanese value trap?26:45 Are acquisitions a good capital allocation decision here?32:50 T. Hasegawa closing thoughts34:30 What countries does Michael think are most attractive currently?

Today's episode is sponsored by TIGIS. Understanding expert insights is table stakes for investors, and there's no better option than TIGS. I've been using them for almost two years to get up to speed on companies, and they've helped me immensely as an investor. TIGS also recently acquired BAM SEC, which adds a super fast way to access SEC filings and earnings calls and to incorporate financial data into my models. I run a monthly DeepDive series sponsored by TIGS on the blogs. I'll include a link to my cable deep dive in the show notes, and I'd encourage you to follow the link if you're interested in how expert interviews

can help you learn more about a company. Currently, anyone who signs up for Tigis gets free access to BAMSCC as well. So check it out. Hello, and welcome to the Yet Another Value Podcast. I'm your host, Andrew Walker. If you like this podcast, it would mean a lot if you could rate, subscribe, share it with a friend, subscribe wherever you're listening to. with me today. I'm happy to have Michael for Zell. Michael is the founder of Asian century stocks.

Michael, how's it going? Pretty good. Thank you. Thank you so much. Yes. Yes. Yeah, no, thanks for coming on. Let me start this podcast the way I do every podcast. First, a reminder to everyone, nothing on this podcast is investing advice. We're going to be talking about, it's actually larger in the grand scheme of things we normally talk about, but this is an international stock for my domestic listeners, you know, a little bit on the liquid side. everyone should just remember please do your own due diligence consult a financial advisor and then the second a pitch for you the second way i started every podcast a pitch for you my guest you know i'm a happy subscriber it's at asian century stocks it's one of the few asian focused substacks that i personally know of you do great work i'm looking at your pitch for the company we're going to talk about today and actually the funny thing about your substack is the real juice is not in what you write the real juice is in the decks that you put together you put together you put together you put together you put together you put get these great decks that look like they were made by like a multi-billion dollar activist firm on these companies. I'm flipping through right now. It's just really nice. But yeah, anyway, the really enjoy Asian Century. So Asian Century stocks, people should go ahead and check it out. I'll include a link in the show notes. All that out the way, let's talk to the

company we're going to talk about. The company, I think I'm getting this right. It's T. Hasawaga. It's a Japanese stock trades in Japan, obviously. And I'll turn it over to you. What is T. Halsewaga, and why is it so interesting? Sure. Okay, so Tehazagava is one of the top-term flavors and fragrances producer. It's, I think, right number nine in terms of sales volume. It's a direct peer of stocks listed in Europe and the United States in this industry that are highly popular with investors.

But people don't really know about the Japanese market, that there are two companies listed in Japan who do the exact same thing, yet trade at most. that are almost unheard of, I think, in Europe and the United States. So that's what's really attractive about this. And these companies, and especially Hasegava, they are high-quality, very strong barriers to entry. The industry structure is really, you know, oligilistic. So that's really what drew my attention to the stuff. And there's another part of it that's also very interesting.

string with regards to Hasagawa in particular. That's why I wrote about it, is there's an activist angle as well with a UK activist becoming involved last year. And I'll tell you exactly what they see in it. But I guess, first of all, I can introduce you to the business and the industry. So what they do is they have two businesses. One business, just like Kivodong, which is another Western history. peer and IFF, which I guess might be familiar to U.S. investors.

Just the most IFF international flavors and fragrance. This is kind of one of the biggest players, if not the biggest player in the industry. Been a great compounder, trades for 20 times EBITDA, very steady results. People love this business. That's the one when I was researching it. I was kind of thinking as the most direct peer incompetent. So just so everybody knows the exact company we're talking about. Exactly. What makes this industry so attractive? You can obviously see it through the high margins. And the reason that they have the high margins is because the cost of a flavor is minuscule, you know, in relation to the cost of the products. So customers are willing to spend money to make sure that they have the best technology and consistent quality of output as well.

What they're doing is they're creating flavors. They can recreate flavors and create flavors that appeal to customers in specific regions or specific customer segments. And that's not an easy thing to do if it requires R&D. And only a few companies have that. So maybe you actually introduce it in the company itself. It has two major divisions. One is food ingredients.

And that accounts for about 85% of revenues. The other part is fragrances, including perfumes, but also a sense for, for, you know, dishwashing liquid and so on. So those are the two major segments. And I think their customers have traditionally been in Japan. So they have strong relationships with the Japanese customers, specifically dairy companies and beverage producers, but also increasingly now in China and elsewhere, so much that actually 50% of profits are not coming from overseas. So it's not a pure play Japan stock. It also has overseas business, which is growing pretty fast. You talked about, I mean, you talked about

the attractiveness of the industry. And I think what I want to highlight there is the low cost versus the value of it. That is a key part of why they're able to have pricing power at high margins. Like in the 1980s, Coca-Cola, for example, they I think they try to change the recipe for Coca-Cola, and that just flopped completely. People are, they want to have recipes. They don't want the recipes to change too much over time. And that's why relationships tend to be long-term and sticky. You don't change supplier that easily.

It's exactly what you're saying. It sounds so silly, but on the fragrance's side, which is much smaller for them than the flavor side, if you get Tide dishwasher every, you know, you buy a box every month or however frequently you buy Tide dishwasher, when you open it up, you're going to be used to the smell, right? And that smell is generally made by I, I, V, I, F, or T has to go, oh, man, I'm really stumbled over my words here. It's generally made by them, right? And if one day, Tide says, you know what, we want to save some money, we're going to get, we're going to put this up for, we're going to put this up for auction and see who will give us the lowest price. And they switch.

and they get something that doesn't quite smell the same. When you open your box as a loyal consumer has been opened it for 10 years, you're going to say, what the heck is going on? You might not like the smell. You might think that the product is spoiled or something, and you might call them in demand a refund. You might switch new brand. Like, it really introduces a lot of risk.

So it sounds easy like, oh, it's a commodity. Like they're just making some chemicals that don't cost a lot. But it actually, a lot of brand loyalty. This is the magic sauce, right? It costs so little of the product, but it's so critical to the end. end consumers, how they view the product, how they experience the product and everything. And the same with, as you said, Coke's a great example. They changed the flavor profile and people revolved.

I had friends when Coke Zero, like five or seven years ago, they changed the flavor. I had friends who bought like 20 boxes of Coke Zero because they were like, I can't believe they're destroying this formula. You know, like small changes, it doesn't really matter in the grand scheme of things if you were a completely rational human being. But we really latch on to these things. And they're really the most important part of how you experience it. Do you want to add anything there?

Exactly. I mean, that's exactly it. And I'll show you to mention it. If a company were to try to change supplier for specific products, they can't recreate the exact flavor. It just can't. It's not that easy to recreate the flavor. There are many ways that you can create a specific flavor, like the modulation of it. You can add or mask different tones, notes, and enhance others.

also change the texture for different means. It's a very complex thing. And they sit on these recipes and you're not letting them go. So changing the supplier is very difficult. Almost doesn't happen. And that explains why the markets are basically 10% per year, which in Japanese, in the Japanese context, that's pretty good. And for these Givodam and these international companies,

even better, 20% plus. I'm going to ask you a question. But before I do, we're just getting a little bit of feedback on your end if you want to try and reposition your mic or something. So I do have a question. If I'm Coke, if I'm tied, if I'm one of these companies buying a flavor or fragrance from IFF or from Tiazzaqua or anything, like how much is that flavor going to cost when it comes to the end product?

You know, like a can of Coke costs a dollar. How much of the flavor that I'm buying from one of these guys is the cost in there? typically it's below 1% of its own cost of their products and that will be the variable cost so pretty much insignificant i think if you were to reduce costs um if a person would push company want to reduce cost that is not the first thing that you do the first thing is probably uh taking away products that are you know that have lower volumes rationalizing the product portfolio that's some that's i think that would be the first thing you do and then also reduce discounts or reduce the size of the product.

But changing the flavor profile is not something you do. And Tiesuwa, and I believe because I looked, Tiesigawa and IFF and a bunch of these guys, they run about, you know, it's like 40% gross profit, maybe 10% EBIT, 20% EBITDA margins. So those are nice margins. But when you're talking about something that's less than 1% of the cost to a product and it's got that big of an impact on the whole thing, like even if you try, try to farm it out. It's not like the margins are so high you can cut the cost. And even if you've got somebody who would supply it to you basically at cost like, cool, you just cut your cost

from under a penny to under half a penny and you've destroyed the whole flavor of the profile to save 0.5% or less on the gross margin line. Like it just shows how sticky, how critical these things are. And this is why investors tend to love these businesses, right? They're super sticky. They have nice returns, not crazy returns, but nice return, super sticky. As long as consumer demand for things that go in our mouth or that we smell in something, can you grow? Like, they're just going to be a tax on the global economy in the long term. Like, it's great.

Exactly, exactly. And I think the growth of them, you will typically grow with your clients. Like you cross sell them for the products or if they are successful and they are growing, you will grow with them typically. That's how it works. And I should also mention that between those two segments, there's fragrances. and their flavors. Fragrances tend to be a more competitive segment.

For some reason, like perfumes, they tend to be more international. So Calvin Klein perfume might actually be quite similar in the U.S. and Japan, whereas tastes are very much local. So if you have a local advantage in a country like Japan or Malaysia, it would be difficult for international company to just come in. And guess what locals would like in terms of flavors. It's not that easy. like your what you enjoy in terms of flavors is something that you've grown up with for you know for your whole life and you have to understand those nuances and they are different from each market so i think that creates enormous stability for for the whole industry you're 100% correct like you know i'm obviously domestic u.s when i went to japan or when i've been to like you'll just be surprised at some of the flavors of potato chips out there right like the the flavors go so different or even

Within the U.S., you know, I'm from New Orleans, which is in the south, there's one type of seasoning salt that I love to put on basically everything I eat, despite how bad it is for you. But, you know, in the Northeast, there's a different type of seasoning salt that has slightly different taste characteristics. I hate it. I don't put it on anything, but my friends who grew up in the Northeast, that's all they put and they don't really like much. So it just speaks to even within countries, there are regional tastes.

And like, you know, I was using Coke, which is obviously a global thing. But the real power is probably where you get these little regional producers and you're the person who's making their specific flavor and you're locked in. And with Coke, yeah, there would probably be some competition if somebody could steal that flavor just because it's so big. But if it's the person who makes the dominant potato chip brand in like the northeast of the U.S., it's probably not even the worth the research budget to try and go outs them. And I think it's often the case as well that these companies, they have specific niches. that they dominate. And with the grocery Pasigava,

I think that they are for some reasons strongly in teas and instant noodles and like snacks in these specific regions. Why I am not

completely sure but we seem to have certain niches. And one like breakthrough that they had in the recent year is that

they're not able to produce natural vanilla which is the key component of vanilla. without the use of miller beans, which saves costs as well. So if you're able to use synthetic means to produce flavors that people appreciate at a lower cost,

that can also provide an advantage for those who have the technology. And this is the only company in the world who can do this. You just mentioned instant noodles, and I was laughing when I looked at their, you've got the Japanese flavor market, and about 10% of it is instant noodles. And I was laughing because, you know, again, domestic U.S. focus, I can guarantee that 10% of the U.S. market is not domestic instant noodles. Now, 32% of the Japanese market is beverages, 25% dairy, 13% sweet and savory snacks.

I would guess Sweden savory snacks might be a little bit higher in the domestic market. But, yeah, I just thought that was interesting. So that's a nice industry overview. Let's turn to the specifics, right? I guess the first question I always asked, and we just did the industry overview, but this will blend nicely. Look, we described by this is a nice industry. I could go invest in IFF, right, international fragrance. I can go invest in one of these other guys.

T. Oswaga is trading a cheap multiple. I know that we can get into that later, but I guess my question to you is, the market is a competitive place. Why is investing in T. Hasawaga right now? Why is that going to generate kind of a risk-adjusted alpha return versus going to buy an IFFF, or going buying any of the thousands of other stocks in the world? Well, you know, I'm restricted with the universal regulation in terms of giving a forward, you know, like making a prediction about the share price. So I'm not going to go there.

But in terms of the positives and negatives about the stock, I can talk about that. And I think the stability of the business is just extraordinary. I don't think anything major is going to change. risk you're really taking on here is that the pandemic will last slightly longer, things like that. There's nothing really major that I'm worried about. So that's what you're, that's those are the risks. But then in terms of growth, I think growth is fairly low. You're talking about 5% is the guidance. The Japanese market isn't growing much at all, perhaps a few percent. But the Chinese market, double digits, Southeast Asia, double digits as well.

And they're now making the expansion into the U.S. as well. It just increased capacity in 2020 by about almost 50%. So they are making clever things in terms of growth. It's not because the industry is growing, but there's growth in terms of the most profitable business, the Chinese one, that has twice the margins of the overall business. and that's going very fast, you know, overall. So that's driving growth. But then, of course, you also have multiple,

and that's going to provide some upside, if you believe that it would reach. Let's talk multiple in a second, because I agree that's the most sexy part of the story, but you just mentioned two things I want to drill on a little bit. First is you mentioned the big risk is COVID goes on longer than we think. And look, the big risk to my mental health is that COVID goes on longer, or we have lockdowns because of monkey box, which I don't think you're coming. But like, I hear you.

There's a risk from COVID. But these guys have grown nicely through the pandemic. And yes, like a lot of their stuff might go into things that you eat or drink at a restaurant. But the counter is a lot of their stuff also goes into the bag of chips that you get at the grocery store or the stuff you drink at home. Like they're growing nicely, all this sort of stuff. So why is COVID extending a real risk to this business? It isn't so much. I think the management team has said that they lost, you know, lost a small portion of it. And the reason is the beverages are not consumed as much at home. So if people don't go to the office, they don't consume as many ready to make drinks, for example.

But then again, just like you said, there are flavors in all types of food. And it's really about processed food. So as long as people continue to consume processed food, or as long as there is a trend towards the consumption of, you know, more healthy food, that's what they do, what they try to do is they replace sugar, other flavors that taste a bit similar to sugar or salt or or something else. So in many ways, in many ways it is a bet on will people consume. And people think processed food and they think they think chips and coax and all this sort of stuff, which, you know, that is what they make. But it's anything that has additives in it, right? That is what the bet is. If you think that's flat going forward, then they'll probably be about flat growth. If you think that continues to grow, then they're going to continue to grow.

They're basically tax on that. And if you think the world reverts to, hey, we only eat meat that we kill with our hands and everybody's going to eat nothing but vegetables and like organic meat. well, there's not really a place for their products in that type of world. Exactly. I mean, so it sounds like it's kind of a double-edged sword, the fact that people are getting more just about health. Frankly, if people consume more processed food, that would be perfect for these flavors and fragrances companies

because processed food is where they use these types of flavors. But like I said, there's also this trend towards, away from sugar and away from salt. And this could also, you know, ironically actually lead to more artificial flavors. I mean, more artificial substances in food. So I mean, that's what's driving growth, I think, in Japan and in Western markets, where people are trying to eat more healthily, whereas growth in China and Southeast Asia, that's more about high consumption of processed food, including going to restaurants.

Let me ask you about China now. So you mentioned that China has much higher margins than the rest of the business, and it's growing much faster, which I get, but as a domestic investor, like I've seen all these companies invests in China. And like the pot of gold at the end of the rainbow for China just generally hasn't been there. It's generally been, oh, all my IP got stolen by a local Chinese company. Oh, the margins got competed away into infinity and we got taxed and everything. So why is China, how much of their sales and profits are from China?

And why is China this pot of gold for them? So sales to China is about 15 to 20%. And I think the share of operating profit from China is about 30%. So you can see that the margins are much higher than the average. And they are really, I think they rely on certain customers. They mention two Taiwanese customers, one of which I believe is a new precedent, who's been extremely successful in China, in terms of their reach. They produce primarily beverages, teas and so on, as well as insomones.

And the other, I'm not sure which the other Taiwanese company is, But for some reason, they have been successful. They are kind of regarded as domestic. And the UNI president in particular is receiving significant subsidies from the Chinese government. So I don't think there's any real issue there with their relationship with the Chinese government or their ability to make any profit. In fact, I think they're doing just fine for some reason. I mean, perhaps that will change.

But, yeah, I'm not seeing any signs on that, actually. They're doing pretty well up until the challenge zero COVID policy. But that's more of a short-term issue. Yep. Let me ask the other question. So I think this is the reason you got interested in them, the reason you wrote them up. AVI sent AVI, which is a value fund, a little bit of an active fund,

sent a letter to Tiazwaga that basically said, hey, you guys trade for about 10x forward EBDA, your peer trade for about 20x forward EBDA, you know, your business, if you look at all the metrics, margins, return on equity, not for a reason we'll talk about, but margins, return to invest in capital. Like, it's pretty much the same as all of your peers. You're in the same business. It's got the same trends. You guys are trading for half the multiple.

You need to do something to fix this. And, you know, anyone who's invested in Japanese stocks before are probably aware of some of the reasons that Japanese stocks tend to trade under value. You know, the Tiazwaga very much in line with this, 25% of their market cap or so is in crossholdings, cash investments, which really drags down your return on equity, right? That's why I said return in equity, not quite there, even though everything else is. So they've got a lot of cash on the balance sheet, but that's opportunity. So just want to toss it over you. This is trading for half the multiple peers. Why is it trading for half the multiple peers? And what do you think the solution is to kind of get it towards where peers trade? Exactly. I mean, that's the key question. And I think in the past, they've had the issue of slow growth, frankly, top line growth has no double digits, no single digits. That's weak even for Japan. I think part of the reason is that the management team has been extremely conservative.

They haven't gone after new customers or trying to find solutions to, you know, to problems that are out there. or being particularly proactive in finding new customers. So that is the issue. That has been the issue. And I think another reason is that the cash has been on the balance sheet and they haven't done anything with the cash or the cost holdings that they have. And in fact, it's about a hundred billion yen market cap. the net cash about $20 billion, but the crossholdings and the treasury shares are another $20 billion.

So they're actually looking at 40% of the market cap, if you include all these crossholdings that they have. Essentially, shareholdings in listed equities, primarily Japanese equities. But that's all changing now. At least that seemed to be the case. So in 2017, the company had a new CEO called Takao Omino, and he is, I think, his approach has been different. He's a professional manager. He has a Harvard MBA. Prior to become a CEO, he ran the Chinese business, which was highly successful, you know, the most successful of any of the company's businesses.

And since he became CEO in 2017, we've done a number of. acquisitions, including the acquisition of mission, flavor, and fragrances in the United States. And that was done at a P-Ratio, adjusted basis of about 13 times, which is just amazing. Fantastic acquisition. Otherwise, I mean, they've also, they repurchased shares, 1 million shares in March 2020, at, frankly, a good time. That was right when the market slumped. So that happened actually before ABI became involved.

And since then, AVI, they sent a letter to the management team saying, complaining basically, that the past decade was quite weak. And they've been grown slower. And they gave a few suggestions, one of which was to revamp the leadership or revamp the sales organization together in a new customer. Let me push back on two things there. Number one is the acquisition, right? And I'm with you. They did this acquisition. I think you had in your thing, hey, they acquired it for a low teens multiple. And one of the reasons they acquired it was because the finances were looked not great because the founder and CEO was paying himself like basically all the profits and a salary. So you had to adjust for that. But they acquired for low teams multiple. And I'm with you. And we already said IFF trades for 20x. You can buy something in this business for the low teams. That's probably pretty good. And I don't think aside from cutting the founder salary, I don't think that included any of the other synergies, right? So that looks very nice. But again, this is a business. They paid 13 times to buy something, and they're trading at 10 times. So why am I looking at this acquisition and saying, this is good capital allocation

versus this is shading capital allocation versus buying back your own shares? You're right. I mean, I think in my experience in Japan, you're not going to get completely irrational capital location. Like, that's just not going to happen. It almost never happens that they would repurchase, you know, 40 billion worth of stock. It's just not going to happen. But just a step in the right direction. We'll close the discount a little bit.

At least that's what AVI is hoping for. And I think that's probably reasonable. They did, after ADI became involved in March 2021, they did repurched stock again, 400,000 shares in May 2021. So, I mean, that's still fairly modest, which is the shares of standing. I think it's 45 million or something like that. But still, I mean, these are small steps in the right direction. I think the, obviously, what they should do is sell their crossholdings fast. I think at the current rate, they're selling about half a billion per quarter. So that's $2 billion per year. They have 18 billion in crossholdings, so it's going to take a long time before they devised it all.

Yeah. So, yeah, absolutely. I agree with you. I mean, I would have liked to see much more, you know, much more aggressive measures in terms of buying back stock. But it's, yeah, we'll see. There's also another thing that I should mention. You know, the company was founded by family and by one person in 1903. And it's been run by the family.

And the last of the family resigned in December 2021, six months ago. So it's only been professionally run for six months. Yep. You know, he was a chairman, the nephew of the founder. So it's possible. It's highly possible, but it will be more receptive to change. I think in these family companies, a lot of times when you offer them suggestions, they will not listen to you.

And perhaps with a professional manager who's Harvard educated, perhaps he'll be more receptive to these modern ideas about. Yeah. Look, I'm with you. Like, it all lines up. But at the same times, I'm sure every domestic investor, every U.S. domestic investor has had the experience of going to Japan, looking, seeing a company, being like, oh, net cash, trading for half their peers.

And then so let's go buy it. and something good will happen. And then five years later, they look. And like, the nice thing is you're not going to get, you're probably not going to get killed, right? They've got net cash. It's a really stable business. This isn't the thing that goes zero. But you go back and you look in five years later, you're like, oh, cool.

Like I made 3% annualized returns because the company kept saying, yes, we're going to do something good. And they just kind of, they never get rid of the cash holdings. They never really buy back shares aggressively. The cash just keeps building up and you clip a little dividend and the multiple stays flat. And after five years, like, I'm still in the same boat. It still looks just as undervalued. And it's still just as longest log to unlocking things. I agree with you.

I mean, that's typically the way it plays out, to be honest. There are a few exceptions as well. But I think they're rare, few or far between. Let's see. I mean, if you ask me personally, like the way I'm investing, I'm looking for it symmetries. And here, it seems like one of those situations. It's not just any company that's poorly around and has a lot of cash.

This is actually a reasonably decent company. So I think you could, you could plausibly have this, you know, trade a little high multiple. All it takes is just more deep high dividends or higher buybacks. And the nice thing here is like it is a business league. This is a company that's going to grow. it looks like they're going to grow 5% for the next few years. Like you can see all the reasons why they should, 5% is a little above global GDP.

You can see all the reasons why it should grow a little bit above global GDP. So it's not like, you know, I've seen a lot of these Japanese companies. Now, some of them trade with a lot more net cash on the balance sheet. But, you know, you go buy them and you're basically like, hey, this is a declining business. So I'm just kind of milking the free cash flow while it declines. And that gets really bad when the company doesn't return the cash flow to shareholders. Whereas here, they do pay. a little dividend. They had done a little bit of share buybacks. But, you know, if in five years you

and I are doing this podcast again, we're probably talking about a company whose sales are 20% higher and because sales are 20% higher, earnings are 25% higher. And that does tend to, that gives just like a little more of the time and earnings on your side as an investor. Yeah. The biggest risk, of course, just like you say, I agree with you. The biggest risk is that your cash will be basically not complying on a very rapid race. Well, hey, Michael, anything else you want to, anything on this, you think we didn't hit hard enough, or you kind of wish we had hit harder, or you wish we had hit that we didn't hit? I think we, you know, I think we pretty much covered it.

There are a few other things that are, you know, potentially positive. One thing is that the, they built expansion to the U.S. operations with the second plan, in Roundtrak Kokamauga, and that would increase capacity about 50% from February this year. And that's something new, you know. U.S., I think, represents about 15% of revenues. It hasn't been all that profitable yet to the U.S. operations, but let's see. I mean, that is a main capitalist, I think. We spoke about selling down crossholdings.

They have about 140 million or so. in crossholdings. That's a catalyst. Then I think something new for the last two months is that the yen has dropped from 115 to 128. And that's also going to be positive, certainly for exporters. So if you're able to buy a 10% lower rate as an American investor, that's just, you know, that's just an added bonus.

I wouldn't say that the margins are necessarily going to go up. Because unlike some other exporters, their costs are also matched to the revenue. But certainly, you are getting a discount versus otherwise. All makes sense. Hey, I know you cover a lot of different Asian companies, Asian countries right now, just throwing you on the spot. What do you think if an investor today was like, hey, I want to start diving into some Asian countries, just countries in general. what do you think the most attractive kind of country for them to start would be? I think the easiest place to look is Indonesia.

And I'm involved in a number of consumer stocks, which have been hits to some extent by COVID. I mean, the Indonesian economy has been hit hard by COVID because there were no budget differences or anything like that. They took it in stride and the economy suffered, you know, through a deep recession. And they're now coming out of it, basically. And meanwhile, the economy is doing very well. The trade surplus is at a record high because it has its portion to commodities. So Indonesia, you know, that's what I look.

It just does not make sense to me that these consumer companies, like chocolate producer, would trade up single digit P multiple with cash. It just doesn't make any sense to me. So that's, Indonesia is one country that I would look for. The other one is probably, potentially, you know, Malaysia is. another country. Currency is really cheap. It's also benefiting from commodity prices going up. And then exports in Japan or COVID-19, you know, recovery stocks because, yeah, I mean, that's true for the whole region. COVID-19 is becoming less of an issue for the region.

Our recovery is much later than yours. But tourism is not coming back. And, you know, normal consumption patterns, transport, restaurants and everything is really, booming. So Japan and Indonesia are two markets that I would look for. And I know tourism is coming back because I told you before the podcast started, my wife and I are looking to, to finally, we, honeymooned in Vietnam and we've been wanting to go, but it's been close to tourists because of COVID. And it's opening up. And we're finally like, hey, let's go visit Michael out in Singapore. Let's fly to Singapore, hop over to Vietnam. And we're really looking forward to that. But hey, I've got to wrap it up.

here. I've got a little puppy emergency I've got to take care of. But Michael, thank you so much for coming on the podcast. This is great. Looking forward to having you on again for maybe we'll talk Indonesia next time. Maybe we're talking Malaysia. But everyone should check out Asian Century Stocks and we will go from there. Thanks again, Michael.