Think Big Oil, and the likes of Exxon Mobil (XOM), Chevron (CVX), and BP (BP) usually spring to mind. Yet Asian companies such as PetroChina (PTR), India's Oil & Natural Gas, and PTT of Thailand may well break into the global energy aristocracy in the future.
True, all three are enjoying windfall profits thanks to $60-to-$70-plus oil prices over the past year. Yet their real edge is that they operate in some of the fastest-growing economies on the planet—and in a region with a ravenous appetite for oil and natural gas.
These Asia energy champs have impressed global investors with their forward thinking. They are using their cash hoards to buy or explore for new oil and gas assets at home and in far-flung locales ranging from Oman to Venezuela.
PetroChina has delivered three-year shareholder returns of nearly 250% to investors who grasped this fact early on, including fabled stock-picker Warren Buffett. The billionaire investor started buying shares in the Chinese company back in 2003 and now holds a 3% stake valued at more than $5.8 billion.
PetroChina's shares traded in Hong Kong are up nearly 40% this year. The mainland's biggest energy exploration and production outfit saw net profits soar 29.4%, to more than $10 billion, in the first half of 2006, on $40.8 billion in revenues. It has oil and gas assets in Kazakhstan, Algeria, Oman, and Niger, but what really jazzed investors were PetroChina's gas discoveries at home last year in the Songliao Basin in the northeast and the Sichuan Basin in the western province of Sichuan.
These discoveries helped boost production by 30.8% over the same period in 2005. Oil production increased 6.8%—well above the company's 5% target. "Management said they would do something and they delivered," says David Hurd, managing director and head of Asian oil & gas research, Deutsche Bank.
That kind of execution, share performance, and laser focus on future growth landed PetroChina at the top of BusinessWeek's second annual ranking of Asia's best-performing publicly listed companies. An additional six of the region's oil, gas, and energy-related companies made it onto BW's Asia 50 for much the same reasons. India's Oil & Natural Gas (No. 33), which nailed a one-year total shareholder return of 28.6%, on Sept. 10 won permission to drill for crude in Cuba.
Meanwhile, CEO Prasert Bunsumpun has transformed Thailand's state-controlled oil, gas, and chemicals concern PTT (No. 20). Now an integrated global player with operations in Iran, Burma, and Vietnam, it is one of the region's biggest refiners.
Its $17 billion market capitalization makes it the biggest company on the Bangkok Stock Exchange. "High oil prices and strong economic growth are just one part of our story," says Prasert. "Over the past three years, we have been able to reengineer the company, make opportunistic acquisitions, and put new growth drivers in place." PTT now benchmarks itself against the global giants.
Asia high tech—consumer electronics makers, telcos, and information technology outsourcing players—dominates this year's list as an industry, occupying more than 10 of the 50 slots.
One standout, and No. 4 on our list, is Taiwan's High Tech Computer (HTCCY). The world's biggest maker of Windows-run smart phones for such operators as Cingular, Sprint Nextel (S), and Vodafone (VOD) earned mouth-watering shareholder returns of nearly 1,300% over the past three years. Under CEO Peter Chou, it is now promoting a brand of its own after buying Taiwan's Dopod, which sells smart phones and wireless personal digital assistants in Asia.
But HTC's main focus remains contract manufacturing. "Our priority is doing business with our operators," says Chou.
Getting into the BusinessWeek 50 winner's circle is no cakewalk. Our ranking is drawn from the Standard & Poor's/Citigroup/Pan Asia Index, made up of major companies listed on established regional exchanges. (S&P, like BusinessWeek, is owned by The McGraw-Hill Companies (MHP).) Some 625 companies met our criteria. We then ranked them using a combination of financial measures for earnings and sales growth, plus return on assets and other benchmarks. Companies are evaluated over both one- and three-year time frames.
Japan's economic revival is a theme that clearly comes through in this year's list. Fifteen Japanese companies are heavily represented in three major industry groups—finance, steel, and construction and engineering—that did well in 2005.
Thanks to Japan's recovery and the huge rebound in the Nikkei last year, Daiwa Securities (No. 5) posted its best profit performance since 1990. Earnings surged 166%, to $1.2 billion, in the fiscal year that ended in March, 2006.
Daiwa has moved aggressively into online stock trading and has built up a sizable asset-management business catering to wealthy Japanese baby boomers who are interested in investing now that Japan's deflationary spiral of falling stock and property prices has abated. "We have been suffering for 15 years," says Daiwa CFO Nobuyuki Iwamoto. "But everybody feels the deflationary days are almost over, and they have to do something with their money."
Meanwhile, Tokyo megabank, and No. 12 on this year's list, Mitsubishi UFJ Financial Group (MTU), which is making stellar profits at home, has built up its international presence by taking stakes in Bank of China and is exploring a possible investment in Indonesia's Bank Nusantara Parahyangan.
One big surprise this year: The number of Indian companies that made it into the BW 50 doubled from 2005. The success of big IT outsourcers such as Infosys (No. 23) is well known. But the arrival of wireless telco Bharti Airtel at No. 13 may come as a surprise to some.
The Indian telecom market, once a backwater, is now the world's fastest-growing after China's. The number of fixed and wireless telephone connections has doubled in the past two years, to about 150 million, and Indians are signing up for an extraordinary 5 million new wireless connections a month.
Bharti Airtel's CEO, Sunil Bharti Mittal, has built it up into India's largest mobile operator. It has nearly 26 million subscribers, or about 22% of the market, and is adding new ones at the rate of 1 million a month.
The company will spend $2 billion on network expansions and marketing to reach underserved markets in rural areas. That's serious money—and a step toward Mittal's broader ambition "to be the most admired brand in India by 2010." Investors already like what they see. Bharti Airtel delivered 30% total shareholder returns in 2005, and a head-turning 493% over the last three years.
The explosive growth of mobile telephony in the Middle Kingdom has also powered an enormous earnings surge at China Mobile (CHL), which leapt from No. 41 on the BW 50 last year to No. 9. With 265 million subscribers globally and a 75% share of the mainland market, China Mobile is the world's biggest cellular service provider.
CEO Wang Jianzhou has plenty of cash and is eager to use China Mobile's expertise operating in tough terrain to set up wireless networks in emerging markets. Although he made unsuccessful bids for Pakistan Telecom and Luxembourg-based Millicom, he's unlikely to stop there.
Producers and suppliers of raw materials and commodity products such as steel (five steelmakers are represented this year) are also a big component of the BW 50. Japan's second-biggest steelmaker, JFE Holdings (No. 16), forged record earnings last year by shaving costs and focusing on customers who use higher-margin specialty steel to make ships, cars, and telecom hardware. The big challenge for JFE CEO Fumio Sudo is working off a considerable debt load and, frankly, staying independent in a rapidly consolidating industry.
But to make—and stay on—the BW 50, companies must prove their worth even in the face of economic uncertainty. The upsurge in energy prices won't last forever, and oil prices are already showing signs of moderating.
There are worries that China may overheat and then contract, a scenario that would hit virtually every major market in Asia and plenty of companies on this year's list. Ditto for a slowdown in the U.S., the most critical export destination for Japan, China, and others in the region.
Yet examine this list closely, and you'll see that the very best performers in Asia have more than held their own in earnings, shareholder returns, and enlightened management with their peers in Europe and the U.S. They may come from widely varying industries, each with its own unique challenges. What unites these companies is a killer competitive instinct to succeed.