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“We walked our whole life.” – Innovation Insights from H.E.R.O. Innovator Koh Young Technology’s Dr. Koh Kwangill | H.E.R.O. HeartWare | 30 July 2018 (Issue 12)

“We walked our whole life.” – Innovation Insights from H.E.R.O. Innovator Koh Young Technology’s Dr. Koh Kwangill | H.E.R.O. HeartWare | 30 July 2018 (Issue 12)

What do you want out of life? We might answer a caring spouse, a good job, a nice house, the things we want in life. In his profound book “A Guide to the Good Life: The Ancient Art of Stoic Joy”, William Irving prodded us deeper that one of the greatest fears many of us face is that despite all our efforts and striving, despite all the pleasant diversions that we might have enjoyed, we will discover at the end that we have mislived our lives in not pursuing something genuinely valuable with what we can uniquely offer to serve and contribute to the betterment of the people around us.

We find Irving’s ancient guide on stoicism has modern practical applications in investing in an exponential world in which there is a structural break in data in the market’s multi-year appraisal (as opposed to “mean reversion” in valuation over a time period of 2-5 years) of the type of outstanding business models, the “exponential innovators”, that can survive, compete and thrive in this challenging exponential world we now live in. During our value investing journey in the Asian capital jungles over the decade plus, we have observed that many entrepreneurs were successful at the beginning in growing their companies to a certain size, then growth seems to suddenly stall or even reverse, and they become misguided or even corrupted along the way in what they want out of their business and life, which led to a deteriorating tailspin. On the other hand, there exists an exclusive under-the-radar group of innovators who remain governed by a greater purpose in their pursuit to contribute to the welfare of people and guided by an inner compass in choosing and focusing on what they are willing to struggle for and what pains they are willing to endure, in a stoical way. And we endeavor to dig deeper to understand the origin of their purpose-drive path, sharing their inspirational stories to embolden all of us with more emotional courage and wisdom to go about our own value investing journey and daily life.

Inspired during his growing-up years by Einstein and the late Korean particle physicist Dr. Benjamin Lee Whisoh (1935-1977) whose work greatly influenced the field of quantum mechanics as well as many Nobel Laureates and the scientific community, the powerful seed of a greater purpose to contribute to society through scientific research was planted deep in the heart of Dr. Koh Kwangill, who founded Koh Young Technology at the age of 42 in 2002, with a sense of purpose to “contribute to the evolution of society and humanity through the challenges and innovation, without the fear of failure.” Dr. Koh went on to build Koh Young to become the world’s leader in 3D ultra-precision measurement based test inspection equipment and solutions, including developing the world’s first SPI (solder paste inspection) and AOI (automated optical inspection) using 3D technology, with over 52% global market share in SPI for over 2,100 global customers that include Bosch. Koh Young has compounded over 2,300% since Jun 2008 to a market value of over US$1.3 billion while achieving operating margin of 21.5% and ROE of 22.7%.

Dr Koh said stoically, “We take the company’s vision very seriously. Vision is the noble meaning of the organization. If you plan to increase the sales to 1.5 times, you have to push the sales department and tighten the partners. That way I cannot be a great company. However, let’s contribute to the improvement of first-class welfare in the future. Now the business plan should be what to do in order to put into practice that purpose step by step. The inherent DNA of Koh Young’s members can be called the unwavering spirit of challenge. Koh Young challenges the products that are not in the world. It is a strategy that we create the markets. To develop a product that is not in the market is going to a path that no one else has. We hate doing what others do. When we entered the robot industry, the US, Germany, and Japan have already been doing this business for 20 to 30 years. We make robots that go beyond the products of advanced countries and sell them to the world market. Fortunately, test equipment is software rather than hardware. Software and 3D machine vision architecture technology for accurately measuring, recognizing and processing vision data of arbitrarily shaped objects with various reflection characteristics at high speed in combination with robot technology and AI (artificial intelligence). This field is our industry’s future. Koh Young’s success in developing the 3D SPI for the first time in the world was like a miracle. We walked our whole life. The experience of product development success is embedded in the organization and is the force that keeps it going. In markets where there is a new product, we shook the market order to make first place, and if there is no market, we are willing to create a new market.”

How did Koh Young’s 3D measurement technological innovation revolutionized the market? Dr. Koh explained, “As electronic devices such as smart phones and automobiles become more sophisticated, processes for integrating high-performance semiconductors and chips on a limited circuit board have become important. There has been a growing demand for more detailed inspection equipment on the manufacturing line. Printed circuit boards (PCBs) are tightly embedded in electronic devices such as computers and mobile phones. Electronic parts such as semiconductors and IC chips are precisely mounted on the PCB, but the solder is mainly used in this case. However, when the soldering is not performed properly or the state is not uniform, the electronic device does not perform its performance. 70% of the PCB malfunctions occur in the soldering process that applies lead. It is very important to identify the root cause of the defect in advance. This is also why the electronic device maker is required to have a ‘solder paste inspection device’ (SPI) to check soldering accuracy and a ‘automated optical inspection device’ (AOI) to verify that parts are properly installed. Koh Young Technology has the world’s best technology in PCB inspection market. More precisely, Koh Young has created a market that has never existed before, creating new demand.”

“Before Koh Young entered the market in 2004, the solder inspection was at the level of ‘taking pictures’. This is because there was no accurate test method other than to take a picture of the soldering area and compare it with the finished product. However, the limitations of the photo shooting test were clear. It was impossible in the first place to find out the microscopic solder defects that should be looked into. You would not know what was wrong with the PCB when the solder was inspected. However, the situation changed after Koh Young introduced SPI with the application of high precision 3D image measurement technology. It was able to catch PCB defects and also to identify defective parts and produce finished products with minimum process. Thus, in the 2D method of photographing on the PCB substrate, only the application amount of the width and the length was found. The 3D method can reduce the defect rate dramatically by knowing the height information of 10 microns (1 / 100th of a millimeter) using the wavelength of light. Since our 3D measurement technology has been known, the market paradigm has completely changed so that all major inspection equipment companies adopt 3D technology. Later, competitors began to develop three-dimensional SPI equipment introduced by Koh Young Technology but the technology gap widened. It’s not easy to visualize the values measured with light. Because it was a product that solves the problems of the customers who were thirsty, it was possible to earn customer trust in a short period of time and this led to a surge in sales and an increase in market share. We are in the top position in the world market for 11 consecutive years since 2006 after the release of 3D SPI equipment when the world was 2D, and our global market share is over 52%.”

Not resting on his laurels, Koh Young is leveraging upon its 3D measurement technology beyond the inspection markets into new growth areas that include brain surgical robots which are set to be launched in late 2018. Dr Koh commented, “Koh Young has developed a brain surgery robot based on 3D measurement technology. Koh Young has developed a navigation sensor for brain surgery that displays the environment in the brain with 3D vision technology and developed a medical robot for brain surgery. As a brain surgery robot, it succeeded in miniaturizing the equipment by attaching it to the operating table for the first time in the world. Currently, micro-area surgery in the field of otolaryngology and neurosurgery diagnoses lesions is based on pre-operative medical image information. It is impossible to completely avoid excessive incision or radiation exposure. The solution to these problems is our surgical guide robot system using a miniaturized multi-degree-of-freedom robot, medical image-based navigation software and high-precision 3D medical sensors. The combination of 3D sensor technology and robotic system on magnetic resonance imaging (MRI) and computed tomography (CT) images of the patient’s brain region. Our robot system is expected to minimize the damage to the human body through the shortest path surgery and ensure the safety of the operator and the patient at the same time, so that the accuracy of the procedure and the success rate of the operation can be significantly improved. We will continue to create new value in the medical field by combining medical diagnostic equipment and 3D technology. We have always been thinking of making the best products if it is not the first product in the world. We will make a company that can stand the number one position in various fields beyond the testing equipment market.“

Dr. Koh concluded that the winning business philosophy of Koh Young Technology is “love”: “It is love in the end. Not only does it require loyalty as a member, but the company must also love people. That’s how we pair. Those who devoted their lives to Koh Young, I am going to pay attention to how these people are responsible for their lives.“

Intrigued and want to read more? Download this week’s H.E.R.O. HeartWare: Weekly Asia Tech News with brief highlights of the inspiring entrepreneurial stories of tech leaders in Asia whom we have been monitoring over the past decade in our broader watchlist of over 200 listed Asian tech companies and our focused portfolio of 40 HERO Innovators who reveal their problems and successes behind building the company. Inspired by Brandon Stanton’s photo-journalistic project Humans of New York which collects and highlights the street portraits and moving stories of people on the streets around us who were doing things that changed lives and made a difference in the city but often went unnoticed, we have curated a collection of Hear the Heart of the H.E.R.O. stories on our website which we aim to update with refreshing and uplifting new stories weekly. Please check them out and give us your valuable feedback so that we can improve to make them better for you. In Issue 12, we have:

(1) Dr. Koh Kwangill 고광일, founder & CEO of Koh Young Technology 고영테크놀러지 (KOSDAQ: 098460, market cap US$1,328m), the world’s leader in 3D ultra-precision measurement based test inspection equipment and solutions, including developing the world’s first SPI (solder paste inspection) and AOI (automated optical inspection) using 3D technology, with over 52% global market share in SPI for over 2,100 global customers that include Bosch (vs over 1,200 customers in 2015). The company offers its products for quality control and process optimization in the production fields of various industries, including smart devices, automotive electronics, telecommunications, military, health care industry, and semiconductors. Koh Young is leveraging its 3D measurement technology beyond the inspection markets into new growth areas that include brain surgical robots which are set to be launched in 2018. Of the 465 employees, 40% are researchers. Koh Young Technology was founded in 2002 by Koh Kwangill and is headquartered in Seoul;

(2) Takateru Kawano 河野貴輝, founder & CEO of TKP Corp ティーケーピー (TSE: 3479, market cap US$1,233m), Japan’s leading Airbnb-like matching platform in over 1,900 under-utilized conference rooms for over 24,000 corporate customers and over half of listed companies in Japan are TKP users and the repeat ratio is around 85%. TKP also provide related services that include catering services, rental services in video/audio/lighting equipment and interpretation systems, MC arrangement services, travel services, outsourcing services, call center and BPO services for corporates. In addition, the company provides conference rooms and banquet halls under the TKP Garden City brand name; and operates restaurants. TKP has overseas operations in New York, Singapore, Hong Kong, Taiwan and Myanmar. TKP was founded in 2005 by Takateru Kawano in 2005 and is headquartered in Tokyo.

We now live in an exponential world, and as the Baupost chief and super value investor Seth Klarman warns, disruption is accelerating “exponentially” and value investing has evolved. The paradigm shift to avoid the cheap-gets-cheaper “value traps” investment mistakes, to keep staying curious & humble, and to keep learning & adapting, has never been more critical for value investors. We believe tech-focused innovators with non-linear exponential growth potential are the most relevant multi-year investment trend and opportunity. There is a structural break in data in the market’s multi-year appraisal of the type of business models, the “exponential innovators”, that can compete and thrive in an exponential world.

Yet we do not want to chase the highly popular megacap tech stocks, or fall for the “Next-Big-Thing” trap by overpaying for “growth”, or by chasing to invest in fads, me-too imitators, or even in seemingly cutting-edge technologies without the ability to monetize and generate recurring revenue with a sustainable and scalable business model, and we want to know how to distinguish between the true innovators and the swarming imitators. We see a distinct opportunity in under-the-radar Asian SMID-cap tech stocks with unique scalable business models run by high-integrity entrepreneurs with a higher purpose in solving high-value problems.

As the only Asian SMID-cap tech-focused listed equities fund in the industry, we believe we are uniquely positioned as a distinctive and alternative investment strategy for both institutional and individual investors who seek to capture long-term investment returns created by disruptive forces and innovation without herding or crowding to invest in the highly popular megacap tech stocks, and also provide capital allocation benefit to investors in building optionality in their overall investment portfolio.

H.E.R.O. stands for “Honorable. Exponential. Resilient. Organization.” and is operationalized into a unique, systematic 4-step investment process to separate the winners and losers. The H.E.R.O. HeartWare Weekly highlights interesting tech news and listed Asian emerging tech innovators with unique and scalable wide-moat business models to keep yourself well-informed about disruptive forces and innovation, new technologies and new business models coming up, and the companies that ride on and benefit from them in some of the most promising areas of the economy in Asia as part of our thought leadership for our ARCHEA Asia HERO Innovators Fund to add value to our clients and the community.

Some of the HERO Innovators in the focused portfolio include the largest online-to-offline pet insurance company in Japan with over 60% domestic share of the growing pet insurance market with over 636,000 policies in force generating over 98% sticky recurring revenue income & cashflow (Japanese households own 20m pets and only 1.3m or 6.3% were insured vs 22% of the 15m pets were insured in UK), and is a tech innovator with services that include allowing insurance claims to be made via LINE in just three minutes, an industry first, enabled by its powerful database & analytical prowess of more than 10 million insurance claims tied to illnesses and accident that allow the company to propose preventive measures by examining how animals become sick and how accidents occur. This highly profitable online pet insurance with a healthy net-cash balance sheet founded by an inspiring and down-to-earth entrepreneur with an agricultural economics background who started his career at a top insurance company is an archetypal H.E.R.O. Innovator.

Hope you find the weekly report to be useful and insightful. Please give us your candid feedback and harshest criticisms so that we can improve further to serve you better. Besides the BATTSS (Baidu, Alibaba, Tencent, TSMC, Softbank, Samsung), do also tell us which Asian tech entrepreneurs & CEOs whom you admire and respect and why – we will endeavor to do up profiles of them for sharing with the community. Thank you very much and have a beautiful week ahead.

Warm regards,

KB | kb@heroinnovator.com | WhatsApp +65 9695 1860

www.heroinnovator.com

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About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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