Abrdn Asia Focus : Half Yearly Report

abrdn Asia Focus plc

Half Yearly Report 31 January 2024

A fundamental, high conviction portfolio of well-researched Asian small caps

asia-focus.co.uk

Contents

Overview
Performance Highlights	1
Financial Calendar & Geographical Breakdown	2
Chair's Statement	4
Investment Manager's Review	6
Disclosures	9
Portfolio
Ten Largest Investments	11
Portfolio	12
Investment Case Studies	15
Financial Statements
Condensed Statement of Comprehensive Income (unaudited)	19
Condensed Statement of Financial Position (unaudited)	20
Condensed Statement of Changes in Equity (unaudited)	21
Condensed Statement of Cash Flows (unaudited)	22
Notes to the Financial Statements	23
Alternative Performance Measures ("APMs")	31
General Information
How to Invest in abrdn Asia Focus plc	34
Contact Addresses	37

"The Board plans to maintain the progressive policy of the last 28 years in order to provide shareholders with a regular dividend and dependable level of income alongside capital growth prospects."

Krishna Shanmuganathan, Chair

Performance Highlights

Net asset value total return (diluted)AB

Net Asset Value per share (diluted)

Six months ended 31 January 2024		As at 31 January 2024
-0.7%			301.2p
Year ended 31 July 2023	+7.6%	As at 31 July 2023			308.9p
Share price total returnA		Share price

Overview

Six months ended 31 January 2024		As at 31 January 2024	Portfolio
-0.2%		258.0p
Year ended 31 July 2023	+7.3%	As at 31 July 2023	264.0p
+4.5%		£538.5m	FinancialStatements
MSCI AC Asia ex Japan Small		Total assets
Cap Index total returnC
Six months ended 31 January 2024		As at 31 January 2024
Year ended 31 July 2023	+8.0%	As at 31 July 2023	£556.5m
Net asset value total return		Discount to net asset valueAB	Information
since inception (diluted)ABD		General
To 31 January 2024		As at 31 January 2024
+2278.7%		14.3%
To 31 July 2023	+2283.6%	As at 31 July 2023	14.5%

1. Considered to be an Alternative Performance Measure (see pages 31 to 33).
2. Presented on a diluted basis as the Convertible Unsecured Loan Stock (CULS) is "in the money".
3. Currency adjusted, capital gains basis.
4. Inception being 19 October 1995.

Financial Highlights

Capital values	31 January 2024	31 July 2023	% change
Total assets less current liabilitiesA	£538,536,000	£556,466,000	-3.2
Net asset value per share (basic)	302.05p	310.49p	-2.7
Net asset value per share (diluted)	301.18p	308.93p	-2.5
Share price (mid market)	258.00p	264.00p	-2.3
Discount to net asset value (basic)B	14.6%	15.0%
Discount to net asset value (diluted)B	14.3%	14.5%
Net gearingB	10.3%	12.1%
Ongoing charges ratioB	0.91%	0.92%

1. Total assets less current liabilities (excluding prior charges such as bank loans) as per the Statement of Financial Position.
2. Considered to be an Alternative Performance Measure (see pages 31 and 32).

abrdn Asia Focus plc

1

Financial Calendar & Geographical Breakdown

CULS Conversion Date	31 May 2024
Financial year end	31 July 2024

Announcement of unaudited half yearly results for the six months ended 31 January 2024

28 March 2024

CULS Conversion Date	30 November 2024
Annual General Meeting (London)	December 2024
Payment of interim dividends	1st Interim 20 December 2023
	2nd Interim 21 March 2024
	3rd Interim 21 June 2024
	4th Interim 20 September 2024

Geographical Breakdown of Portfolio

0.5%		Country allocation
1.7%1.4%
3.1% 2.6%	19.7%
India - 19.7%
3.2%
3.3%		Indonesia - 12.2%
	Taiwan - 11.5%
4.6%		China - 10.3%
	South Korea - 7.2%
		Malaysia - 6.5%
6.0%	12.2%	Vietnam - 6.2%
	Thailand - 6.0%
		Philippines - 4.6%
6.2%		Hong Kong - 3.3%
	Singapore - 3.2%
		Sri Lanka - 3.1%
6.5%	11.5%	United Kingdom - 2.6%
Denmark - 1.7%
7.2%		New Zealand - 1.4%
10.3%	Myanmar - 0.5%

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"The Board is firm in its conviction around

Asia's long-term growth story,

particularly within the small-cap universe. Your Manager's disciplined, bottom-up stock picking approach, focused on identifying businesses with durable competitive advantages, healthy balance sheets and significant earnings growth should enable them to compound returns at an attractive

rate over the long-term"

abrdn Asia Focus plc

3

Chair's Statement

I am once again pleased to present to shareholders the half-yearly results for abrdn Asia Focus plc (the "Company"). Asian small-caps showed considerable resilience over the period despite continued worries over a potential global recession, with the MSCI AC Asia Pacific ex Japan Small Cap index delivering a total return of 4.5% compared to the wider MSCI AC Asia ex Japan index, which fell 7.3%. This extends the material outperformance of smaller companies in the region over their larger counterparts which over a 5 year period to the end of January 2024, has returned around 53% compared to the large cap index's 11% in total return terms. It is evidence of the inherent potential of the asset class.

Investment Performance

Over the period, the Company's net asset value (NAV) total return per share fell 0.7% in sterling terms, thereby lagging its closest comparator benchmark. In the short term, the active nature of the portfolio can often lead to divergence from the index. The share price total return was down 0.2%, with the discount to NAV narrowing over the period to 14.3% from 14.5% at end December 2023.

The Board is firm in its conviction around Asia's long-term growth story, particularly within the small-cap universe. Your Manager's disciplined, bottom-up stock picking approach, focused on identifying businesses with durable competitive advantages, healthy balance sheets and significant earnings growth should enable them to compound returns at an attractive rate over the long-term.

This is a differentiated portfolio made up of interesting, less well-known companies, often under researched in the market. The active share of the portfolio is 97.5% and the long-term performance of the Company remains impressive. According to the Association of Investment Companies (AIC), as the 25th anniversary of the inception of the Individual Savings Account (ISA) approaches, the Company is ranked third best performing investment trust. Based upon a single investment of the full £7,000 ISA allowance on 6 April 1999, the day ISAs came into existence, with dividends reinvested until 5 March 2024, an investment in the Company's shares would have generated a tax free pot of £273,758.

Revenue and Dividends

The Board recognises the importance of the Company's dividend income for many shareholders. The Ordinary share dividend has been maintained or raised every year since 1998, and your Board is firmly committed to the enhanced and progressive dividend policy which was approved by shareholders in 2022. Underlying earnings

per share for the period amounted to 3.4p (2023: 4.3p) and revenue from the portfolio continues to comfortably cover the Ordinary dividend, with the shares yielding 2.5%, as of 31 January 2024 (3.5% including special dividends).

Two interim dividends have been paid in the first six months of the Company's financial year. These interim dividends of 1.6p per Ordinary share were paid on 20 December 2023 and 21 March 2024. The Board has set a target dividend of at least 6.41p per Ordinary Share for the financial year ending 31 July 2024. The Board plans to maintain the progressive policy of the last 28 years in order to provide shareholders with a regular dividend and dependable level of income alongside capital growth prospects.

Share Capital Management and Gearing

The Board is pleased to note the current abrdn initiative to reinvest six months' worth of its management fees back into the Company by purchasing shares in the market, in an effort to further align itself with the shareholder base and to demonstrate the significant on-going commitment to its listed closed end funds business which currently ranks third globally.

The Board is conscious that the discount to NAV remains wide and has stepped up share buybacks during the period, in the belief that this is in the best interest of shareholders. During the period the Ordinary shares have traded at an average discount of 15.75% and we have bought back 2,022,500 Ordinary shares in the market at a discount to the prevailing NAV per share (six months to 31 January 2023: nil). The Board will continue to consider the judicious use of share buybacks to both reduce the volatility of any discount and to modestly enhance the NAV per share for shareholders.

The Company's net gearing at 31 January 2024 was 10.3% with the debt provided by the £30 million unsecured Loan Notes 2035 and the £36.6m Convertible Unsecured Loan Stock. The Board is very aware of the 31 May 2025 maturity date for the CULS and is actively considering available options for replacing or retiring that debt. As at 27 March 2024, the latest practicable date, the Company's net gearing stood at 13.4%.

Your Investment Manager

The Board would like to thank Hugh Young for his long service to the Company, which he leaves in good hands: Flavia Cheong, abrdn's Head of Equities, Asia Pacific, Gabriel Sacks and Xin-Yao Ng. Your Manager's extensive on-the-ground coverage, experienced management team, and commitment to delivering long-term value amid the dynamic and varied Asian small-cap universe

4	abrdn Asia Focus plc

should lend confidence in the continued long-term prospects for the Company. Indeed, at a time when many asset managers are making cuts, the Board is very pleased that abrdn has strengthened the investment team in Asia during the reporting period with the recruitment of four new research analysts.

Responsible Investing

While the Company's investment objective does not specifically include environmental, social and governance ("ESG") and the investment process does not exclude exposure to certain industries, your Manager firmly believes that the best companies are also sustainable companies, and hence it integrates a comprehensive assessment of ESG factors into its bottom-up stock picking investment process. Informed and constructive engagement also helps foster better companies, protecting and enhancing the value of the Company's investments.

This is clearly reflected in the carbon footprint of the Company's portfolio, for example, which compares favourably against that of the benchmark. The portfolio's relative carbon intensity (as at 31 December 2023, including scope 1 and 2 emissions) was only 23.3% of the benchmark. Further detailed information can be found in the 31 December 2023 Taskforce on Climate-related Financial Disclosures (TCFD) Report in the Literature section of the Company's website.

Board Composition

I would like to re-iterate my thanks to Randal McDonnell, the Earl of Antrim, who stepped down from the Board at the last AGM and has been a great asset to us with his wise contributions over the last nine years. We also welcome two new Board members, Lucy Macdonald who replaces Randal, and Davina Curling who joined with effect from

1 March 2024 as Senior Independent Director. Both bring considerable investment management experience to the Board.

Outlook

Asia's distinct growth story, with so much untapped potential for long-term investors, remains intact. Asia is projected to contribute more than two thirds of global growth, underscoring its undeniable economic might. Although there may be political uncertainty, with 2024 being a significant year for elections in Asia, you are likely to see relative stability and calm in the largest democracies potentially in stark contrast to the upcoming US presidential elections.

In India, renewed capex, real estate and credit cycles are driving strong economic growth. Should Prime Minister Modi win the upcoming elections in India, he is likely to continue to proceed with his vision for India as a leading global economy. China's post-Covid recovery has not been as smooth nor as fast as hoped, but there are signs of positive momentum including official policy shifts towards domestic demand, while the country's huge consumer base and advances in technology remain pillars of its long-term potential.

South East Asia is often overlooked as a rich source of quality smaller companies. Your Manager continues 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 on a combined basis. Vietnam is an emerging powerhouse in apparel and electronics manufacturing and is seeing rapid urbanisation, while Indonesia is gaining traction in areas of the commodity supply chain that creates increasing value for the local economy.

Asia's rising middle classes and advancing technology provide fertile ground for innovative small-cap companies, offering substantial potential for value creation. As ever, your Company is focused on high-quality companies with excellent long-term track records and strong fundamentals, exploring thematic opportunities in structural growth trends like domestic consumption, digitisation and the green energy transition. The future is bright for smaller companies in Asia and we expect that shareholders will benefit from this via their investment in abrdn Asia Focus.

Krishna Shanmuganathan

Chair

27 March 2024

Overview

Portfolio

General Information Financial Statements

abrdn Asia Focus plc

5

Investment Manager's Review

Overview

Asian small caps posted positive returns over the six month review period whilst proving more resilient than their large-cap peers to a volatile backdrop of concerns around the global economy, geopolitical tensions and US monetary policy developments

Indian small-caps were the best performers by a large margin, boosted by a positive domestic economic backdrop, a buoyant property sector and state election outcomes that strengthened Modi's ruling government. Taiwanese small caps also performed remarkably well, leveraging off the strength of the US technology giants and rising momentum around the development of artificial intelligence (AI). In contrast, small caps in China and Hong Kong were among the heaviest losers, bearing the brunt of consumer and property concerns, together with regulatory noise both domestically and externally, with newsflow around more US trade curbs on its biotech and tech sectors. This was despite targeted policy and liquidity support from the central bank and government.

Portfolio Review

The portfolio underperformed its closest reference benchmark over the review period by 5.2% partly due to the strength of the Indian rally. India is the biggest country position in the portfolio at 19%, though this is less than its weight in the benchmark.

The Indian market is home to many attractive companies with competitive business models, high returns and fantastic long-term growth prospects. We have high conviction in our holdings, which overall performed better than the market average, but we intend to maintain valuation discipline in our purchases. Prestige Estates posted solid earnings results with pre-sales growth in its residential projects more than doubling year-on-year. We see the business continuing to cement its position as one of the country's most prominent developers amid a clear trend towards industry consolidation. Engineering and IT services provider Cyient continued to execute well with its operating margins expanding on the back of productivity improvements and utilisation gains, along with healthy order flows. Healthcare diagnostics group Vijaya Diagnostics Centre also added to relative performance, given its superior delivery against peers both in terms of revenue and profit growth.

Elsewhere, with Chinese consumption recovering slower than expected, sentiment towards local equity markets deteriorated further and valuations de-rated. Electric Vehicle (EV) gear maker Zhejiang Shuanghuan Driveline sold-off on concerns over slowing demand for EVs, as did Sinoma Science & Technology Co, an advanced materials business involved in the broader renewable energy supply chain. We remain positive on both companies' prospects as we expect Shuanghuan to be a key beneficiary of the trends towards electrification, with customer diversification and potential overseas expansion likely to offset any domestic slowdown in sales. Sinoma, on the other hand, is well-placed to benefit from the growth of wind energy capacity globally, supported by the company's strong technology and research and development capabilities. Renewable energy is a key area of development for the Chinese government and Sinoma has a diversified business that caters to this demand. Some of our other mainland holdings in other sectors also lagged on the back of broader industry concerns. Joinn Laboratories, a company that specialises in drug safety evaluation for the pharmaceutical industry, fell alongside the broader healthcare sector. While we are positive on Joinn's leading position in the pre-clinical drug assessment space and its solid financial position, the company has been affected by policy uncertainty and the softer domestic funding environment which has led to slower growth in its order book. It is fair to say that investors are now incorporating a higher risk premium for Chinese equities given uncertainty over the broad direction of government policy and the role of the private sector in the economy. Overall, including companies listed in Hong Kong, our Chinese holdings performed marginally better than the local market.

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Meanwhile, from a sectoral perspective, technology was among the best performing sectors through the review period, driven by optimism over AI and a turnaround in the semiconductor cycle. This lifted the tech-heavy market of Taiwan, and our lighter exposure there detracted from portfolio returns. While the market is home to several interesting businesses, particularly in IT, we have been highly selective in our approach and focused on owning only the best-qualitysmall-cap companies that we can find. We are optimistic about the future of technology in Asia and the portfolio is well-positioned to exploit opportunities emerging from the advancement of AI. This includes one of our technology hardware holdings, Taiwan Union Technology, which is among the leading suppliers of high-speed copper clad laminates, a core material used for printed circuit boards. The company is seeing a pickup in orders from AI-related customers which in turn is driving a change in their sales mix towards higher-margin products. Elsewhere in Singapore, on the other hand, semiconductor equipment maker AEM Holdings' share price fell after the company indicated that it would adjust its inventory and pre-tax profit downwards for the fourth quarter of 2023. We immediately engaged with the company on this issue and believe it is a one-off incident.

ASEAN is an often overlooked part of the region amid the significant attention given to China and India. But it is nevertheless a rich source of good-qualitysmall-caps. Some of our ASEAN holdings were among the key contributors to performance over the review period. In Indonesia, logistics and supply chain company AKR Corporindo, a main player in industrial fuel, was boosted by greater clarity around potential acceleration in land sales in the Java Integrated Industrial and Ports Estate. Elsewhere, our Vietnamese holding, FPT Corp, a software services company, continued to deliver impressive earnings. We feature a deeper case study on FPT Corp on page 17.

Since 2022, we no longer have a market cap restriction on new additions to the portfolio though we remain focused on finding smaller companies that are at the bottom quartile of our investible universe. Our intention is to invest in a diversified portfolio of around 50 companies that have an exceptional industry position. To this end, we continue to refresh the portfolio by reducing smaller, legacy positions to those with better growth prospects and clearer earnings visibility.

In the technology sector, for instance, we switched from Korea's Koh Young Technology to Taiwan-basedChroma ATE, a strong player that excels in the core power testing industry with high entry barriers, growing exposure to exciting industries like electric vehicles, 3D testing and semiconductors. Similarly, we sold our holding in Taiwan- based manufacturer of bicycle and motorcycle chains KMC Kuei Meng International in favour of better opportunities elsewhere.

Meanwhile, we refined our India positioning by selling out of healthcare company Sanofi India and taking profits on other Indian holdings that have performed well. In their place, we introduced three new holdings with attractive growth prospects. Aptus Value Housing Finance offers loans in the affordable housing segment, a growing market with a strong foothold in south India. It fares well against peers in asset quality, loan yields and return ratios, supported by a conservative management team. We also participated in a share placement offered at a considerable discount by Apar Industries. Apar produces conductors, specialty oil lubricants and cables primarily to the power industry. We view Apar as a play on the electrification of the Indian economy and rising investment in transmission and renewables globally, with half of its revenues from India and the rest from exports to the US, Europe and Australia. Finally, we invested in KFin Technologies, a registrar and transfer agent for local mutual funds that should benefit from deepening capital markets in India. As a duopoly, the industry structure is highly attractive with high barriers to entry and significant growth potential.

Overview

Portfolio

General Information Financial Statements

abrdn Asia Focus plc

7

Investment Manager's Review

Continued

Elsewhere, in Vietnam we initiated a new holding in Military Commercial Joint Stock Bank (MBB), given its strong profitability metrics, excellent track record in managing asset quality and robust outlook for loan growth. MBB is one of the leading domestic banks in Vietnam and we regard it as well-managed with its prudent culture stemming from its military background, but dynamic enough to innovate and capitalise on opportunities. The bank enjoys a key competitive edge with its lower funding cost, which is a result of its strong brand and quasi state- owned enterprise status. The share prices of banks in Vietnam have generally been weak as a result of an anti-corruption probe in the property sector, which gave us the opportunity to buy a quality franchise at an attractive valuation.

Outlook

The investment climate remains one of sluggish global economic growth, inflationary risks and concerns over the impact of policy moves by major central banks. China continues to be a key source of worry, amid a slow- moving recovery. Against this prevailing uncertain backdrop, the portfolio is well-positioned, exhibiting strong fundamentals and a return profile that should stand it in good stead. Dividend yield, growth and return on equity metrics are higher than the reference benchmark, while the debt-to-equity ratio is comparatively lower also. Our stock-specific insights are derived from our rigorous bottom-up due diligence, backed by our in-house research capabilities and well-resourced team across Asia. The profile of the portfolio also reflects our belief that quality small-cap companies with solid balance sheets and sustainable earnings prospects will emerge stronger in tougher times.

More broadly, we are finding the best opportunities around key structural drivers of growth across Asia. Domestic consumption, especially in the premium segment, is set to grow in line with rising affluence. Infrastructure spending and urbanisation will boost real estate and financials. The rapid advance of all things tech, including AI, means a bright future for both direct and ancillary plays on gaming, internet, fintech, semiconductors and tech services like the cloud and software-as-a-service. ASEAN, meanwhile, has been a winner of the China-plus-one strategy, in which multinationals are moving their supply chains away from China due to geopolitical tensions. Asia is also at the forefront of the green transition with plays on renewable energy, batteries, EVs, its related infrastructure and environmental management. In this context , we see smaller companies as the more direct beneficiaries of some of these key trends, with the portfolio well placed to deliver sustainable returns for shareholders over the long run.

Gabriel Sacks, Flavia Cheong &

Xin Yao Ng

abrdn Asia Limited

27 March 2024

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