Bamboo Innovator Daily Insight: 6 May (Wed) – 7 Important Life Lessons Everyone Learns the Hard Way. What Is Your Purpose? We need to forge new ways to seriously discuss the deepest questions in life with modern tools

Life

  • What Is Your Purpose? We need to forge new ways to seriously discuss the deepest questions in life with modern tools. NYT
  • 7 Important Life Lessons Everyone Learns the Hard Way: Marc&Angel
  • The $112 Billion CEO Succession Problem: Strategy&
  • The growing business of detecting unconscious bias: FastCo
  •  The New Rules for Growing Outside Your Core Business: HBR
  • Growing by adapting at speed; How do companies stay ahead when everyone is accelerating? Not by merely adapting to changing conditions, but by doing so quickly and decisively: McKinsey
  • Singapore PM Lee Hsien Loong shares source code for Sudoku project: e27
  • Walmart CEO: Waiting for consensus “can kill you”: Forbes
  • In face of IS successes, al-Qaida adapts, grows stronger: ChinaPost
  • 52 Years and Counting: America’s Longest-Serving CEOs: WSJ
  • In ‘Misbehaving,’ an Economics Professor Isn’t Afraid to Attack His Own: NYT

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Bamboo Innovator Daily Insight: 5 May (Tues) – The Philosophy of Warren E. Buffett

Life

  •  The Philosophy of Warren E. Buffett: NYT
  • Meet the father-son team making $1.3 million on YouTube; 9-year-old Evan and his dad have turned their love of toys into a seven-figure YouTube business: FastCo
  • A neuroscientist explains how being aware of your emotions can make you super-productive: BI
  • Here’s what Warren Buffett told a 7th grader who asked for his advice: BI
  • Berkshire’s Warren Buffett Shows His Teddy Bear Image Has Tough Side: NYT
  • Kick forced ranking out of the office; Ignore Jack Welch: Yahoo’s quarterly reviews show how employee ‘leagues’ cause turbulence: FT
  • Art of the Japanese company apology: It’s all in the bow: JT
  • Inside the school Silicon Valley thinks will save education: Wired
  • Restoring Humanity to Leadership: Insead

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An Asian Innovator in the Race Towards the Autonomous Car and the Next Bosch India for Buffett’s Growing Auto Empire

 “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 | May 4, 2015
Bamboo Innovator Insight (Issue 81)

  • 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.
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Dear Friends,Can You Guess This Asian Wide-Moat Company? An Asian Innovator in the Race Towards the Autonomous Car and the Next Bosch India for Buffett’s Growing Auto EmpireIs Berkshire Hathaway building an automotive empire next?Following up on the Oct 2014 acquisition of auto dealer Van Tuyl with $9bn in sales, Buffett bought German bike gear maker Devlet Louis Motorradvertriebs for $450m in Feb 2015 and splurged $560m for a 8.7% stake in Axalta Coating (AXTA US), the former DuPont auto coatings business and the world’s biggest supplier of coatings to auto repair shops and the second-largest provider to manufacturers of cars and lights trucks in Apr 2015. Interestingly, BRK invested in Axalta when it is trading at an all-time high. The valuation of the Axalta deal was not cheap at EV/EBIT 21x and EV/EBITDA 13x, highlighting the confidence that Buffett has in the well-managed consolidators in the automotive sector with a long-term reputation amongst clients. BRK also controlled a 2.6% stake in General Motors (GM US) and is exposed to the automotive sector through Lubrizol, a maker of lubricants for automobiles and machinery, which was acquired for $9bn in 2011.Are there worthy automotive candidates in Asia for BRK to pounce upon, beyond auto dealers?This month, we highlight a wide-moat innovator who is the #1 in Asia in a patented automotive electronics part that is part of the fast-growing Advanced Driver Assistance System (ADAS) market worth >$22bn by 2018, doubled from $11bn in 2014. The ADAS market is driven by more stringent safety requirements from governments forcing the automotive industry to develop automotive electronics solutions to increase vehicle safety. [Company’s name] is the third-largest in the world behind Valeo (FR EN) and Bosch. It has >50% market share in new cars sold in China, and the installation rate of this ADAS product on China’s auto is still low (35%+ on new cars vs 80%+ in developed markets). Established in 1979 by founder and Chairman Mr. C, [Company’s name] is one of the rare Tier-1 automotive suppliers in Asia to major OEM car makers that include Ford, GM, Daimler, Hyundai, Nissan, China’s top 10 auto companies such as Great Wall Motor, thereby directly shipped to them and involved in their R&D processes and early stage processes of concept car design and prototyping, creating a pre-emptive advantage in winning new orders.

Over the past 36 years, [Company’s name] has forged formidable competitive advantages in scale, product quality, technological know-how and R&D capabilities and in May 2012, [Company’s name] outgunned illustrious industrial automotive giants Valeo (founded in 1923) and Bosch (founded in 1886) to sign a breakthrough global 10-year contract with GM, with the commencement of worldwide shipment to 18 countries and 25 factories at the end of 2016. The journey has not been easy for Mr. C who recounted his days of carrying the same brief case containing the auto parts to knock on doors..

********

Q: “Can you share with us what is so difficult about making these [Company’s flagship product] and automotive electronics parts beyond having more capital and money?”

Mr. C: “Time. Time is the most difficult thing. The closed, protected automotive industry demands an exceptionally high standard of safety, durability and reliability of the 8,000 to 15,000 auto parts that go into the car, even more so for automotive electronics products since these are integrated into a system and platform as opposed to some stand-alone parts. It’s not a case of whether you can produce the parts with high quality and people will then use them.

Only AFTER you produce the parts and somehow manage to convince someone to test it for at least a year or more, ensure that the parts stay defect-free, zero PPM (parts per million), under rigorous test conditions, can the OEM carmaker say, OK, we will try it. But the actual truth is, when you have produced what you think is a high quality part and approach the OEM carmakers, they will all say, ‘Why don’t you bring this to other factories to test it out first. If the others are ok, we will look at it. Every car factory will say the same to you. No one wants to be the guinea pig, the lab rat. As a result, you will never get in to their supply chain.

To win their trust is not easy. I remembered in those years, I would carry the same brief case that I use to knock on doors. In it contained the auto parts. Everyone would say that they are interested and to send them the samples. However, when the samples are sent, the rock sinks to the ocean and there is no news. Hence, time is the biggest cost and the most difficult thing.

One might think that automotive electronics products could be similar to consumer electronics parts. Hence, the barriers to entry are low and there could be new entrants. This thinking could not be more wrong.

On our flagship product itself, do you know that a [Company’s flagship product] would have to withstand extreme hot and cold temperature changes, withstand vibration, stay water-resistant, anti-dust, anti-humidity, anti-signal disruption, and a battery of tests. Amongst these tests is the requirement to continue functioning in the sudden change from minus 40 degrees Celsius to 85 degrees Celsius. And our engineers have to go with the OEM carmakers to actual sites in Northern Europe, China’s Heilongjiang and the Gobi desert to do the tests.

[Company’s name] is proud that our production quality has reached over 36 months (and still running) of zero PPM (parts per million) defect. This is the real reason why we are able to win Valeo and Bosch and win the hearts of our customers to place orders with us.

********

Bosch India (NSI: BOSCHLTD) Stock Price Performance 1994-2015

Bosch India

In the ruthless cut-throat automotive industry, the fact that Bosch India (BOS IN, MV $11bn) and [Company’s name] have strikingly similar EBITDA margin at 15.6% and ROE of around 14.5% (although Bosch India is net-cash but has low dividend payout) speaks volume about [Company’s name]’s wide-moat advantage in securing long-term pricing power and earnings sustainability with the major OEM carmakers by winning their trust to strike long-term partnership in global platform deals. Bosch India trades at an expensive valuation premium of EV/EBITDA 45.7x as compared to 15x for [Company’s name].

While [Company’s name] has a dividend yield of 2.2%, it is not cheap in valuation at EV/EBIT 18.4x and EV/EBITDA 15.1x. We believe that the key to valuation success for an innovative automotive supplier is a Tier-1 status (as opposed to the “cheap” Tier-2 or 3 players) and the long-term visibility and sustainability in generating quality growth by offering products and technology that play into the upcoming movement towards either (1) “Efficiency”: fuel efficiency, emissions and environmental footprint of a car, or/and (2) “Content”: comfort, convenience and safety features that help improve the ownership experience of the automobile. Bosch India belongs to the “Efficiency” category when it was re-rated since its tipping point moment in 2006 when it set up the manufacturing facilities for CRDi-based passenger diesel engine system in India and market value compounded 8-fold in 9 years to $11bn while sales climbed 150% over the same period to generate a doubling in earnings growth from Rs5.5bn in FY06 to Rs10.5bn ($160m) in FY14. [Company’s name] belongs to the “Content” category and is also one of the rare few Tier-1 auto suppliers in Asia. We believe the technical superiority of [Company’s name] in developing low-cost innovative solutions that enabled it to command a >50% market share for new cars in China deserves to command a higher valuation.

We are impressed by Mr C’s dedication, patience and focus in not only building up a rare Tier-1 supplier capability but also in forging a corporate culture that feels like an enterprise of engineers, reminding us of automotive parts innovator Gentex (GNTX US, MV $5.2bn)/John Bauer. [Company’s name] has around 400 engineers and R&D specialists, comprising 20% of the workforce, a similar ratio to Gentex. We like how [Company’s name] has consistently reinvested back into the business to develop its R&D and new product innovation capabilities beyond its flagship product that are now building up sales momentum as well as set the company on a long-term growth trajectory path in the fast-growing multi-billion ADAS market and the race towards the autonomous car.

As Mr C puts it aptly:

“What’s next for [Company’s name] isn’t about how many cars there are; it is about how electronic the cars can be. There is great long-term potential for automotive electronics parts in the future car, which will jump from the present 10% of the total cost of making a car to 40%. To capture this long-term opportunity, [Company’s name] will continue to build upon our 36 years of accumulated know-how, capabilities, global partnership platform and underlying trust with our global clients to enable [Company’s name] to shine bright in the global automotive industry!”

Who is Mr. C and this wide-moat Bamboo Innovator?

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

Access the in-depth idea presentation:

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

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/

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Bamboo Innovator Daily Insight: 4 May (Mon) – The most brilliant things Warren Buffett and Charlie Munger said at Berkshire’s annual meeting

Life

  • The most brilliant things Warren Buffett and Charlie Munger said at Berkshire’s annual meeting: BI
  • How To Win Like PayPal Co-founder Peter Thiel: Six Of His Rules for Business Success: Forbes
  • Charlie Munger – Part Nine: Colorful Charlie And The Cinderella Principle: VW
  • 40 Busy Years Later, Paul Allen, a Microsoft Founder, Considers His Creation: NYT
  • Warren Buffett forced to defend relationship with Brazil’s 3G Capital: FT
  • Fantastic words with no easy translation in other languages: Quartz
  • How To Get Smarter: barker

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Bamboo Innovator Daily Insight: 3 May (Sun) – The Case Against Competing; Buffett Says Next Berkshire CEO Should Be More Than Stock Picker

Berkshire Hathaway 50th Anniversary

  • Buffett Says Next Berkshire CEO Should Be More Than Stock Picker: Bloomberg
  • What You Should – and Shouldn’t – Learn from Warren Buffett: WSJ
  • Berkshire Shareholders Pepper Warren Buffett With Some Hard Questions: WSJ, Reuters, Fortune
  • 50 Years of Warren Buffett in The Wall Street Journal: WSJ
  • WSJ Recap: The 2015 Berkshire Hathaway Annual Meeting: WSJ
  • 7 Takeaways From the Berkshire Hathaway Annual Meeting: WSJ

Life

  • The Case Against Competing: HBR
  • The Workhorse and the Butterfly: Ann Patchett on Writing and Why Self-Forgiveness Is the Most Important Ingredient of Great Art: BP
  • JFK on Poetry, Power, and the Artist’s Role in Society: His Eulogy for Robert Frost, One of the Greatest Speeches of All Time: BP
  • Creating values through horizontal leadership: Mayora Indah’s Ricky Afrianto is strengthening brand positioning and boosting sales by saying now to bureaucratic management constraints. JP
  • 3 Steps to Break Out in a Tired Industry: HBR
  • Mental Model: Bias from Overconfidence: Farnam
  • Michael Mauboussin on Intuition, Experts, Technology, and Making Better Decisions: Farnam
  • The Procrastination Doom Loop-and How to Break It: Atlantic
  • The Art of Staying Focused in a Distracting World: Atlantic
  • Mixed Signals: Why People Misunderstand Each Other; The psychological quirks that make it tricky to get an accurate read on someone’s emotions: Atlantic
  • SurveyMonkey CEO Dave Goldberg Dies Suddenly at 47: WSJ

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Bamboo Innovator Daily Insight: 2 May (Sat) – The Enduring Hunt for Personal Value; Spend Your Day With Berkshire Hathaway (Whether You Want to or Not): Warren Buffett’s products and services are everywhere

Berkshire Hathaway 50th Anniversary

  • Spend Your Day With Berkshire Hathaway (Whether You Want to or Not); Warren Buffett’s products and services are everywhere. Just look at what you’re doing Saturday: Bloomberg
  • Berkshire Hathaway’s meeting: Fun at fifty; The sage of Omaha celebrates half a century on top of the world: Economist
  • Woodstock of Capitalism’s odd couple: FT
  • I’ve Followed Warren Buffett For Decades And These 10 Quotes Are What I Keep Coming Back To: LinkedIn
  • What Will Berkshire Look Like Over the Next 50 Years?: Morningstar
  • Warren Buffett: ‘If You’re Looking for a Wonderful Business, It’s Hard to Beat Coca-Cola’: Coca-Cola
  • Timeless Investment Lessons From Warren Buffett’s Business Partner, Charlie Munger: Morningstar
  • Why Warren Buffett considers the deal he made with an 89-year-old woman one of the best of his career: BI

Life 

  • The Enduring Hunt for Personal Value: NYT
  • David Letterman Reflects on 33 Years in Late-Night Television: NYT
  • Self-image matters: Helping kids see themselves as readers: WaPo
  • Ancient DNA Tells a New Human Story; Armed with old bones and new DNA sequencing technology, scientists are getting a much better understanding of the prehistory of the human species: WSJ
  • The Rise and Fall of the Term ‘Third World’; Report says the phrase ‘Third World’ had its start at a 1955 conference, but the words grew out of the work of French social scientists: WSJ
  • Distaff Scientists: Is it wrong to be captivated by a great thinker’s personality, rather than the drier stuff of résumés? WSJ
  • The Half-Life of Physicists: In 1947 Erwin Schrödinger boasted of a big new result that would beat his sometime collaborator Albert Einstein. They were both wrong.: WSJ
  • Billionaire investor Peter Thiel: ‘Always aim for a monopoly. From society’s perspective, it’s complicated. But from the inside, I always want to have a monopoly.’: BI
  • Ten Golden Nuggets: SeekingWisdom
  • Addiction to Truth: David Carr, the Measure of a Person, and the Uncommon Art of Elevating the Common Record: BP
  • A Dozen Things I’ve Learned From Comedians About the Business of Life: 25iq
  • An eminent scientist posits a new theory of how life came to be; The Vital Question: Why Is Life the Way It Is? By Nick Lane: Economist

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Bamboo Innovator Daily Insight: 1 May (Fri) – After Warren Buffett: Berkshire Prepares for Life Without Legendary Leader

Berkshire Hathaway 50th Anniversary

  • What Is Berkshire Hathaway? WSJ
  • Warren Buffett losing some mojo on his economic ‘moats’: Reuters
  • Warren Buffett Has a Tough Act to Follow; Berkshire Hathaway’s Warren Buffett hasn’t lost his touch, but future returns aren’t likely to match his historical record. WSJ
  • 11 Picks from Warren Buffett’s Bookshelf: WSJ
  • After Warren Buffett: Berkshire Prepares for Life Without Legendary Leader; Berkshire Hathaway’s octogenarian CEO does ‘everything humanly possible’ to make sure culture grows without him: WSJ

Life 

  • Shredding the rules: A striking number of innovative companies have business models that flout the law: Economist
  • The eight essentials of innovation: Strategic and organizational factors are what separate successful big-company innovators from the rest of the field. McKinsey
  • Say This, Not This: The Words to Use and the Words to Lose: Milken
  • When It’s Safe to Rely on Intuition (and When It’s Not): HBR
  • An exam board chief wants British students to use Google to find answers in their tests: BI
  • The 9 biggest mistakes people make in their 30s: BI

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