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.
- Tired Asian Businessmen, Assessing Management Quality and the $15 Billion Oshin Retail Stock in China, Oct 28, 2013 (Moat Report Asia, BeyondProxy)
Dear Friends and All,
Tired Asian Businessmen, Assessing Management Quality and the $15 Billion Oshin Retail Stock in China
“A tired businessman is one whose business is usually not a successful one.” – Joseph R. Grundy (1863-1961), Quaker businessman and US senator
“For many CEOs the hours are relentless; you’re working around the clock seven days of the week. I need a break. I think three-and-a-half years in the department store is a long time and if you think about our restructuring post the global financial crisis [and] us not being ready for the digital world, it has taken its toll and I’m just simply tired. The past three-and-a-half years as a CEO … weren’t normal, let’s face it. It was tough going and I am signalling my intention to resign ….” – Paul Zahra, CEO of David Jones, on Oct 22, 2013
Tears were welling up in my eyes this week. Not over Paul Zahra’s shocking announcement on Oct 22, 2013 over his sudden resignation as CEO of Australian upmarket departmental store David Jones (ASX: DJS, MV A$1.48 billion) and the even more shockingly frank explanation: Because he is “simply tired” and “burnt out”. Zahra could have confined his decision to the usual “personal reasons” but he chose to elaborate.
I was fighting back tears over watching the Japanese movie Oshin (おしん) that was shown in the theatres. The movie is a remake of the iconic 1983 Japanese TV drama which was a global hit. The never-tired spirit of Oshin, about a poor girl who perseveres and triumph against the odds despite all the bullying and adversities, has stood in sharp contrast to the admission by Paul Zahra. David Jones was down 44% since Zahra took over in 2010 and has reported consistent falls in revenue and is only now looking at the prospect of earnings growth. Zahra was recently credited for the potential reversal in fortune and he was awarded 88% of his short-term incentive payment.
Oshin is inspired by the touching story of the late Katsu Wada, the indefatigable entrepreneur who founded the once-successful Japanese departmental chain Yaohan in 1930. The film-maker explained that the 30-year lag for the movie version of the series was to celebrate the 30th anniversary of Oshin and that even after 30 years, “there are some things that never change, like the inspirational story of perseverance”. Even though I have watched the TV series like most older-generation Asians and am familiar with the story, I still cried in one particular scene. Before Oshin’s beloved grandmother died, she had a mouthful of the rice porridge – wages that were earned by Oshin when she was taken in by the kind and wise matriarch Mrs Yashiro in exchange for her labor at the Kagawa-family rice dealer shop. Oshin’s grandmother’s touching parting words: “The rice is very tasty.”
The death of her grandmother steels Oshin’s resolve to make something good out of her life. The story of Oshin is to remind people to cherish those around them and to keep going no matter what happens. Perhaps I was also a little emotional because building up The Moat Report Asia has its unique challenges and what kept me going was the sense of duty to value-add to our subscribers and readers with authentic and refreshing views about resilient compounders in Asia as accounting frauds of companies with attractive quant financials and net-net numbers break out systematically and syndicates manipulating share prices and volumes run rampant. Like Oshin who treasure the people around her, I cherish every one of our subscribers and they come from North America, the Nordic, Europe, the Oceania and Asia, including value investors with over $20 billion in asset under management in equities.
Quaker entrepreneur Joseph Grundy (1863-1961) illuminated a useful way to assess management quality with his penetrating quote: “A tired businessman is one whose business is usually not a successful one.” The story of Paul Zahra and Oshin highlighted two interesting questions:
- Avoiding stocks whose companies are run by managers who are tired appear to be a sound method to lower downside risks. If so, is it possible to know in advance why managers get tired and burn out?
- Why then do others not get tired like Oshin? How to identify and invest in stocks whose management and culture that have such Oshin-like quality?
To answer these questions, let’s explore the case of the $94-billiion retail grocery market in China:
- Why is there one Oshin-like company in China, with a market value of $15 billion, who is growing sustainably when everyone else, from Tesco, Wal-Mart to Asia’s richest businessman Li Ka-Shing’s Park N’Shop and Thai billionaire tycoon’s CP Lotus, are “tired” with faltering growth and losses?
- Also, what are the 3Ms that resulted in entrepreneurs and managers to not become tired? The 3Ms is also a simple and practical way to help value investors assess management quality.
- How can companies avoid the fate of a Yaohan and investors to detect the downfall ahead of time?
“In business, I look for economic castles protected by unbreachable ‘moats’.”
– Warren Buffett
The Moat Report Asia is a research service focused exclusively on competitively advantaged, attractively priced public companies in Asia. Together with our European partners BeyondProxy and The Manual of Ideas, the idea-oriented acclaimed monthly research publication for institutional and private investors, we scour Asia to produce The Moat Report Asia, a monthly in-depth presentation report highlighting an undervalued wide-moat business in Asia with an innovative and resilient business model to compound value in uncertain times.
Learn more about membership benefits here: http://www.moatreport.com/subscription/
Our latest upcoming monthly issue for the month of October examines a Northeast Asia-listed company with global #1 market share leadership in 4 different products, including making the components for an innovative consumer product whose sales have climbed from $90 million to $526 million in the recent three years. The company is a hidden global consolidator with underappreciated growth. The stock is trading at PE 11.5x, EV/EBITDA 9x and generates a sustainable dividend yield 5.75%.
Our past monthly issues in August and September investigate a Taiwan and Southeast-Asian-listed entrepreneurial company, both with a dominant 80% domestic market share and have innovative business models to generate substantial cashflow to support both expansion and a 4-5% dividend yield. There is also a behind-the-scene conversation with the CEO of the two companies to understand their thinking process in building up the business.
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 and a legal suit over the company’s ownership.
- 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) valuation 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.
Like this:
Like Loading...
Bamboo Innovator 