Welcome to the first instalment of Smaller companies: on the road. Recently, we travelled to Taiwan to get a sense of the local business environment and talk with both current and prospective holdings. Here’s what we found.

Taiwan: small but mighty

First impressions? Taiwan is much smaller than I expected. It’s less than 250 miles long and 100 miles wide, which is seven times smaller than the UK. One thing that became apparent while moving around is just how mountainous the east side of the island is. Over 90% of Taiwan’s population lives on the west side, linked by several large motorways and super-fast modern bullet trains.

Taiwan’s density and connectivity allowed me to leave my hotel in Taipei (North Taiwan) in the morning, travel down to Kaohsiung by car, stop along the way for four company meetings, and take a bullet train back home for dinner. A great place to conduct business.

Meet and greet

We met 19 new companies and three of our current holdings. This included Sinbon, which makes wires and connectors for complex applications like medical devices and automotive electronics. We’ve owned Sinbon in our strategy for over five years, and it was great to meet the team face-to-face and enjoy a tour around one of its state-of-the-art cleanrooms. During our meeting with the chief financial officer, it became apparent that Sinbon’s semiconductor business is going from strength to strength. The company recently won another tier-one client and has order visibility out to 2030 – a testament to the company’s robust market position.

Many readers are likely aware of Taiwan Semiconductor Manufacturing Company (TSMC), the global leader in manufacturing semiconductors for high-powered computing. However, you might not know that artificial intelligence (AI) is causing a significant increase in the size of semiconductor chips. As a result, TSMC has developed a new manufacturing process called Chip-on-Wafer-on-Substrate (CoWoS). This technology involves placing multiple chips side-by-side on a silicon interposer, which improves interconnect density and overall performance. CoWoS is creating a huge opportunity for many smaller companies in the supply chain, from liquid cooling firms to semiconductor testing businesses. This area should grow as the AI revolution unfolds.

Of course, it’s not just about making components; you have to deliver them to your clients in perfect working order. Enter Gudeng Precision. It makes boxes that shield valuable chips from ruinous microscopic particles, ensuring their safe arrival. As global demand escalates, Gudeng's innovative approach should position it for continued success.

Why ‘quality’ works in Taiwan

When it comes to company analysis, our Aberdeen smaller companies team focuses on ‘quality, growth, and momentum. This approach has worked well in Taiwan. Several factors drive this performance. Many of our investee companies are still run by their founders, who retain a significant stake in the business. This means their company aspirations and goals are aligned with ours as minority, long-term shareholders. Taiwanese culture skews management towards running net cash balance sheets, which helps protect businesses during economic downturns. Lastly, political stability, with a robust fiscal position, also creates numerous opportunities for bottom-up stock pickers like us.

Final thoughts…

Taiwan is a hub for technological innovation, offering a range of dynamic companies operating in numerous fast-growing sectors. This includes semiconductors, where I expect the country to continue to dominate even in the current volatile world.

Companies are selected for illustrative purposes only to demonstrate the investment management style described herein and not as an investment recommendation or indication of future performance.