• 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.

• Detecting Accounting Fraud in Asia (Part 1), Sep 11, 2013
• Detecting Accounting Fraud in Asia (Part 2), Sep 16, 2013
• The Urgency for a Composite Measure to Detecting Accounting Fraud in Asia, Nov 24, 2014

“What seemed to be wrong with this income statement?” I would ask and engage value investors in a conversation discussing the limitations of western-based screening tools and techniques in financial statement analysis to analyze Asian companies.

“It was generated by a listed Chinese zipper company who claimed to be the ‘YKK of China’ with a diversified customer base of over 900 customers. Its zipper products are used in fashion and sports apparels, camping equipment, shoes, and bags by renowned brands. It also received the ‘PRC Top Ten Famous Zipper Brands’ in China. To perhaps make your job easier, a simple table of financial ratios from profit margins, ROE, cash conversion cycle (CCC) is provided. Interestingly, you might note that it is a company generating a ROE of 20.2% on profit net margin of 22.3% and trading at a modest valuation of Price-Earnings ratio 6.2x and Price-to-Book Value 1.6x, with downside protected by a seemingly healthy ‘net cash’ balance sheet with net cash comprising 27% of the market value of the company.”

“And we would stay on this income statement for whatever time it takes before someone points out the dog that didn’t bark,” I added.

Sometimes, there would be one or two people, often those who are open-minded and intellectually curious in their learning approach, who would point out: “The selling and distribution expense of RMB3m seems awfully low for a company generating RMB882m in sales for truckloads of zippers to be transported to over 900 of their customers’ factories in the different provinces.”

This zipper company is SGX-listed Fuxing Zipper (SES: DC9, Bloomberg: FUXC SP), down over 90% in market value. We will later illustrate how accounting tunneling fraud is carried out and the six new measures for value investors to employ to avoid such statistically-attractive fraudulent stocks. From the case of Fuxing, one of the apparent measures is based on the opportunistic shifting or deferring of operating expenses out of the income statement to boost profits artificially – often into the balance sheet items. But how do we can capture this? A possible measure is that of the “OP/OL ratio”, or “Other Payables/Operating Liabilities ratio” which we will elaborate upon later with the cases that we have observed to be a systematic phenomenon. In essence, we have observed that an OP/OL ratio over 40% leads to subsequent and future acts of accounting tunneling fraud in which corporate wealth and cash is tunneled out.

Fuxing Zipper (SES: DC9) – Stock Price Performance 2007-2015

As we have shared in earlier articles, transportation and logistical cost is a nightmare in China and emerging markets, estimated to account for 15 to 20% of the cost of doing business and of the GDP too by various sources that include World Bank and the Li & Fung group in an insightful presentation. The problem lies not only because of the geographical woes but also due to the regulatory licensing bottlenecks: “China’s logistics system is governed by nine separate ministries and commissions, which prevents the central government from regulating cross-provincial transport across China’s 31 provinces. Instead, local governments manage their transportation systems as provincial fiefdoms, often using local license rules and tolls to raise revenue. Thanks to high transaction costs, no trucking firm has yet established a nationwide network.”

The emerging Asian and Chinese companies engaging in accounting fraud often push operating expenses and overheads off the listed entities to related-party companies to boost artificially-high profit margins and ROE. For instance, an Asian consumer “brand” selling its “visible” products in supermarkets would usually shift the substantial expenses related to shelf-space placement to undisclosed related-party “distributors” and “agents” (called “tong lu” 通路 in the local language) to achieve the high profit margins and ROE that are attractive to investors. Most value investors focusing on financial ratio analysis do not realize that logistics, distribution and marketing costs in emerging Asian markets is around 15-20% of sales, instead of the 0.34% that this zipper company incurred. Like-minded value investors are often amazed that they have not seen what was now obvious to them. Thus, one simple new measure is to use the “Selling and Distribution expense as % of Sales” (Measure #1) as a sanity check on unrealistically low operating expenses that were deferred or shifted out of the income statement.

We wrote something in the article “BNSF + JB Hunt = Buffett + Munger = Lollapalooza! How About Asia?” about how logistical improvement throughout America has enabled the scaling up of retailers and businesses in a cost-effective way:  “The open innovation also enabled American companies such as Petco Animal Supplies, Pepboys Auto, The Container Store, Best Buy, Lowe’s, arts & craft retail chain Michael’s, to scale up their expansion in a cost-effective way.  Petco commented, ‘Despite a 27% growth in stores since 2008 – from 870 to 1,100 – our transportation spend on a cost-per-delivery basis has remained relatively flat. If you had told me we could add that many stores without raising the transportation costs, I wouldn’t have believed you.’”

The above excerpt talking about pet shop Petco highlights one of the important real-world cost concept in doing business: cost-per-delivery or in general, cost-per-activity. Many Asian entrepreneurs whom we have talked to over the past decade plus had lamented their problems in scaling up their business to get a decent valuation beyond the billion-dollar market capitalization barrier. They mentioned how sales might perhaps tripled in five or ten years, but core business profit growth (excluding deal-making trading profits) might remain flat or even decline, and a key reason (from a simple cost perspective) is that Selling, General and Administrative (SG&A) cost, thought by many to be a “fixed” or at least a “semi-fixed” cost, had increased even faster than sales. Rather than SG&A costs being fixed or even variable, these costs had become “super-variable” – increasing faster than sales.

The impatient entrepreneurs seeking their payday resorted to opportunistically manipulating this SG&A cost to improve dramatically their profit margin in the eyes of investors by shifting or deferring this expense item into the balance sheet items that include “Accrued Expenses”, “Other Current Liabilities”, “Other Non-Current Liabilities”, “Deferred Tax Liabilities” and so on, giving the excuse that these expenditures provide long-term payoffs which are unlikely to materialize and hence they should be expensed off. We classify and sum these up as “Other Payables”. A closer examination into the footnote disclosure would reveal these include loans due to directors, amount due to related-parties.

A common IPO fraud ruse by the insiders and investment bankers is for the directors to first borrow some short-term financing from the banks, using part of the borrowed money to create set-up customers to engage in fictitious sales with the IPO company. Once the IPO proceeds are raised, the loans to directors and amount due to related parties are repaid with other people’s money (OPM) – often disguised as under the purpose of “IPO proceeds used for working capital purposes”.

Another is to use the IPO company to buy equipment, goods and services at inflated value from their related companies. Equipment worth $20m is invoiced to the IPO company at $100m from the related company, with the insiders pocketing the “free” $80m profit which they either pump back to the company to boost artificial sales or to convert as “personal” investment into “free” equity into the IPO company in a show of “ownership commitment” in the eyes of the unsuspecting investors. This is often disguised as under the purpose of “IPO proceeds used for PPE, factory expansion and capex investments”. In the case of the accounting tunneling fraud through PPE and capex (we coined it as “Grand Capex Fraud” in our earlier articles), we will elaborate upon this in another future article.

As for deferred tax liabilities, joint-controlled entities and associates…

<ARTICLE SNIPPED>

In addition, the OP/OL ratio = Other Payables (OP)/ Operating Liabilities (OL) (Measure #6), a ratio in which we have observed that crossing over the unusually high 40% (as opposed to under 20% for the typical companies) leads to subsequent and future acts of accounting tunneling fraud in which corporate wealth and cash is tunneled out. In the case of Fuxing Zipper, the OP/OL ratio in 2007 and 2008 is 44% and 52% respectively, as opposed to around 19% for YKK for instance.

<ARTICLE SNIPPED>

In the case of Fuxing, let’s apply the below measures to detect the accounting transgression ahead of the curve before FY09-12:

• Bloated Balance Sheet (Measure #2)
• Measure #3
• Measure #4
• Measure #5
• Measure #6

 <ARTICLE SNIPPED>

 … the set of tunneling measures reveal that lurking beneath the deceptively attractive financial ratios and valuation metrics is the hideous Picture of Dorian Gray with all the sins hidden.

This is what we wrote in Aug 28, 2013 and we still feel very strongly, if not more so, about what we have written since:

“This prevalent situation in Asia is analogous to that of the Picture of Dorian Gray in the novel by Oscar Wilde (1890) – the face of Dorian Gray showed no signs of aging as time passed, whereas the sins of his worldly existence are vivid in the portrait of himself that he kept hidden in the attic. The Dorian Grays of Asia have been able to get away with their accounting frauds and misgovernance transgressions because they are branded as sexy growth companies who charm party-goers with their good looks (quantitative financials) and riding on “The Asian Growth Story”. 

At Bamboo Innovator, our task is to support fellow value investors to understand and appreciate the early signs of potential problems and red flags in Asian companies ahead of the market, to see the real attic portrait of the companies’ financial health and economic worth.

 We still hold on feverishly to the idealistic hope that a community of like-minded people can come together to spread their knowledge and kindness built around a resilient mental model, a home that everyone can breathe in it and make it their own. We hope that our candid and authentic views about value investing can be shared in our little community. 

 Thus, despite self-doubts all the time, this mission to create value for our readers with the Bamboo Innovator analytical framework has pulled us forward to devote nights after nights and squeeze every ounce of our bludgeoned body to do this. This is why we care so much about doing The Moat Report Asia for you.

 Having the inner compass of the Bamboo Innovator in our hearts can help us not lose our way in difficult and uncertain times as we journey together in the dangerous Asian capital jungles.”

Warm regards,

KB

The Moat Report Asia

www.moatreport.com

http://accountancy.smu.edu.sg/faculty/profile/108141/KEE-Koon-Boon

A new monthly issue of The Moat Report Asia is now available!

Access the in-depth idea presentation:

http://www.moatreport.com/members/

Paid subscribers get:

• The Monthly Moat Report Asia (20 issues)
• Bonus Content: The Weekly Bamboo Innovator Insight Articles (>70 Issues)
• Bonus Content: Access to the Members’ Forum
• Bonus Content: Videos and Presentations by Thoughts Leaders, Entrepreneurs and Business Leaders in Asia

• 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.

Part 2: Gandhi’s Talisman to Detect Accounting Fraud

Part 1: Are You a “First-Class Noticer” of Wide-Moat Compounders?

“Are you free now?” N asked me in a pensive mood when our paths crossed in a chance encounter in the underground basement of the Singapore Management University.

“Sure, what’s on your mind?”

“I have read your email on ‘To what can I devote my life’ last night and I have been thinking. I like to show you something. It’s an app business that I am doing up with my friend Chris.”

N, a SMU accounting student taking the course Accounting Fraud in Asia, and his friend Chris have started a mobile app company which had developed an Uber-like mobile app to assist us to beat the long queues in healthcare clinics.

M3 Inc (TSE: 2413)  – Stock Price Performance 2004-2015

When I listened to N explaining his app, i immediately shared with him the Japanese innovator M3 Inc (2413 JP, MV $6.6bn). M3 is an overlooked wide-moat Bamboo Innovator I wrote about in 2012 and shared with the CEO and top management team of a listed tech company in a series of workshop “Uprising! With Bamboo Innovators: Business Model Innovations and TMT Industry Trends” conducted in Singapore, HK and Beijing in 2012/13. M3 has since tripled to $6.6 billion. M3’s popular iTicket (www.iticket.co.jp) internet and mobile service used by more than 500,000 members to make reservations at clinics and beat the long queues might have some relevance for N to articulate the business model to seek funding – and clarity in their own execution and scalability. Both Chris and N have never heard of M3.

I explained briefly to them that M3 started out like a Google for medical professionals, with its core MR-kun service used as a marketing tool by pharmaceutical companies to provide consistent, repeated delivery of information on products and diseases. MR-kun also provides a channel for companies to receive questions and feedback from doctors, strengthening company/doctor relations.

With support by Sony Corp subsidiary So-Net which retains a 49.8% stake in M3, Itaru Tanimura established M3 in 2000 when he was 35. Essentially, M3 recognized that the demand for eDetails is quite high for busy physicians who require timely information at their convenience, without the limitations imposed by their off-line MRs. Doctors spend the most time collecting information via the Internet. Conversely, pharmaceutical firms spend the majority of their budget on MR related costs – and Japanese pharmaceutical firms’ huge marketing cost of ¥1.2-1.5tr ($10-12.5bn) is not sustainable.

Pharmaceutical companies signed up for MR-kun pay a basic annual fee of ¥70 to ¥100 million ($0.58 to 0.83 million) per electronic “e-detailing message,” which is the online equivalent of a sales visit by a MR (medical representative) to a physician’s clinic. In the pharmaceutical industry a sales visit by an MR to a doctor’s clinic is called a detail. M3 also charges fees for the production of promotional content and receives fees for other services such as facilitating the exchange of messages between pharma company MRs and their physician clients.  The average of M3’s top five clients pays ¥860m ($7.2m) every year.

A dominant platform used by 80% of Japan’s physicians, MR-kun is rated by over 92% of its users who said its usage “deepened their knowledge of diseases”. With this intangible trust built up amongst the community of users, M3 is able to leverage this relationship with its members to develop new online tools. These include online tools in clinical trials to determine the feasibility of trials and help with patient recruitment, market research and survey panels, and online job search and career information site for member doctors and pharmacists. In China, M3’s membership for the healthcare professional portal site Medilive.cn topped one million members in August 2014 after just five years, covering roughly half of the physicians in China. M3 leveraged upon the media capacity of Medilive.cn to expand into “Messenger”, the Chinese version of MR-kun.

M3 even expanded from B2B to B2C by providing a range of services for consumers including AskDoctors.jp, a subscription service that gives patients a chance to ask doctors questions about their ailments, and iTicket.

M3’s Tanimura-san is what literary giant Saul Bellow would call a “first-class noticer”. Two entrepreneurs or value investors can study the same business model, watch the same video, or even take the same advice from a mentor, but the intensively-attentive and committed first-class noticer pick up critical details, opportunities and talents among noise that the other misses.

Building on Bellow’s term, Harvard’s business psychology expert Max Bazerman studied why some people notice and act on threats and opportunities while others do not. Bazerman identified three core challenges to being a first-class noticer: (1) Ambiguity, (2) Motivated blindness due to ego or vested self-interest, and (3) Conflict of interest with our desires influencing the way we interpret information, even when we are trying to be objective, and others that include the slippery slope and efforts of others to mislead us.

We develop noticing skills by acknowledging responsibility when things go wrong rather than blaming external forces beyond your control. Some character moves we can make to become first-class noticers:

• Develop the introspection and capacity for observation to discover just how you learn and then to get out and do it.
• Build in a process and attract people around you to challenge ambiguity, motivated blindness, and any conflict of interest to change you might have. Do it with intention. Intentionally establish a system to test your biases and comfortable assumptions.
• Have a growth mindset that makes reinvention of yourself a regular way of life. Notice the signs. Find a way to embrace them rather than avoid them. Be self-accountable. Do it now.

Above all, the first-class noticer notices better because he or she cared more about their long-term journey than the shot-term paycheck. The intensive attentiveness is applied to a Purpose with an authentic Voice and the ability to engage others in shared meaning and to be truly aware of what’s going on in the world from wide-ranging and diverse sources of information. In the immortal words of leadership guru Warren Bennis, “the first-class noticer integrates a purpose with noble aims”. The first-class noticer devotes himself or herself to the Purpose and idea larger than themselves, being watchful and thankful. The word “watchful” is a legacy from the Old Testament – or a proactive sitting on a city wall and keeping watch. Watchmen were the first ones to see attacking armies or traveling traders. They saw things before others saw them.

One of the world’s greatest and most inspiring first-class noticer and Bamboo Innovator is Kazuo Inamori. Born into poverty, Kazuo Inamori lost his family home at age 13 and almost died that same year after contracting tuberculosis. A religious neighbour handed him several Buddhist religious tracts, urging him to meditate on the meaning of life. As he meditated, his TB subsided. His reprieve left Inamori with the idea that he should strive for the betterment of humanity.

Carrying this value in his heart, Dr. Inamori built two world-class companies from scratch in the course of a generation – global advanced ceramics company Kyocera (6971 JP, MV $20.6bn) (founded in 1959) and Japan’s second largest telecommunications firm KDDI (9433 JP, MV $62.8bn) (established in 1984), with a combined market capitalization of over $80 billion and employing over 80,000 kindred spirits. Through his commitment to society, which include the creation of the Nobel-class Kyoto Prize which honors contributors in technology, science, arts and philosophy by his Inamori Foundation, Inamori-san, 83, carries the voice of entrepreneurship on a global scale as the “Entrepreneur for the World”, an award he was presented with during the World Entrepreneurship Forum in 2009.

As president of Seiwajyuku, a business leadership association dedicated to nurturing business owners and entrepreneurs, Inamori-san, ordained as a Buddhist monk at 65, offered this advice to entrepreneurs:

“If your goal is to be a rich and beautiful celebrity, or if you are not willing to sacrifice yourself for the world and other people, do not try to be an entrepreneur. Entrepreneurs have heavy responsibilities and must share the fruits of their labor with employees and shareholders. We must always have criteria in our hearts that can help us answer the question, ‘What is the right thing to do as a human being?’ and guide us to do what is good for society and humanity in our daily work.”

After our chance encounter, N sent me an email that he aspires to build the “M3 of Southeast Asia”: “Uber became the one of the largest transport service company with no taxis. Alibaba became the world’s largest e-commerce company with no inventories. We hope our company can have a firm foothold in the medical industry without clinics”.

The medical industry needs high reliability because of its mission to care for the life of human beings. This is the reason why M3 succeeded with the trusted platform, the “emptiness” of the trust and support from the community of pharmaceutical firms, physicians, and patients to generate stable and continued income with the option value and potential to expand their business based on the trusted platform.

We wish N all the best in the pursuit of his aspiration – and to become a first-class noticer of business model innovations beyond the mere technical aspects of what makes a wide-moat compounder.

Part 2: Gandhi’s Talisman to Detect Accounting Fraudx

The revered Indian leader Mahatma Gandhi once gave to his grandson Arun a talisman that listed the seven “blunders” that he believed led to violence:

Wealth without work.

Pleasure without conscience.

Knowledge without character.

Commerce without morality.

Science without humanity.

Religion without sacrifice.

Politics without principles.

Number four on the list – Commerce without morality – was poignant in accounting tunneling fraud that is increasingly prevalent in the Asian capital jungles akin to 2011. 2011 is the year when many Chinese stocks unravel in accounting frauds: Sino-Forest, Long-Top Financial, China Agri-Tech, ChinaCast Education etc. 2011 is the year of the shadow banking crisis rearing its ugly head, akin to the late 1990s, leading to a tightening in credit conditions, which in turn resulted in companies finding it more difficult to opportunistically use the roll-away “other receivables” and loan guarantee accounting tunneling trick with cheap money.

As we have explained in an earlier article “Shedding of the Asian Snake’s Skin: The Opportunistic Tunneling of Corporate Wealth”, loan guarantee presents a seemingly innocuous Opportunity to maliciously tunnel out corporate wealth in Asian companies.

Take the case of Olympus. It deposited ¥21bn in Japanese government bonds with LGT Bank and arranged for the bank to use these bonds as collateral for a loan to two shell companies, the “tobashi”. The unconsolidated shells in turn used the borrowed funds to buy the toxic investments from Olympus at the original cost. Olympus recorded the amount it deposited with LGT and the toxic assets were considered “sold” to the shells, thereby avoiding recognizing massive losses on these underwater securities. In other words, Olympus acted as a guarantor of loans made by the banks to the shells by depositing funds at the banks equal to the amount loaned. If the related-party nature of the transaction was disclosed, the ¥21bn will be recorded as a financial liability in the balance sheet.

In China and Asia, the loan guarantee accounting problem to undisclosed related parties has shifted to intercorporate loans, classified under “Other Receivables”. With some reforms mitigating these RPTs, the Asian Snake has adapted and shifted to other accounts in disguised forms. Hence our earlier article for a sense of urgency to develop a new composite measurement of accounting tunneling fraud. Hence, cash in the balance sheet in Asian companies is invariably never really cash unless one examines these related-party transactions (RPTs), often held in scant regard by investors using western-style financial statement analysis and by Asian auditors.

Note that when value investors tend to use quant screens and investment checklists, however rigorous, to churn out a list of investment targets with high cash & cash equivalents, the numbers and ratios such as EV/EBITDA, EV/EBIT, P/Book, ROIC, ROE, ROA, Net Operating Assets etc all use aggregate numbers that include these “other receivables/prepayments/cash equivalents etc” into the calculation – producing misleading and fatal interpretations. This is easily evident in recent weeks in which audit failures have erupted in a number of HK-listed Chinese companies that are “value stocks” with “cheap” PE and P/Book ratios or are former thematic stock darlings – and the telltale signs of the accounting tunneling fraud can be detected a few years before the actual accounting woe in what we have shared in our course Accounting Fraud in Asia taught at the Singapore Management University. These recent cases include:

China Taifeng Bedding (873 HK, MV $139m) on 31 Mar 2015, Auditor: Baker Tilly

The “cheap” value stock: PE 10.6x, P/BV 0.36x

Delay in the publication of 2014 Annual Results due to:

• Potential impairment in the fair value of the financial guarantee contracts given to banks on the borrowings of its subsidiary Shandong Taifeng Textile given to “independent third parties” (possible related-parties?).
• Likely impairment in the fair value of the estimation of the recoverable amounts of the Group’s assets, including other receivables and loans receivables of RMB480m.
• Auditors are unable to ascertain the cash flow position of the Company, including the liquidity position of the Company

Below is the interim 2013 report announced on Sep 12, 2013 when its share price was HK$1.55 (now HK$1.08). One can notice that the trade and other receivables and prepayments as at 30 Jun 2013 is RMB1.4bn and the corresponding footnote only discloses the trade receivables amount of RMB836m, totaling omitting the “other receivables and prepayments” of RMB568m. This amount is subsequently the source of the audit failure announced on 31 Mar 2015, a year and a half later. By FY2013, the amount of these “other receivables, prepayment to suppliers, prepayment for operating expenses, loan receivables” has exploded to RMB1bn!

Nature Home (2083 HK, MV $208m) on 26 Mar 2015, Auditor: KPMG

The “cheap” value stock: P/BV 0.5x

Sound Global (967 HK, MV $1.3bn) on 31 Mar 2015, Auditor: Deloitte

The “cheap” value stock: PE 13.6x, P/BV 2x

Rexlot (555 HK, MV $1.2bn) on 28 Mar 2015, Auditor: Ting Ho Kwan & Chan (THKC)

The “cheap” value stock: PE 7.5x, P/BV 1x

China Qinfa (866 HK, MV $67m) on 31 Mar 2015, Auditor: KPMG

The “cheap” value stock: P/BV 0.2x

<Article snipped>

As Gandhi points out with his wisdom, Commerce without Morality leads to Violence and Accounting Fraud.

Commerce would not have progress beyond the barter system without the invention of a system of weights and measures. Before there was the traditional Chinese steelyard (gancheng), buyers and sellers eye the heap of goods to determine their weight. It is difficult to achieve a fair trade. With the gancheng, the object to be weighed hangs at one end of the beam, while the weights at the other end are slided left or right until a perfect balance of the beam is found. Reading of the mark where the weight-string rests is made to determine the weight of the object. There are 16 markings on the arm of a gancheng, such that 16 qian is equivalent to 1 liang and 16 liang is equivalent to 1 jin (or 604.79 grams). The Chinese unit of measurement was based on the number 16 instead of 10.

But why 16?

16 is the sum of 7, 6 and 3. 7 stands for the Beidou Seven-Star Constellation, which symbolizes the need to have the right direction in our heart when we use the measurement tool to make money and not be too greedy. 6 stands for the directions North, South, East, West, Up, and Down, which cautions us to stay centered in our ethical principles when making money. Lastly, 3 stands for Fu (Good Fortune), Lu (Prosperity), Shou (Longevity). When we make money by squeezing one liang improperly out of others, we lose Shou (Longevity); wrench two liang and we lose Lu (Prosperity). Give money back to the customers and society in a sustainable way and we gain Fu, Lu, Shou. Thus, the 16-unit scale is not merely a tool to measure and make money, but more importantly, it is a scale to guide and measure our values in life and in business.

To rephrase Gandhi’s talisman, commerce is not merely about the measurement of the weight of profits collected in multiple clever transactions to build abstract personal wealth. Only in the endeavor to perform first for customers, and serve them with the highest possible integrity and character, can commerce find its foundation for durable business success and create society’s abundance.

PS1: We will be speaking again at the Asian Investing Summit on April 7-8, joined by First Eagle’s legend Jean-Marie Eveillard, Third Avenue’s Amit Wadhwaney, Japan’s HC Capital’s Noriyuki Morimoto-san, Varecs Partners’ Jiro Yasu, and other value investors: http://www.valueconferences.com/reg/asia15/

PS2: This is a double-issue for April 6 and April 13. We will be back with the weekly on April 20. In the meantime, we will be uploading value-added content such as potential accounting fraud reports that include Rexlot and actual accounting fraud cases such as Malaysia’s Transmile for our Moat Report Asia paid subscribers.

Warm regards,

KB

The Moat Report Asia

www.moatreport.com

http://accountancy.smu.edu.sg/faculty/profile/108141/KEE-Koon-Boon

A new monthly issue of The Moat Report Asia is now available!

Access the in-depth idea presentation:

http://www.moatreport.com/members/

Subscribers get:

(1)    The Monthly Moat Report Asia (20 issues)

(2)    The Weekly Bamboo Innovator Insight Articles (>70 Issues)

(3)    Access to the Members’ Forum

(4)    Videos and Presentations by Thoughts Leaders, Entrepreneurs and Business Leaders in Asia

(5)    Asian Extractor – Unearthing Accounting Fraud in Asia. Any potential new value-added content about Asia’s accounting fraud risks and governance pitfalls from the course will be shared with our Subscribers as we journey together in the miasmic Asian capital jungles. We are pleased to present the presentation materials exclusively for our Moat Report Asia subscribers:

• Week 1 – Survival in the Asian Capital Jungle: Who Knows What When? (108 slides)
• Week 2 – Western Tools to Catch An Asian Snake? (111 slides)
• Week 3 – The Incentivized Asian “Wedge” Snake to Tunnel Corporate Wealth (105 slides)
• Week 4-5 – Shedding of the Asian Snake’s Skin, The Opportunistic Tunneling of Corporate Wealth (157 slides)
• Week 6 – Descend into the Asian Snake’s Lair, Occult Offshore Centers, Tax-Tunneling, and Consolidation Craftiness (89 slides)
• Week 7-9 – The Asian Snake Charmer and Stock Manipulation Scheme  (112 slides)
• Week 10 – The Accounting of Words and the Hiss of the Asian Snake (57 slides)

You will also get download access to the presentation by our invited expert guest speakers:

• Mr. Jarrod Baker, the Senior Managing Director at NYSE-listed forensic specialist FTI Consulting Inc (NYSE: FCN, MV $1.5bn).
• Mr. Hemant Amin, Founder, Chairman and CEO of Asiamin Capital, a successful multi-million single family office, and Founder and Chairman of the BRKets investor group (www.brkets.com)

(6)    Emerging Markets Research. KB is also the co-advisor to the School of Accountancy’s SMU Emerging Markets Club (www.smuem.com). Carefully-curated presentations are made available for download for our subscribers:

• Kerry Logistics Network (636 HK) and China’s Transportation & Logistics Industry, by JIANG Lingjun
• PT Bank Tabungan (BTPN IJ): BTPN’s Successful Business Model, by Daniel IGOR
• PT Sumber Alfaria Trijaya Tbk (Alfamart) (AMRT IJ): Maintaining Its Stranglehold as Competition Heats Up in Indonesia’s Modern Grocery Retail Industry, by Kelly GOH Wan Jun
• Mitra Adi Perkasa Tbk PT (MAPI IJ): Still Fashionable in the Fashion Apparel Retail Industry? by Lucas LIM
• Alibaba: Embracing Its Challenges + China Online Market: Growing with Challenges, by JIANG Lingjun
• Ulmart: Russia’s Own Amazon, by Christina LIM