The Technology in Domino’s Pizza: How Asian Firms Can Have Enduring Pizzazz (Bamboo Innovator Insight)

The following article is extracted from the Bamboo Innovator Insight weekly column blog related to the context and thought leadership behind the stock idea generation process of Asian wide-moat businesses that are featured in the monthly entitled The Moat Report Asia. Fellow value investors get to go behind the scene to learn thought-provoking timely insights on key macro and industry trends in Asia, as well as benefit from the occasional discussion of potential red flags, misgovernance or fraud-detection trails ahead of time to enhance the critical-thinking skill about the myriad pitfalls of investing in Asia at the microstructure- and firm-level.

  • The Technology in Domino’s Pizza: How Asian Firms Can Have Enduring Pizzazz, Oct 21, 2013 (Moat Report Asia, BeyondProxy)

Pizzazz

Dear Friends and All,

The Technology in Domino’s Pizza: How Asian Firms Can Have Enduring Pizzazz

Technology in pizza? Don’t roll your eyes! Embedding technology into the business model had produced a stunning 570% return (excluding dividends) at ASX-listed Domino’s Pizza Enterprises (ASX: DMP AU, MV A$1.2 billion) since its listing in Jan 2005, compared to a 32% rise for the ASX 200 index over the same period. Familiar readers will have profited because they know that scaling by technology as an enabler and embedded into the business model design is one of the key characteristics of the resilient Bamboo Innovator, akin to Wal-Mart’s satellite-linked network of stores to share and exchange information internally and with their suppliers, as well as to mine consumer data into actionable business intelligence to ensure that customers have the products they want, when they want and at the right price.

This coming December marks 30 years since the first Domino’s store in Australia. Domino’s is Australia’s number one choice in pizza, selling over 60 million a year with average home delivery time between 23 to 24 minutes. Besides Australia, DPE holds the master franchise rights for the Domino’s brand in Australia, New Zealand, France, Belgium, Monaco and The Netherlands, and is the largest franchisee for the brand in the world. DPE also recently acquired 75% of Domino’s Japan from Bain Capital in Aug/Sep 2013 for A$128 million, plus agreeing to supply new debt funding of another A$96.4 million for a total of about A$225 million, adding 259 Japanese stores (216 corporate and 43 franchise) to increase DPE’s total store network to over 1,200 stores. Thus, for value investors seeking exposure to Japan but are wary of the governance risks of the domestic stocks, DPE provides an interesting alternative with significantly lower governance risk. Stocks listed outside of Japan with exposure to Japan could be an interesting topic of discussion in the highly insightful Japan Investing Summit on Nov 5-6. Long-time value investors in Japan are cognizant that stocks with high net cash or net current asset as a percentage of their market cap are potential value traps since the cash and liquid assets are “borrowed” by their powerful bank shareholders as part of the keiretsu network, a phenomenon documented empirically as the “keiretsu” valuation discount and investor activism pushing for change usually becomes an act of kicking the hornet’s nest. Empirical fans would find the research of Takeo Hoshi (Stanford University), Anil Kashyap and Douglas Skinner (Chicago Booth School of Business), and Suraj Srinivasan (Harvard Business School) to be particularly useful in understanding governance risks in Japan.

Back to pizza. What did Domino’s Pizza do to embed technology into its business model? What are the 5 Key Bamboo Innovator Takeaways?

The Moat Report Asia Members’ Forum has been getting penetrating quality dialogues from our existing institutional subscribers from North America, the Nordic, Europe, the Oceania and Asia, including professional value investors with over $20 billion in asset under management in equities. Questions range from:

  • The nuances of internal dealings in Asia, including the case discussion of the recent deal in which HK billionaire’s Lee Shau-kee Henderson Land acquiring Towngas or Hong Kong & China Gas (3 HK) from his family holdings, seemingly déjà vu from the early Oct 2007 transaction when the market peak.
  • The case of F&N Singapore spinning out its property unit FCL Trust and getting “free” special dividend-in-specie and the potential risk in asset swap restructuring to deleverage the hidden debt in the entire Group balance sheet.
  • The dilemma of whether to invest in a Southeast Asian-listed company and hidden champion with a domestic market share of 60% due to family squabbles.
  • Discussion of the wise and thoughtful 107-year-old Irving Kahn’s investment into a US-listed but Hong Kong-based electronics company with development property project in Shenzhen’s Qianhai zone and the possible corporate governance risks that could be underestimated or overlooked, as well as their history of listing some assets in HK in 2004.. This is also a case study of “buy one get one free” in John’s highly-acclaimed book The Manual of Ideas in which the “free” property is lumped together with the (eroding) core business to make the combined entity look cheap and undervalued. What are the potential areas that value investors need to watch out for when adapting the SOTP (sum-of-the-parts) method in Asia?
  • And many more intriguing questions.

Do find out more in how you can benefit from authentic and candid on-the-ground insights that sell-side analysts and brokers, with their inherent conflict-of-interests, inevitable focus on conventional stock coverage and different clientele priorities, are unwilling or unable to share. Think of this as pressing the Bloomberg “Help Help” button to navigate the Asian capital jungle. Institutional subscribers also get access to the Bamboo Innovator Index of 200+ companies and Watchlist of 500+ companies in Asia and the Database has eliminated companies with a higher probability of accounting frauds and  misgovernance as well as the alluring value traps.

Sydney Opera House celebrates 40 years

Sydney Opera House celebrates 40 years

AFP-JIJI

OCT 20, 2013

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A giant birthday cupcake is displayed on the steps of the Sydney Opera House as the World Heritage-listed building celebrates its 40th birthday on Sunday. The distinctive performance hall, inspired by Danish architect Jorn Utzon’s childhood in the Aalborg shipyards, is one of Australia’s best-known landmarks and is a centerpiece of Sydney’s cultural scene. | AFP-JIJI

SYDNEY – The Sydney Opera House, World Heritage-listed as “one of the indisputable masterpieces of human creativity,” celebrated its 40th birthday Sunday with a flotilla of lifesavers, Aboriginal dancers and a gigantic cupcake. Huge crowds packed the steps for a distinctively Australian performance on the glittering harbor front, where three generations of Danish architect Jorn Utzon’s family were the guests of honor. It was a postcard-perfect day beneath the same cloudless blue skies that inspired Utzon’s winning design to build Sydney an opera house back in 1956 — the white sails drawn from his childhood in the Aalborg shipyards. “A building like this happens once in a lifetime,” Utzon’s son Jan told revelers on Sunday. “It is a unique Australian expression of will and enthusiasm and ‘let’s-go-do-it’ kind of spirit.”  Read more of this post

David Mong still uses the title of “vice chairman” of the Shun Hing Group, although in reality he is chairman. “The title doesn’t matter, as long as I am doing my job,” said the eldest son of the late William Mong, the famed rice-cooker tycoon

Son still shines
Imogene Wong
Monday, October 21, 2013

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David mong Tak-yeung still uses the title of “vice chairman” of the Shun Hing Group, although in reality he is chairman. “The title doesn’t matter, as long as I am doing my job,” said the eldest son of the late William Mong Man-wai, the famed rice-cooker tycoon. Perhaps, the younger Mong is quietly paying obeisance to his father, who was chairman of the group and passed away three years back. Read more of this post

A Lost Generation; the passing of years in our generation is marked not by increasing wisdom and charitable behavior, but by the diminishing, or even negative, contribution one makes to society

Desi Anwar: A Lost Generation

By Desi Anwar on 2:01 pm October 19, 2013.
A friend of mine tweets his disgust at how the country is increasingly full of corruption. It is as if with the passing of time, the number of corrupt individuals around is actually going up, instead of going down. Surely it was not like this in the past? This actually makes perfect sense. Given the increase in the country’s population and thus in the number of people entering the age when they’re mature enough in their life and career to hold a position of power, then the number of those chancing to enter the corruption market can only increase. Read more of this post

What’s That Smell? Exotic Scents Made From Re-engineered Yeast

October 20, 2013

What’s That Smell? Exotic Scents Made From Re-engineered Yeast

By ANDREW POLLACK

EMERYVILLE, Calif. — Vanilla, saffron, patchouli. For centuries, spices and flavorings like these have come from exotic plants growing in remote places like the jungles of Mexico or the terraced hillsides of Madagascar. Some were highly prized along ancient trading routes like the Silk Road. Now a powerful form of genetic engineering could revolutionize the production of some of the most sought-after flavors and fragrances. Rather than being extracted from plants, they are being made by genetically modified yeast or other micro-organisms cultured in huge industrial vats. Read more of this post

‘An Industry of Mediocrity’; When will America learn how to teach its teachers?

October 20, 2013

‘An Industry of Mediocrity’

By BILL KELLER

“Those who can, do. Those who can’t, teach. And those who can’t teach, teach teaching.”

WHOEVER coined that caustic aphorism should have been in a Harlem classroom last week where Bill Jackson was demonstrating an exception to the rule. Jackson, a 31-year classroom veteran, was teaching the mathematics of ratios to a group of inner-city seventh graders while 15 young teachers watched attentively. Starting with a recipe for steak sauce — three parts ketchup to two parts Worcestershire sauce — Jackson patiently coaxed his kids toward little math epiphanies, never dictating answers, leaving long silences for the children to fill. “Denzel, do you agree with Katelyn’s solution?” the teacher asked. And: “Can you explain to your friend why you think Kevin is right?” He rarely called on the first hand up, because that would let the other students off the hook. Sometimes the student summoned to the whiteboard was the kid who had gotten the wrong answer: the class pitched in to help her correct it, then gave her a round of applause. Read more of this post

The CEO Of Cisco Bills The Company When He Flies In His Own Private Jet; In 2013, John Chambers billed Cisco $2.8 million in jet expenses; since 2009, Chambers has billed Cisco $11.1 million in private jet expenses

The CEO Of Cisco Bills The Company When He Flies In His Own Private Jet

JULIE BORT OCT. 18, 2013, 5:12 PM 4,803 10

Many big tech companies, like HP and IBM, keep fleets of private jets to fly their executives around in convenience, safety and style. But at Cisco, CEO John Chambers works it in reverse. He owns his own jet and then he sends Cisco a bill when he uses it for work, which he presumably does a lot. In 2013, he billed Cisco $2.8 million in jet expenses, according to forms filed with the SEC. Unlike car mileage, there doesn’t seem to be an IRS standard when reimbursing for your private jet. Chambers just has to make sure that his expense rate isn’t higher than what it would cost to hire a private chartered jet. That’s not hard to do. It will cost you $21,000 to charter a 4-passenger plane for an hour to fly from San Jose to L.A. on a JetSuite private charter (non-member rate). Blogger Brad Reese calculates that since 2009, Chambers has billed Cisco $11.1 million in private jet expenses. $2.8 million certainly isn’t a lot of money by Cisco’s standards. But just for kicks, we looked at what it would cost to fly first-class on a commercial airline (United), from San Jose, California (where Cisco is based) to Bangalore, India (where Cisco has an R&D facility). About $16,000. For $2.8 million, one person could fly 175 times, first-class to Bangalore at that rate. Or four people (a small entourage) could fly 43 times. It’s hard to tell if Cisco is getting a sweet deal by paying for Chamber’s business travel on his private jet. Most companies only disclose the reverse situation. They tell shareholders how much the company spent when executives use the corporate jets for personal travel. This is included their total compensation numbers, so presumably they pay taxes on the benefit (though many companies also pay for their executives to get help preparing their taxes.) For instance, IBM says that its CEO, Ginni Rometty, must use IBM’s jets at all times, even for personal travel, for safety reasons, according to forms filed with the SEC. In 2012, she spent $304,376 for personal travel on the corporate jets.

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