Comeback Kid and Reinventing the Family Business


“Bamboo Innovators bend, not break, even in the most terrifying storm that would snap the mighty resisting oak tree. It survives, therefore it conquers.”

BAMBOO LETTER UPDATE | September 30, 2014
Bamboo Innovator Insight (Issue 52)

  • The weekly insight is a teaser into the opportunities – and pitfalls! – in the Asian capital jungles.
  • Get The Moat Report Asia– a monthly in-depth presentation report of around 30-40 pages covering the business model of the company, why it has a wide moat and why the moat may continue to widen, a special section on “Inside the Leader’s Mind” to understand their thinking process in building up the business, the context – why now (certain corporate or industry events or groundbreaking news), valuations (why it can compound 2-3x in the next 5 years), potential risks and how it is part of the systematic process in the Bamboo Innovator Index of 200+ companies out of 15,000+ in the Asia ex-Japan universe.
  • Our paid Members from North America, Europe, the Oceania and Asia include professional value investors with over $20 billion in asset under management in equities, some of the world’s biggest secretive global hedge fund giants, and savvy private individual investors who are lifelong learners in the art of value investing.

Can You Guess This Asian Wide-Moat Company? Comeback Kid and Reinventing the Family Business

Our latest monthly Moat Report Asia for October investigates an Asian-listed company who is the#1 healthy niche snack king in its domestic market with a market share of >73%. The company has spent over 30 years to build up an extensive wide-moat nationwide distribution network penetrating 200,000 Point-of-Sales (POS), including both modern trade (MT) (supermarkets,hypermarkets, convenience stores, gas stations, wholesales stores) and traditional trade (TT) (sundry stores, traditional shops). The company cultivates long-term customer relationships with its strong direct sales team of 200 professionals regularly visiting the stores with over 400 vehicles, comprising of trucks and the innovative mobile cash vans.


We observed that super compounders Ecolab (ECL, MV $34.8bn) and Keyence (6861 JP, MV $26.7bn) have a strong solutions-sales specialist team and we think this Asian company has accumulated deep know-how infused in its direct salesforce team over the years to sustain resilient growth. The company distributes 5 product categories: (1) Snacks eg the Japanese snack brand Calbee; (2) Confectionery, (3) F&B, (4) Medicine, pastille, nutrition food, (5) Personal care and household products. 75% of its sales are domestic while the rest are exported, mainly to Japan (20% of sales).


The company empowers its salesforce, particularly those traveling on mobile sales vans, with the utilization of modern technology in receiving orders, data verification, issuance of sales documents, delivery of goods. The company has created a sophisticated product storage and inventory management system and a delivery system that is flexible, convenient and fast. In terms of inventory management and working capital efficiency, the company performs far better with inventory period at 23 days (comparable peer 73 days) and cash conversion cycle (CCC) of 33 days (comparable peer 89 days). These long-term competitive advantages have translated to a superior ROE of 27.7% and sustainable cashflow generation.


Even when compared to Asian MNC giants Universal Robina Corp (URC PM, MV $9bn) and Calbee(2229 JP, MV $4.3bn) who have scale advantages in cost efficiency and pricing power, the company has surprisingly better fundamental performance in ROE and profitability and is trading at a huge relative valuation discount at its current EV/EBIT 10.7x and EV/EBITDA 10.4x. Net cash at 9% of market value is a healthy reserve that can be productively allocated to capitalize on future growth opportunities without straining the balance sheet. Its attractive 5.6% dividend yield, the highest in the industry, also limits short-term downside risks.


Its unique low-fat high-protein healthy snack and wide-moat distribution network makes the company either an attractive takeover target or long-term strategic partner to the giant snack producers from URC to Mondelez and General Mills, thus providing long-term downside protection in its terminal value.


Organic food and healthy snack company Annie’s was acquired In Sep 2014 by General Mills for $820M at Price/Sales 4x (vs the company’s P/Sales 1.5x), following similar moves by General Mills, Kellogg, Campbell Soup, Hillshire Brands, Tyson Foods, JM Smucker, TreeHouse Goods, WhiteWave etc. The trend of forgoing meals in favor of healthy snacks is accelerating.


It is the flagship vehicle of a family business group whose storied history has been long forgotten following unusual succession challenges in the third generation. Led by the capable son-in-law to the daughter of the third-generation scion, the Group is the ‘comeback kid’ who has successfully resurrected from the 1997/98 Asian Financial Crisis and has listed 4 of its 6 major business assets to derisk the business group governance risk and instill a strong sense of accountability and transparency for long-term going-concern viability. As the flagship vehicle, this Asian listed company will be the most important vehicle in the Group to equitize the governance goodwill and long-term strategic partnerships seeking to leverage its wide-moat distribution network and global export potential. We are impressed by the company’s efforts over the years to develop its human capital in caring about their knowledge by providing them training opportunities and multiple opportunities to engage in company activities to foster sharing and commitment. This is rare in Asian firms and the company deserves credit and a long-term valuation premium.


Warm regards,


Managing Editor

The Moat Report Asia



The Moat Report Asia

“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 andThe 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. Our Members from North America, the Nordic, Europe, the Oceania and Asia include professional value investors with over $20 billion in asset under management in equities, secretive global hedge fund giants, and savvy private individual investors who are lifelong learners in the art of value investing.


Learn more about membership benefits here:


  • Individual subscription at $1,994 per year:


The Moat Report Asia Members’ Forum has been getting penetrating quality dialogues from our subscribers. 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 Landacquiring 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 Singaporespinning 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 Ideasin 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.


Professional Development Workshops for Executives and Lifelong Learners

Our 8th run of the series of workshop From the Fund Management Jungles: Value Investing Exposed and Explored – (Part 1) Moat Analysis, (Part 2) Tipping Point Analysis and (Part 3) Detecting Accounting Fraud – on 14 June 2014 has been well-received with serious value investors, professionals, and serious lifelong learners attending, with some who flew in from Jakarta and KL!..


Our 9th workshop will be sometime later in the year.


Thank you for your support all this while!



Thank you so much for reading as always.


Warm regards,

KB Kee

Managing Editor

The Moat Report Asia


Mobile: +65 9695 1860


A Service of BeyondProxy LLC

1608 S. Ashland Avenue #27878

Chicago, Illinois 60608-2013

Other offices: London, Singapore, Zurich



P.S.1 Here is a little more about my background:

KB Kee has been rooted in the principles of value investing for over a decade as an analyst in Asian capital markets. He was head of research and fund manager at a Singapore-based value investment firm. As a member of the investment committee, he helped the firm’s Asia-focused equity funds significantly outperform the benchmark index. He was previously the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company.


He holds a Masters in Finance and degrees in Accountancy and Business Management, summa cum laude, from Singapore Management University (SMU) and had also published articles on governance and investing in the media, as well as published an empirical research paper Why ‘Democracy’ and ‘Drifter’ Firms Can Have Abnormal Returns: The Joint Importance of Corporate Governance and Abnormal Accruals in Separating Winners from Losers in the Special Issue of Istanbul Stock Exchange 25th Year Anniversary Best Paper Competition, Boğaziçi JournalReview of Social, Economic and Administrative Studies, Vol. 25(1): 3-55. KB has also presented his thought leadership as a keynote speaker in global investing conferences. KB has trained CEOs, entrepreneurs, CFOs, management executives in business strategy, value investing, macroeconomic, industry trends, and detecting accounting frauds in Singapore, HK and China, and had taught accounting at the SMU where he is currently an adjunct lecturer.


P.S.2  Why do I care so much about doing The Moat Report Asia for you?

My personal motivation in embarking on this lifelong journey has been driven by disappointment from observing up close and personal the hard-earned assets of many investors, including friends and their families, burnt badly by the popular mantra: “Ride the Asian Growth Story!” I witnessed firsthand the emotional upheavals that they go through when they invest their hard-earned money – and their family’s – in these “Ride The Asian Growth Story” stocks either by themselves or through money managers, and these stocks turned out to be the subject of some exciting “theme” but which are inherently sick and prey to economic vicissitudes. They may seem to grow faster initially but the sustainable harvest of their returns is far too uncertain to be the focus of a wise program in investment. Worse still, the companies turned out to be involved in accounting frauds. Their financial numbers were “propped up” artificially to lure in funds from investors and the studiously-assessed asset value has already been “tunnelled out” or expropriated. And western-based fraud detection tools and techniques have not been adapted to the Asian context to avoid these traps.


After a decade-plus journey in the Asian capital jungles, it has been somewhat disheartening as I observe many fraud perpetrators go away scot-free and live a life of super luxury on minority investors’ hard-earned money. And these perpetrators make tempting offers to various parties in the financial community to go along with their schemes. When investors have knowledge in their hands, we have a choice to stay away from these people and away from temptations and do the things that we think are right. With knowledge, we have a choice to invest in the hardworking Asian entrepreneurs and capital allocators who are serious in building a wide-moat business.



The Moat Report Asia
A Service of BeyondProxy LLC
1608 S. Ashland Avenue #27878
Chicago, Illinois 60608-2013

Other offices: London, Singapore, Zurich


Morning Bamboo Insight: 4 Oct 2014

Morning Bamboo Insight: 4 Oct 2014


  1. Wealth without workers, workers without wealth: The digital revolution is bringing sweeping change to labour markets in both rich and poor worlds

  1. Pimco: ‘Bonds are meant to be boring’; What Bill Gross’s exit means for the industry and the company he left behind

  1. Breaking research out of the lab: Canada doesn’t lack innovators, it lacks entrepreneurial innovators

  1. Auto Loans: A Subprime Market Grows in the Shadows

  1. Market Manipulation Should Be a Crime

  1. Depression Denial Syndrome; The fall of Bill Gross at Pimco is an example of how decision-makers refuse to acknowledge that the rules are different in a persistently depressed economy

  1. Co-chief executives run the risk of in-fighting and mutual over-reliance; As Oracle appoints two chief executives, Katherine Rushton asks whether corporate double acts can ever really work.

  1. Byron Wien: So Much to Worry About; The Wall Street pro’s concerns include valuations, housing, and a group scarier than ISIS.

Asia Pacific

  1. (HK/China) – Protests Dim Hong Kong’s Allure for Rich Chinese; Singapore May View Pro-Democracy Protests as an Opportunity to Grab Some Business

  1. (China) – China Won’t Bail Out Local Governments; Beijing Will Impose Ceilings on Localities’ Borrowing

  1. (HK) – Hong Kong clashes break out away from Central protest site

  1. (Korea) – Korean private equity funds (PEF) taking over small family businesses unable to find successor

  1. (Japan) – From free Wi-Fi to prayer rooms, Japan’s retailers are devising creative ways to encourage foreign tourists to spend.

  1. (Korea) – Dozens of Korean corporate leaders will face questioning during the upcoming parliamentary audit of government agencies and public companies.

  1. (Isia) – Jokowi Urges Batik Resurgence to Boost Local Industry

  1. (Japan) – The weakening yen is starting to squeeze Japanese consumers as prices rise for everything from Burgundy wine to instant noodles, threatening Prime Minister Shinzo Abe’s plans to revive the country’s economy.

  1. (Isia) – In a House Far Removed From the People, Indonesia’s Oligarchic Forces Wage Battle

  1. (India) – Honoring the Mahatma’s Legacy Through the Clean India Campaign

  1. (Isia) – Insanity the Norm in Indonesian Politics

  1. (Spore) – Singapore Sukuk Hub Goal Leaves a Lonely Sabana: Islamic Finance

  1. (Isia) – Indonesian Conglomerates Warned not to Under-Invest Amid Competition


  1. Meeting deadlines: Deadlines in the future are more likely to be met if they are linked to the mind’s slippery notions of the present

  1. Scientists check the engine of cheetahs, animal world’s ‘Ferrari’

  1. Billionaire Peter Thiel Explains Why He Would Tell His Younger Self To Be Less Competitive

  1. One CEO Uses Warren Buffett’s Strategy Of Looking For These 3 Traits In Every Job Candidate

  1. (HK/China) – Hong Kong’s value to China goes beyond numbers

  1. (China) – China’s central administration will impose hard caps on local government borrowing, its boldest move yet to control financial risks from an explosive rise in regional debt.

  1. Yummia founder Mia McCarthy talks creating a category as her product hits Woolworths big time

  1. The Problem With Pragmatism: Our dominant political mind-set (pragmatism) tends dangerously toward rationalism uninformed by moral emotion

  1. The Evolution of Sleep: 700 Million Years of Melatonin

  1. Young, Brilliant and Underfunded; We’ll never know what breakthroughs were missed because young investigators were not provided with resource

  1. How Thomson Reuters Is Creating a Culture of Innovation

  1. The Most Engaging Ideas Leave Something Out

  1. The Mysterious Popularity Of The Meaningless Myers-Briggs (MBTI)


  1. Bill Gates: Apple Pay Is A ‘Fantastic’ Idea

  1. Yahoo and eBay pressed to return to cores; With a return to their original cores, both groups might get a fresh chance to reinvent themselves

  1. (India/Tech) – Can the Internet of Things transform India?

Investing Process

  1. Here’s Why Warren Buffett Is Buying Car Dealerships; Dealerships Do More Than Sell New Cars

%d bloggers like this: