“Honor the Past, have Discipline and Hard Work for the Present, have Vision with Passion for the Future” – MoatReport.com Monthly Riddle

Dear Friends,

Can You Guess This Asian Wide-Moat Company?

“Honor the Past, have Discipline and Hard Work for the Present, have Vision with Passion for the Future”

“I believe in three things: Past, present and future. Honor the past, which means honor your parents, for the values they give to you, the experiences they pass down. For the present, you have discipline, hard work, using the talent you have been given. Last, the future, which is vision with passion.”

– Madam Y

Which Asian superbrand is so strong that Italian chocolate and confectionary giant Ferrero SpA and Unilever are compelled to bundle their products to better reach out to win the hearts and wallets of the local consumers? And these giants bear the cost of the superbrand’s product in the co-marketing campaign.

This month in December/January 2017, we investigate the owner behind this Asian superbrand who commands a dominant 90% of the domestic mass market share with its brand. Yet, there is a still a visible long runway to compound growth as the company operates in the segment which contributes to 20% market share of the overall highly fragmented industry with room for growth to consolidate the home/small producers making up 68% of the overall market and boutique producers accounting for 12% of the market. [Company’s name] operates 10 factories that is supported by a vast and efficient distribution network of 61,000 point of sales via modern trade channels and traditional trade channels. Established in 1996 by Madam Y and her father, together with two Japanese giants who later became strategic shareholders and technological and trade partners, [Company’s name] has become one of the country’s most recognizable household brands. [Company’s name] is also far-sighted in cultivating children as long-term consumers as they grow up, just like McDonald’s, by conducting factory visits for school children and opening their brand house at Kidzania, the edutainment centers allowing children to work in adult jobs and earn currency and receiving more than 31 million visitors since its opening, making it one of the fastest growing global edutainment brands in the world.

Due to its strong brand equity and efficient supply chain management, [Company’s name] generates a growing ROE of 34.3% and enjoys low to negative cash conversion cycle, a rare quality for manufacturers. This allows the company to repay its bank loans quickly using idle cash as it expands to grow. This efficiency is enabled by its adoption of the ERP system to integrate all systems and procedures starting from raw material purchase to product distribution. The program can also integrate the real-time conditions of the factories, which is a useful feature considering the different locations of the factories. In addition, [Company’s name] laid foundations for advanced distribution network and market penetration in 2012 with its own program which uses state of the art technology to monitor selling patterns, manage product and drop mix; remapping distribution areas built over the last 20 years and expanding its network of agents and distributors. The development of state-of-the-art tracking systems enabled the company to have a growing distribution network and deeper and wider market coverage. This technology allows the company to not only go to areas with potential demand but it enables them to support their distribution agents to increase sales of its branded products.

There are several listed iconic fast-moving consumer food brands in Asia and we think one of the closest comparables is Thailand’s Taokaenoi. Taokaenoi is Thailand’s market leader in processed seaweed snack products with dominant market share of around 62%. Noteworthy is that while [Company’s name] and Taokaenoi both enjoyed market dominance in their respective categories with comparable EBIT margin at 19-20%, [Company’s name] absolute level of sales and operating profit is around 40% higher than Taokaenoi’s US$127m and US$25.3m respectively and [Company’s name] enjoys a superior cash conversion cycle advantage of only 2 days as compared to Taokaenoi’s 30 days, yet [Company’s name] has a market value that is 44% smaller than Taokaenoi’s US$1bn market cap due to the huge disparity in valuations. [Company’s name] trades at EV/EBIT 17.6x and EV/EBITDA 14.1x, a 56-62% discount to Taokaenoi. We think the valuation gap between [Company’s name] and its comparables should closed over time as it continues to execute with performance. Since FY2012, [Company’s name] sales have grown 105% while operating profit grew faster at 133% and we believe the company can build on the momentum to generate over 50% growth in operating profits in the next 3-5 years, and spur an upward valuation re-rating towards a potential doubling in market cap.

We are impressed by [Company’s name] co-founder & CEO Madam Y for her tenacity in transforming the company to become Asia-ex-Japan’s manufacturer in its product category through making far-sighted and consistent continuous investments in production know-how, brand building, distribution network and IT system to scale up. We like the company’s strong management team and corporate culture to foster the win-together mindset and we think [Company’s name] deserves a valuation premium as it continues to consolidate the fragmented industry and expands its presence in a new market in which operations will commence in 3Q2017.

Below are excerpts of her unique insights on succession to the family business which reflected her strong desire and values to scale the business to greater heights by being grounded in discipline, hard work and a vision with passion:

Q: “You were designated at an early age as the successor to take over and lead the family business. What are your plans for your children in the family business?”

Madam Y: “Looking back, I would not do that to my children [Madam Y has three]. I don’t think bloodline qualifies—it’s got to be based on other things as well. To separate ownership and management is not easy for a parent, especially family companies, coming from the Asian families, because they always want it to be whole, it has to be “my son” or “my daughter” who continues the business. But it’s not necessarily good. My father always said, as an insider, you will guard your family assets, you will run the company very well. To me, both insiders and outsiders can ruin the company. As long as my children carry the vision and have the passion for what I do with the family business, they qualify to start the race, but I will not put them as a leader in that position. I will use professionals. I believe in three things: Past, present and future. Honor the past, which means honor your parents, for the values they give to you, the experiences they pass down. For the present, you have discipline, hard work, using the talent you have been given. Last, the future, which is vision with passion.”

Who is Madam Y and this Asian wide-moat innovator?

Warm regards,

KB

The Moat Report Asia

www.moatreport.com

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

Access the in-depth idea presentation:

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

PS: We are proud to announce the launch of Singapore’s Inter-Varsity Stock Research Challenge: “Unearthing Hidden Champions” to enable more students to cultivate the portable lifelong skill-set of critical thinking ability and the higher order of synthesis and judgment to apply what is learnt into the messy world of reality by forming quality analytical output that has timely relevance and usefulness to the wider business community through this unique platform and opportunity.

You wear them, the Crizal lens on your eyewear. Essilor International is the world’s leading ophthalmic optics company behind the Crizal, Transition, Varilux lens and the company is powered by a unique owner-oriented corporate culture with its inclusive plan to enable 50% of employees worldwide become shareholders, compared to 20% currently. Its share price has compounded 2,000% since 1986.

You touch them, the ASSA Abloy system for your door. ASSA Abloy AB, the global leader in innovative door opening solutions to improve our lives through security, safety and convenience, is up 10,000% since 1994.

You cook with them – peep inside a professional kitchen and you can find a Rational intelligent cooking system on a Norwegian submarine, a Saudi prince’s yacht, as well as in hospitals and restaurants around the globe. Rational AG commands a global 54% market leadership in the world’s professional kitchens that include the Buckingham Palace and the White House, and is behind the success of such famous culinary names as Gordon Ramsay. Rational AG is up 1,000% since 2000.

You may even use them in emergency care situations, the Ambu bag for manual resuscitation in hospitals, by ambulance services – in fact in all kinds of emergency environments all over the world. Ambu A/S, the company whom millions of patients and healthcare professionals worldwide depend upon the functionality and performance of its products, is up 6,000% since 1992.

Essilor, ASSA Abloy AB, Rational AG and Ambu A/S are the successful yet relatively low-profile Hidden Champions who are focused market leaders in sophisticated, hard-to-imitate niche products and valuable critical niches that are largely invisible to the average consumer yet are indispensable to our well-being in daily life. From a value investing perspective, investing at an earlier stage in the long-term growth trajectory path of these Hidden Champions – in Asia – should prove rewarding.

The Challenge’s mission is to promote the study of value investing, to foster intelligent research on Hidden Champions in Asia, and to allow students to advance their analytical skills and earn exposure and recognition in the community of value investors and some of the most notable minds of the investment industry. The winning team of the Challenge will also earn a prize money of S$5,000 and a Trophy engraved with their institution’s name.

The Challenge is held within the 6th Value Investing Summit (VIS) 2017 which is the largest gathering of value investors in Asia Pacific. It is a two-day networking and guest-speaker event held on 14-15 January 2017 at the Singapore Expo. Past and upcoming speakers of Value Investing Summit include Dr. Niwes Hemvachiravarakorn, Mr. Hemant Amin, Ms. Lauren Templeton, Mr. Scott Phillips Jr., Darkhorse Capital CIO/founder Mr. Mohammed Ali-Reda. Started in 2012 with 500 participants, the VIS has since attracted 1,600 participants in our record-breaking VIS 2016.

We have assembled an expert judging panel of highly-respected professional institutional investors and fund managers to assist in determining the winning team. 4 varsity teams will be selected to present to the expert panel and the 1,600-strong audience. Contestants will be judged on the merits of the investment thesis and the depth of research.

After a rigorous selection process, we have picked eight teams to advance into the semi-finals on 22 December in which the teams from NTU, NUS, SMU and UTP will be presenting to the Public Market Investments team managing the Hidden Champions portfolio. Following which, four teams will be selected to present in the finals in the VIS 2017 on 15 January 2017. We thank all participating varsity teams and we look forward to the selected teams to share their investment research insights with the wider value investing community. Stay tune for more updates!

PS2: Please find attached our latest investment letter as announced on ASX:

http://8iholdings.com/media/ref_investmentupdate2017.pdf

http://www.asx.com.au/asxpdf/20161130/pdf/43dcb9j3wwwx43.pdf

image-021

Disclaimer: This newsletter is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. This newsletter is distributed for informational purposes only and should not be construed as investment advice or a recommendation to sell or buy any security or other investment, or undertake any investment strategy. It does not constitute a general or personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual investors. The price and value of securities referred to in this newsletter will fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of all of the original capital invested in a security discussed in this newsletter may occur. Certain transactions, including those involving futures, options, and other derivatives, give rise to substantial risk and are not suitable for all investors.
“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 | Dec 19, 2016
Bamboo Innovator Insight (Issue 131)

  • 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.
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The Insurgent Mission of Hidden Champions: Willingness to be Misunderstood and Travel Light to Journey Far

Dear Friends,

The Insurgent Mission of Hidden Champions: Willingness to be Misunderstood and Travel Light to Journey Far

Please find attached our latest investment letter as announced on ASX today:

http://8iholdings.com/media/ref_investmentupdate2017.pdf

http://www.asx.com.au/asxpdf/20161130/pdf/43dcb9j3wwwx43.pdf

image-021

Dear Valued Partners,

Your funds in listed Asian equities achieved a 26.3% 12-month rolling return (in SGD terms) as at 30 September 2016 against an increase of 12.8% for the MSCI Asia Pacific index, 8.3% for the Australia All Ord index, 2.8% for Singapore’s FTSE STI index and -5.4% for the Nikkei 225 index over the same period. The cost of the total invested active portfolio in listed Asian equities was S$19.85 million with a market value of S$24.69 million as at 30 September 2016, and a net realised profit of S$0.38 million from closed positions, generating a S$5.21 million overall net investment gain, contributed from S$4.14 million generated in the current interim period from 1 April 2016 to 30 September 2016, and S$0.97 million in the period from 30 September 2015 to 31 March 2016. We would like to express our appreciation for all the support rendered by our members in the 8IH family group of companies and you, our shareholders.

The improvement and outperformance in returns has been developed from an enhancement in the investment strategy and process to pursue an active, bottom-up, research-driven and team-based multi-manager approach since September 2015. Our investment philosophy in value investing is now more defined and deep: our enhanced investment strategy is to focus on investing in successful yet relatively low-profile underappreciated Hidden Champions. These are focused market leaders in sophisticated, hard-to-imitate niche products and valuable critical niche services that are largely invisible to the average consumer yet are indispensable to our well-being in daily life.

This is precisely the time when Hidden Champions and value investors go to work.”

Toni Morrison, American Pulitzer-Prize novelist, recipient of the 1993 Nobel Prize and Professor Emeritus at Princeton University, made a poignant commentary recently about why the task of the artist is a grounding and elevating force in turbulent times from her earlier stunning essay in the 150th Anniversary Special Issue of The Nation. When “artist” is replaced by “Hidden Champions and value investors”, we believe her inspiring words would be applicable for value investors seeking to navigate the turbulent and fragile markets:

“This is precisely the time when artists [our insertion: Hidden Champions and value investors] go to work. There is no time for despair, no place for self-pity, no need for silence, no room for fear. We speak, we write, we do language [our insertion: value investing]. That is how civilizations [our insertion: markets] heal. I know the world is bruised and bleeding, and though it is important not to ignore its pain, it is also critical to refuse to succumb to its malevolence. Like failure, chaos contains information that can lead to knowledge — even wisdom.”

We are thankful to have your patience, trust and support in this journey while we work with deep intense focus. We will continue to travel light like the javelin warriors to journey far in search of the compounding Hidden Champions. Please contact us with any questions, thoughts or comments at: analyst@8investment.com

Warm regards,

KB

 

The Moat Report Asia

www.moatreport.com

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

Access the in-depth idea presentation:

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

PS: We are proud to announce the launch of Singapore’s Inter-Varsity Stock Research Challenge: “Unearthing Hidden Champions” – and we have extended the registration deadline to 5 December (Monday) noon to enable more students to cultivate the portable lifelong skill-set of critical thinking ability and the higher order of synthesis and judgment to apply what is learnt into the messy world of reality by forming quality analytical output that has timely relevance and usefulness to the wider business community through this unique platform and opportunity.

You wear them, the Crizal lens on your eyewear. Essilor International is the world’s leading ophthalmic optics company behind the Crizal, Transition, Varilux lens and the company is powered by a unique owner-oriented corporate culture with its inclusive plan to enable 50% of employees worldwide become shareholders, compared to 20% currently. Its share price has compounded 2,000% since 1986.

You touch them, the ASSA Abloy system for your door. ASSA Abloy AB, the global leader in innovative door opening solutions to improve our lives through security, safety and convenience, is up 10,000% since 1994.

You cook with them – peep inside a professional kitchen and you can find a Rational intelligent cooking system on a Norwegian submarine, a Saudi prince’s yacht, as well as in hospitals and restaurants around the globe. Rational AG commands a global 54% market leadership in the world’s professional kitchens that include the Buckingham Palace and the White House, and is behind the success of such famous culinary names as Gordon Ramsay. Rational AG is up 1,000% since 2000.

You may even use them in emergency care situations, the Ambu bag for manual resuscitation in hospitals, by ambulance services – in fact in all kinds of emergency environments all over the world. Ambu A/S, the company whom millions of patients and healthcare professionals worldwide depend upon the functionality and performance of its products, is up 6,000% since 1992.

Essilor, ASSA Abloy AB, Rational AG and Ambu A/S are the successful yet relatively low-profile Hidden Champions who are focused market leaders in sophisticated, hard-to-imitate niche products and valuable critical niches that are largely invisible to the average consumer yet are indispensable to our well-being in daily life. From a value investing perspective, investing at an earlier stage in the long-term growth trajectory path of these Hidden Champions – in Asia – should prove rewarding.

The Challenge’s mission is to promote the study of value investing, to foster intelligent research on Hidden Champions in Asia, and to allow students to advance their analytical skills and earn exposure and recognition in the community of value investors and some of the most notable minds of the investment industry. The winning team of the Challenge will also earn a prize money of S$5,000 and a Trophy engraved with their institution’s name.

The Challenge is held within the 6th Value Investing Summit (VIS) 2017 which is the largest gathering of value investors in Asia Pacific. It is a two-day networking and guest-speaker event held on 14-15 January 2017 at the Singapore Expo. Past and upcoming speakers of Value Investing Summit include Dr. Niwes Hemvachiravarakorn, Mr. Hemant Amin, Ms. Lauren Templeton, Mr. Scott Phillips Jr., Darkhorse Capital CIO/founder Mr. Mohammed Ali-Reda. Started in 2012 with 500 participants, the VIS has since attracted 1,600 participants in our record-breaking VIS 2016.

We have assembled an expert judging panel of highly-respected professional institutional investors and fund managers to assist in determining the winning team. 4 varsity teams will be selected to present to the expert panel and the 1,600-strong audience. Contestants will be judged on the merits of the investment thesis and the depth of research.

Rules and Regulations

  • All team members must be from the same university.
  • Each team should consist of at least 2 members, with a maximum of 3. Please also indicate team leader name.
  • Only one entry will be accepted per team.
  • The registration deadline for teams is 5th December 2016.
  • The Entry Submission deadline is 16th December 2016, 12 noon. Entries received after the deadline will not be considered.
  • Each team may submit ONE company for this challenge. The company must be a public-listed company in the Asia-Pacific region with a market capitalization between US$50 million and US$10 billion as at 31 October 2016. The Asia-Pacific region markets include Singapore, Malaysia, Thailand, Indonesia, Philippines, Vietnam, Hong Kong, China, Taiwan, Korea, Australia, New Zealand, India and Japan.
  • The written report must be submitted with the Calibri font and font size 11 with no spacing between the lines of text or paragraphs. Both the written report and presentation slides must be submitted in the form of PDF.
  • The research thesis must align with the theme of “Unearthing Hidden Champions”. That means finding and analyzing businesses with
  • Wide and durable economic moats that generate superior returns on invested capital;
  • Unique, scalable business model with indestructible intangible know-how to create new categories of growth
  • A long runway to compound growth; and
  • High-integrity, aligned owner-oriented management teams.

Some guiding questions for inclusion in both the written report and presentation slides:

(1) What is the background of the Hidden Champion? What is your one-sentence investment thesis?

(2) What makes it a wide-moat business? Why do you think the business model is unique, scalable and that it gets easier as it gets bigger?

(3) What is the corporate culture, management quality and shareholding structure like?

(4) Why do you think the market value of the company can double in the next 3-5 years?

(5) What are your top 3 dislikes? What are the toxic factors?

Please visit: http://valueinvestingsummit.com/varsitychallenge/

We look forward to your submission and participation in the Inter-Varsity Stock Research Challenge – “Unearthing Hidden Champions”!

Disclaimer: This newsletter is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. This newsletter is distributed for informational purposes only and should not be construed as investment advice or a recommendation to sell or buy any security or other investment, or undertake any investment strategy. It does not constitute a general or personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual investors. The price and value of securities referred to in this newsletter will fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of all of the original capital invested in a security discussed in this newsletter may occur. Certain transactions, including those involving futures, options, and other derivatives, give rise to substantial risk and are not suitable for all investors.
“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 | Nov 30, 2016
Bamboo Innovator Insight (Issue 130)

  • 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.
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