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Civetta Capital's investment goal is to generate significant returns over the long-term through the application of the following four key mutually inclusive investment principles:

Low valuation measured through various financial ratios.
Secular growth and stock-specific competitive advantages that provide catalysts to unlock value.
Trustworthy and competent management.
Diversification.

Our stock exit process is again built around three key investment strategies:

High valuation
Concentration
Change of view

We think approximately 20 core positions at a time provide an adequate degree of diversification. It also allows us to focus on ideas that we know very well and believe have highly favourable risk/reward characteristics.

Low absolute valuation multiples
We invested in Panin Financial (PNLF IJ), a company we have followed since the late 1990s and made our initial purchase in Dec-13, for the following reasons. PNLF trades on less than 5x 2014F earnings with the value of its 46% stake in Panin Bank worth more PNLF’s market capitalization. Panin Life is the 11th largest player in Indonesia’s life insurance market that is growing strongly from a low base/rising middle class whilst its market share likely increases significantly with the entry of Japan’s Dai-ichi Life as a 40% shareholder in 2013. The Panin group’s reputation in Indonesia is reasonable having aligned itself with reputable strategic investors such as ANZ and Dai-ichi.

Low relative valuation multiples
We invested in Century Property Group (CPG PM), a company we have followed since mid-2013 (having followed the sector since 2006) and made our initial purchase shortly after, for the following reasons. CPG trades on less than 5x 2014F earnings versus 17x for the overall market. CPG is the leading player in the high end space with a rising level of recurring income. Management is competent because they have been in the business for 30 years.

Low valuations compared with growth and profitability
We invested in Sarine Technologies (SARIN SP), a company we have followed since early 2012 and made our initial purchase in mid-2012, for the following reasons. Sarine is the global leader in diamond technology industry with a dominant market share of 75%. Management has built an extremely profitable business model. Whilst it trades on a relatively high 17x earnings (when we bought it the PER multiple was single digit), valuations remain below the expected rate of growth (CAGR of 30% through 2016F) with an ROE of >50% and (substantial) net cash on its balance sheet.

Urbanization
Indonesia’s urban population has doubled since 1985 (to 52%) increasing the demand for residential property and shopping malls. We invested in Pakuwon Jati (PWON IJ), a company we have followed since early 2013 (having followed the sector since early 2011) and made our initial purchase in early 2013, for the following reasons. PWON trades on 12x 2014F earnings or half that of Thailand’s leading mall operator, Central Pattana (CPN TB). PWON is the largest mall operator in Indonesia as well as being a leading commercial and residential owner/developer. Management is competent because they have been in the business for over 30 years (having been the first mover in retail malls in Indonesia).

Upgrade to 4G technology in China
China announced in Dec-13 that it was awarding 4G licenses to three operators (a decision which was talked about for a couple of years but subsequently delayed). We invested in Tongda Group Holdings (698 HK), a company we have followed since Aug-13 and made our initial purchase in Oct-13, for the following reasons. It trades on less than 8x 2014F earnings (less than 5x when we looked at it) with the key catalyst being the potentially explosive 4G growth in China (we estimate earnings growth (CAGR) of 30%+ through 2016F). Tongda is the leading Chinese producer of plastic antenna casings for mobile phone handsets highlighted by its recently-announced alliance with leading-producer, Xiaomi. Management is competent because they have a long track record of quality products and supply many of the leading mobile phone producers.

Replacement cycles
Asia has an ageing fleet of offshore support vessels used in the oil and gas industry (30% are over 25 years old). We invested in Nam Cheong (NCL SP), a company we have followed since Jun-12 and made our initial purchase shortly after, for the following reasons. NCL is the global leader in offshore support vessels and a dominant (75%) player in its home market of Malaysia with Petronas ramping up CAPEX spending whilst global dynamics also looked attractive. It still trades at a sharp discount to growth (7x 2014F earnings versus earnings growth (CAGR) of 25% through 2016F). Management is competent because they have built a market leading position in this industry.

Other themes
Our portfolio is currently based on the following additional themes; low penetration of oil and gas lift boats in Asia, upgrade of IT infrastructure in Thailand, Investment cycles in Malaysia and Indonesia, rising life insurance penetration from low levels in Indonesia and Thailand and progress on reform in Vietnam.

Track record
We invested in LPN Development (LPN TB), a company we have followed since 2001 and made our initial purchase in Dec-13, for the following reasons. Management has built a strong niche in the low-end condominium market. We were able to invest in the Company at reasonably attractive valuations following heavy foreign selling in Thailand (this has been a foreign darling for some time). Valuations became attractive with the stock on less than 7x 2015 earnings and a high yield of over 7%.

Country franchise
We invested in San Miguel Pure Foods (PF PM), a company we have followed since 2007 and made our initial investment in 2013 when the parent diluted its stake making it investible. The San Miguel brand is the most recognizable in the Philippines. Valuations are also very attractive with the stock on 8x 2015F earnings and just above book value.

First movers
We invested in Ezion Holdings (EZI SP), a company we have followed since early 2011 and made our initial investment in Aug-11. EZI was the first mover in the lift-boat industry in Asia identified by a CEO who, after spending 18 years in the industry, established his own business in 2007. Valuations remain attractive with the stock on less than 8x 2015F earnings versus strong growth and returns.

High valuation
Following our initial investment in Silverlake Axis (SILV SP) in Feb-12, we began exiting our position in late 2013 following gains of 185%. The stock now trades on 18x 2015F earnings, in line with its estimated growth (CAGR) of 19%.

Rebalancing
Following our initial investment in Ezion Holdings (EZI SP) in Aug-11, we began reducing our position beginning mid-2013 (several times) following gains of 150%+ after the position became more than 10% of the total portfolio. Valuations still remain attractive with the stock on less than 8x 2015F earnings versus strong growth and returns but the decision was taken to reduce portfolio concentration and therefore risk.

Change of circumstances
Following our initial investment in Tipco Foods (TIPCO TB) in Jan-12, we exited our position in Apr-12 following gains of 50%. We were expecting to see a strong structural upturn in earnings following discussion with management and similar trends at a competitor, which didn’t materialize.