H.E.R.O.’s Journey in Tech (23 November 2018) – Computer vision: how Israel’s secret soldiers drive its tech success; The country is a leader in image analysis thanks to the alumni of elite surveillance group Unit 9900

H.E.R.O.’s Journey in Tech (23 November 2018) – Computer vision: how Israel’s secret soldiers drive its tech success; The country is a leader in image analysis thanks to the alumni of elite surveillance group Unit 9900


  • Meituan Should Carve Up an Albatross to Create a Unicorn; There’s a fine business hiding inside the Chinese food-delivery giant that’s waiting to be set free. (Bloomberg)
  • Can Momo Inc become a winner in China’s video-streaming market? (CK)

BATTSS – Baidu, Alibaba, Tencent, TSMC, Softbank, Samsung

  • Top Global Fund Says Bye Bye Samsung, Hello Taiwan’s TSMC (Bloomberg)

Asia Tech & Innovation Trends

  • How one Chinese company generates reviews on Amazon (FT)
  • Inside China’s Silicon Valley: From copycats to innovation (CNN)
  • This Shenzhen Robotics Firm Is Selling Industrial Robot Arms To The Masses (Forbes)
  • China’s high-technology revolution extends to the factory floor; Robots replace some jobs but collaboration between humans and machines is key element (FT)
  • Facial recognition snares China’s air con queen Dong Mingzhu for jaywalking, but it’s not what it se (SCMP)
  • Dot-Com Ghosts Haunt Emerging Stocks as Tech Profits Stall (Bloomberg) 

Global Tech & Innovation Trends

  • Computer vision: how Israel’s secret soldiers drive its tech success; The country is a leader in image analysis thanks to the alumni of elite surveillance group Unit 9900 (FT)
  • Unbundling The Autonomous Vehicle (CBI)

H.E.R.O.’s Journey in Tech (22 November 2018) – Koh Young’s Joel Scutchfield on Smart Factory Connectivity

H.E.R.O.’s Journey in Tech (22 November 2018) – Koh Young’s Joel Scutchfield on Smart Factory Connectivity


  • Solid-state batteries ready to debut in home appliances; TDK reduces the devices to fingertip-size, with the ability to recharge 1,000 times (Nikkei)
  • Koh Young’s Joel Scutchfield on Smart Factory Connectivity (iconnect)
  • Apple iPhone Supplier Foxconn Planning Deep Cost Cuts (Bloomberg)

BATTSS – Baidu, Alibaba, Tencent, TSMC, Softbank, Samsung

  • Alibaba’s new hotel: robot bellboys and face-recognition gimmick (KRA)
  • Alibaba suffers rare ‘down round’ investment as Babytree’s HK IPO prices low – sources (Reuters)
  • Investments fuel a third of profits at Tencent and Alibaba; Chinese technology giants are becoming increasingly reliant on M&A activities (FT)
  • Tencent e-wallet is following Alibaba to Hong Kong subways (Techcrunch)

FAANNMG – Facebook, Amazon, Apple, Nvidia, Netflix, Microsoft, Google

  • S. chipmaker Nvidia to provide AI platform for Chinese EV start-ups (Reuters)

Asia Tech & Innovation Trends

  • Suning sets sights on big data to serve evolving retail needs (Technode)
  • Beijing to Judge Every Resident Based on Behavior by End of 2020 (Bloomberg)
  • Southeast Asia must guard against digital domination risks; Global technology giants threaten region’s local entrepreneurs (Nikkei)
  • PT Tokopedia, Indonesia’s largest online marketplace, has become the country’s most valuable startup after raising $1 billion from existing investors including SoftBank (Bloomberg)

Global Tech & Innovation Trends

  • Ford’s Autonomous Cars Will Whisk Walmart Deliveries to Doorsteps; The automaker will put its self-driving vehicles to use for the world’s biggest retailer. (Bloomberg)
  • STMicro, Automotive Chipmakers Say There’s Gas Left in Car Chips (Bloomberg)
  • Inside the New Industrial Revolution; The mobile internet, automation and AI will have profound implications. Here’s a closer look at how the old and new economies compare. (WSJ)
  • Europe’s 100 digital champions: Explore the people and companies leading Europe’s growth in five categories (FT)
  • How Disney’s Channels Are Doing in the Era of Shrinking TV Bundles (Bloomberg)
  • With ‘licence to expand’, Schibsted spin-off eyes classified ad mergers (Reuters)
  • Online Fashion Thrives for New Retailer Where Women Call Shots (Bloomberg)


  • Noble – too much faith in a ‘clean’ audit? (BT)

H.E.R.O.’s Journey in Tech (21 November 2018) – Yamaha’s CSP-170 makes learning piano easy with LED lights and one clever app + Podcast #459: Beyond Gratitude Lite: The Real Virtue of Thankfulness

H.E.R.O.’s Journey in Tech (21 November 2018) – Yamaha’s CSP-170 makes learning piano easy with LED lights and one clever app + Podcast #459: Beyond Gratitude Lite: The Real Virtue of Thankfulness


  • Yamaha’s CSP-170 makes learning piano easy with LED lights and one clever app (TNW)
  • Tencent-Backed Travel Site Raises $180 Million in Hong Kong IPO (Bloomberg)
  • Crunch time for Tencent Music’s 2018 $2 billion IPO hopes (Reuters)
  • NetEase Ding Lei: China will remain world’s best market for next decade (KRA)
  • Sea Ltd., operator of Southeast Asia’s biggest gaming platform, reported a wider third-quarter loss on rising investments at e-commerce unit Shopee. (Bloomberg)
  • How India is preparing for the Electric Mobility revolution: Why a robust ecosystem is critical; Delta is the name behind the Bharat Charger, a make in India Charger for the current crop of Indian Electric Cars (FE)

BATTSS – Baidu, Alibaba, Tencent, TSMC, Softbank, Samsung

  • Alibaba makes strategic investment in home renovation platform “007 eService”; To Alibaba, this investment is about its New Retail plan. (KRA)
  • Samsung doubles down on virtual assistant in growth push; Digital assistant Bixby to be standard on all of company’s electronics products by 2020 (FT); Samsung is working on a version of Bixby that constantly learns new skills from its owners (AFR)
  • SoftBank to Invest $2 Billion in Korean E-Commerce Site Coupang (Bloomberg)

FAANNMG – Facebook, Amazon, Apple, Nvidia, Netflix, Microsoft, Google

  • How Amazon marches to the beat of a different drum (BT)
  • Microsoft Finds Itself in Favor as Stock Rout Punishes FAANGs (Bloomberg)

Asia Tech & Innovation Trends

  • Are China’s Billionaire Tech Founders Slipping Out of Touch? A #MeToo gaffe suggests that in entrepreneurship as in society, the old ways aren’t working too well. (Bloomberg)
  • Chinese Tech Companies Get a New Exchange in Shanghai (Bloomberg)
  • An intro into the e-commerce players in Vietnam (KRA)
  • How a battery of feet-on-street counsellors that doubles up as a sales army is helping Toppr score in revenue and reach. Will the offline gambit pay off for the edutech startup? (Forbes)

Global Tech & Innovation Trends

  • Founder’s Big Idea to Revive BuzzFeed’s Fortunes? A Merger With Rivals (NYT)
  • Disaster relief is dangerously broken. Can AI fix it? (FastCo)
  • Dot-Com Ghosts Haunt Emerging Stocks as Tech Profits Stall (Bloomberg)


  • Podcast #459: Beyond Gratitude Lite: The Real Virtue of Thankfulness (AOM)
  • The Entrepreneur’s Journey — The Winding Road to Success through Failure (Medium)
  • Four Things Leonardo da Vinci Can Teach Us About Investing (ODD)

H.E.R.O.’s Journey in Tech (20 November 2018) – The New Quartz App: Uzabase’s Bet on the Future of News on Social Media + Bill Gates: If you want to understand the tech world, watch ‘Silicon Valley’

H.E.R.O.’s Journey in Tech (20 November 2018) – The New Quartz App: Uzabase’s Bet on the Future of News on Social Media + Bill Gates: If you want to understand the tech world, watch ‘Silicon Valley’


  • The New Quartz App: Uzabase’s Bet on the Future of News on Social Media (TGNR)
  • Meituan co-founder raises $30m for his community group buying platform SongShuPinPin (KRA)
  • Xiaomi Embraces a Smartphone Future With Meitu Deal; A savvy licensing arrangement with a struggling competitor affirms the Chinese tech company’s true identity. (Bloomberg)
  • Better Buy: Momo Inc. vs. Huya; Which Chinese live-streaming platform has more staying power? (MF)
  • China’s feels pressure as sales of big ticket items slow (Reuters)
  • Airtac to see profit decline as trade war weighs sales (Taipei Times)
  • Serko CEO says business travel safe from digital disruption (AFR)
  • TechnologyOne hits nine years of record profits (AFR)
  • Nucleus Financial inks new platform system agreement with Bravura Solutions (SM)

BATTSS – Baidu, Alibaba, Tencent, TSMC, Softbank, Samsung

  • Tencent turns to Southeast Asia after Beijing clampdown; Chinese conglomerate signs 5-year sales deal with Singapore’s Garena (Nikkei)
  • SoftBank’s Deepcore and accelerator Zeroth team up to hunt early-stage AI opportunities (Techcrunch); SoftBank unveils AI vacuum robot for offices; Whiz seen broadening robotics business beyond Pepper (Nikkei)
  • FSC’s order puts brakes on Samsung heir’s succession (KH)
  • TSMC to challenge Intel data center dominance with IBM win (Nikkei)

FAANNMG – Facebook, Amazon, Apple, Nvidia, Netflix, Microsoft, Google

  • Apple’s Tools Sneak Into Business; Sneaker companies GOAT and Flight Club are relying on Apple services to cope with a surge of employees and customers (WSJ)
  • Apple said to cut orders from two China component suppliers by 30% on lukewarm iPhone XR demand (SCMP)

Asia Tech & Innovation Trends

  • China alleges ‘massive’ evidence of chipmaker violations: Beijing says probe into Samsung, Micron and SK Hynix has made ‘important progress’ (FT)
  • China investors dump once-acquisitive firms on write-down fears; Simei Media Co (002712.SZ), Wanda Film (002739.SZ) and Glodon Software (002410.SZ) – once acquisitive firms with large goodwill assets – were among the biggest losers (Reuters)
  • IPO hopefuls forced to slash valuations as Asian listings slump (Nikkei)
  • Apart from the low-cost economy rooms that OYO is famous for, it now has a variety of options such as Townhouse (premium-economy), Home (homestays), SilverKey (executive apartments), Oyo Living (long-term housing rental), Capital O (corporate living spaces), Palette Resorts (upper-end leisure resorts) and (wedding banquets). (Forbes)

Global Tech & Innovation Trends

  • com out to secure leadership position in Korea (Investor)
  • How A Mysterious Tech Billionaire Created Two Fortunes-And A Global Software Sweatshop (Forbes)
  • How Software Is Helping Big Companies Dominate (HBR)
  • Tesla hints at seeking new battery suppliers in blow to Panasonic (NIkkei)
  • Outlook for Traditional TV Goes From Bad to Worse; Cord-cutters continue to chip away at cable and satellite providers’ dominance of the living room (WSJ)


  • Bill Gates: If you want to understand the tech world, watch ‘Silicon Valley’ (MW)
  • 5 principles for making better life decisions (Mark Manson)
  • Why “Many-Model Thinkers” Make Better Decisions (HBR)
  • China’s regulator gets tougher on firms for major law breaches and frauds, sending ‘special treatment’ stocks tumbling (SCMP)

H.E.R.O.’s Journey in Tech (19 November 2018) – ‘Dragon Ball’ Continues to Top Profits With Bandai + The Stress Test: How Pressure Can Make You Stronger and Sharper

H.E.R.O.’s Journey in Tech (19 November 2018) – ‘Dragon Ball’ Continues to Top Profits With Bandai + The Stress Test: How Pressure Can Make You Stronger and Sharper


  • ‘Dragon Ball’ Continues to Top Profits With Bandai (CB)
  • Ping An Good Doctor blazes trail in developing unstaffed, AI-assisted clinics in China (SCMP)
  • Xiaomi Has Chance to Justify Lofty Valuation After 23% Slide (Bloomberg)
  • iFAST founder Lim confident China business will be exciting (Edge)
  • Ennoconn to raise funds via shares (Taipei Times)

BATTSS – Baidu, Alibaba, Tencent, TSMC, Softbank, Samsung

  • Alibaba makes strategic investment in home renovation platform “007 eService” (KRA)
  • Tencent turns to Sea to sell games in south-east Asia (FT); Chinese consumers send Tencent disturbing message on apps; Tech giant faces challenge to online businesses outside gaming (Nikkei)
  • SoftBank’s Next Robot After Pepper Skips Chit Chat, Mops Floors (Bloomberg)
  • Ill-timed scandal for the ‘Republic of Samsung’; BioLogics case highlights wider problems for Korea Inc and president Moon (Nikkei)

FAANNMG – Facebook, Amazon, Apple, Nvidia, Netflix, Microsoft, Google

  • Inside Apple’s humans-first, tech second news platform (Age)
  • Nvidia Hands an $824 Million Windfall to Semiconductor Shorts (Bloomberg)

Asia Tech & Innovation Trends

  • Meet The Man Behind Oppo’s Super Fast Charging Speeds (Forbes)
  • US listings back in favour after China tech firms’ Hong Kong IPOs fail to take off, says JPMorgan (SCMP)
  • iPhone glass supplier Biel Crystal postpones US$1.5 billion Hong Kong listing amid market rout (SCMP)
  • Japanese drone startup ACSL files for IPO (Bridge)
  • Indonesian Tokopedia launches service to bridge online and offline retailing (KRA)
  • Thailand is pioneering the future of robotics and automation (qz)
  • Three Charts That Explain Boom in Southeast Asia’s Net Economy (Bloomberg)
  • Think Your Postal Service Has Problems? Try Delivering to 18,000 Far-Flung Islands; In Indonesia, an online shopping boom that should be helping the mail service is actually making things worse. (Bloomberg)
  • OYO already had the bucks. Now it has a CEO who can use them (qz)
  • Should India credit Modi’s demonetisation for digital boom? (SCMP)

Global Tech & Innovation Trends

  • Box CEO Aaron Levie thinks big companies are responding to disruption the wrong way (qz)
  • Chip industry’s new paradigm looks like the old one (BT)
  • Investors Don’t Think Much of Michael Dell’s Company (Barron’s)
  • Spotify, Pandora Turn to Podcasts for Listeners, Profits; Music-streaming giants are poised to use their machine-learning and AI capabilities to help listeners discover new podcasts (WSJ)
  • ‘Uber Eats and Deliveroo should be very worried’: Ruling to reshape gig economy (Age)


Beijing Shiji Information Technology 石基信息 (SZSE: 002153), China’s #1 software company for the hospitality and retail industry – H.E.R.O. Innovators Insights from CEO Li Zhongchu 李仲初 | H.E.R.O. HeartWare | 19 November

If you’ve been to Disney’s Shanghai theme park, the hotels, retail stores, and F&B vendors you patronized were using software from Beijing Shiji Information Technology 石基信息 to process your orders. Shiji’s comprehensive software platform also powers nearly all major five-star hotels in China from Shangri-La to InterContinental Hotels in mission-critical business processes in central reservation, room inventory management, payments to facial recognition check-ins and guest intelligence analytics which follows and listens to the guest from their pre-arrival to residence and post-stay online comments on TripAdvisor/WeChat/Facebook/Tweets; major retailers from Starbucks China to Swarovski; as well as Alibaba’s “New Retail” supermarket chain Hema 盒马鲜生 that are part of Alibaba’s O2O (online-to-offline) strategy to rejuvenate its decelerating ecommerce sales.

Shiji is China’s #1 software company for the hospitality and retail industry, commanding around 60-70% market share for high-end hotels and retail clients, including a leading position in the catering industry, serving over 13,000 hotel clients (60% share in star-rated hotel and over 90% share in the five-star rated hotel market), 150,000 catering clients and 300,000 retail outlets. Outside China, about 47,000 properties use software from Shiji. More than 100,000 hotels worldwide connect to Shiji’s inventory distribution system. As the overwhelming leader of China’s hospitality and retail information management software, Shiji occupies the data portal, accumulating important operational, transactional and end customer data of its clients in which the estimated annual revenue of Shiji’s clients is over RMB5 trillion, and the company’s strategic value as a big data application service platform operator will become more and more obvious over time.

Alibaba is a strategic investor in Shiji with a 13.07% stake invested at RMB 2.81bn (US$405m) since 2014, as well as a 38% stake at US$486m in April 2018 in Shiji’s big data new retail subsidiary Shiji Retail Information Technology. Shiji is an important business partner to Alibaba’s “New Retail” strategy that also includes modernizing Alibaba’s investment in offline retail businesses such as Intime Department Store, Suning, Sanjiang Shopping, Lianhua Supermarket, Gaoxin Retail etc; as well as deep integration with Alibaba’s Alipay and its online travel marketplace Fliggy 飞猪 (formerly AliTrip) through Shiji Distribution Solutions, as well as with Tencent’s WeChat Booking Engine. Alibaba introduced the concept of New Retail in last year’s Double 11 when it launched 60 pop-up stores with New Retail features in 12 Chinese cities. New Retail is a term used to describe a seamless integration of online and offline shopping experience with an emphasis on in-store technology, digitized retail operations and mobile payments. This year, around 100 Hema supermarkets—Alibaba’s signature cross-channel New Retail venture—are turned into 11.11-themed stores to provide customers with a convenient, fun and smooth shopping experience. Last year, around 100,000 stores in 34 cities across China were converted into smart stores by incorporating advanced technologies—such as cloud shelves, RFID (radio frequency identification) technology, product vending machines, facial recognition payment and scan-and-deliver shopping—to offer an upgraded shopping experience for consumers. When customers enter a smart store, they can first read about the product information on a LED screen upon picking up any item. If they like the product, they can add it to their Tmall or Taobao cart on the respective mobile apps and take it home after paying through Alipay or request delivery service instead. This year, the number of smart stores has been doubled to 200,000, and New Retail continues to infuse fun elements into shoppers’ experience.

Shiji also undertakes an active M&A strategy in the past three years to acquire software companies synergistic to its platform strategy, including Hetras, the leading cloud-based PMS/CRS provider in Europe and the first company in Germany to develop a fully internet-based management application for hotels (Aug 2016); SnapShot GmbH, the big data platform analytics dashboard for hotels (Jul 2018); ReviewPro, the leader in reputation management and hospitality guest intelligence analytics (Jan 2017); Concept Software Systems, one of the leading Golf, Spa and Hotel POS (Pantry) solutions providers for luxury hotels around the world (Oct 2018); StayNTouch, a hotel mobile property management systems (PMS)  SaaS company; BAOKU Online, the leading business travel and expense management company in China (Mar 2018); Galasys PLC, a leading tourism destination management solution provider (Sep 2017); Kalibri Labs, a data-based hotel revenue consultancy, etc. Shiji’s platform comprise of Operational Technology (Cloud/Mobile property management system PMS – StayNTouch; F&B Technology – Infrasys; Leisure & Entertainment Systems – Galasys and Concept Software); Distribution & Payments e.g. central reservation system tools to enable hotels to distribute their rates (Shiji Payment Solutions and Shiji Distribution Solutions); Guest Intelligence (Data Management – Snapshot, Kalibri Labs; Guest Intelligence – ReviewPro). Globally, Shiji competes with Oracle Hospitality, Sabre Hospitality Solutions, Amadeus-owned TravelClick. Long-time Micros execute Kevin King was hired in 2015 to be Shiji’s COO.

On 27 Oct 2018, Shiji announced its 3Q results (Jan-Sep 2018) in which cumulative 9-month sales increased 1.31% yoy to RMB1.99bn and profit increased 9.72% yoy to RMB293.8m, bringing its latest 12-month sales to RMB2.99bn, profit of RMB537.8m, operating cashflow of RMB717.2m and positive free cashflow of RMB459m or positive free cashflow margin of 15.3%. Shiji achieved a 36%, 18% and 48% absolute increase in sales, operating profit and operating cashflow in the recent five years, which helped propel a 118% increase in market value in the past five years to US$4.94bn vs Shanghai index and Shenzhen index which are up 21.9% and 34% respectively over the same period. Founded in 1998 by billionaire CEO Li Zhongchu who retains a 54.76% stake in the company, Shiji has compounded 557% since its listing on the Shenzhen Stock Exchange in Aug 2007. Top 10 shareholders which account for 80.11% of outstanding shares were reported to have zero pledge shares in mandatory disclosure.

CEO Li shared that Shiji is now in its fourth transformation from a hospitality software company into a big data application service platform operator of the consumer industry: “From 1998 to 2018, Shiji is now stepping into the 20th year of its development and growth. Shiji has become the leading provider of Chinese hotel information systems after three successful transformations. At the same time, Shiji is gradually expanding into the catering, entertainment, retail and leisure industries. Now, Shiji is responsible for 60%-70% of the market share in the high end sector of hotel and retail industries, and possesses a leading position in the catering industry. From 1998 to 2001, the Company presented itself as the network system supplier; the next phase, 2001 to 2003, it escalated further, becoming an hotel system technology service provider; the next phase saw Shiji’s growth as a software vendor after 2003. Now, Shiji is experiencing a fourth transformation from software vendor to big data driven consumer application service platform operator. Each transition is the transformation of the business model, when 50% of the Company’s annual revenue is from new business and there is rapid growth in the overall income scale, we call it a successful transformation. Several important things precipitated and accelerated this latest transformation. In the last year, we have started to promote our platform business to the market, the Company needs a new brand image to tell the market and customer base that Shiji now represents the “big data” application service platform operator of the entire consumer industry.”

“The estimated annual revenue of Shiji clients can be as high as 5 trillion RMB. That creates for us the foundation to transform from software vendor to platform operator. In the past 10 years, Shiji’s effort makes huge changes in the information system of Chinese hotel industry, especially the high end hotels. Shiji brought Chinese hotel industry global technology, improved management process for high end hotel, trained a large number of local talents who are familiar with international hotel operation and management process, and accelerated the internationalization of the Chinese hotel industry. Furthermore, it will make it possible for our clients to absorb international hotel management experience, hire and retain such talents and make outstanding hotel management by using Shiji products and services. Shiji will bring the experience to Chinese consumer industry clients and permeate to major world markets. Now we just started our strategy.”

When asked to elaborate on Shiji’s strategy and future development to transform into a global consumer application service platform operator, CEO Li commented: “Shiji hopes to become the consumer application service platform operators that driven by big data, and ultimately become one of the world’s consumer application service platform operators. To achieve this goal, we must first consolidate our position in hotel, catering and retail industries by developing new products and technologies. At the same time distribute rapidly in overseas developed countries and regions, develop global leading products and rapidly grab overseas market share by forward-looking investment. Shiji will first invest hotel-related data technology companies, then equip company’s application software services on the service platforms that data technology companies provide us. With the increase of our platform service customers, Shiji will first set up our own sales and service representatives in the most clients intensive areas. Due to the popularity of cloud computing and mobile Internet, the entire consumer areas including hotel, catering, retail industries will be more and more integrated online and offline in the next 10 years. Cross industry integration will be a trend under the driven of data as well! The entire supply chain from producers to consumers will be more and more flat. Shiji will take advantage of the established core information system in hotel, catering and retail industries to extend and connect vertically and horizontally, to build up supply chain, multi-channel payment platform, and to complete the transformation from software vendors to platform operators. The successful development of new leading hotel, catering and retail cloud systems and quick migration of existing customers to the cloud systems will be the key to success. I hope that Shiji will be a well-known company globally in 10 years, owning employees and business in world’s core commercial centres. The application service platform will create values for the whole consumer industry, and lead the industry development together with our partners.”

Intrigued by Alibaba’s investment and business partnership with Shiji since 2014, we asked CEO Li to comment on how the deal started. CEO Li shared, “At the beginning of 2014, I took the company executives to talk with Alibaba about business cooperation. Less than half an hour into a pitch for business with Zhang Yong, the chief operating officer of Alibaba Group (Daniel Zhang Yong is now the CEO of Alibaba effective on 10 Sep 2018), he keenly judged the value of Shiji and immediately called the head of the investment department and they wanted to buy into Shiji. The result was a 2.81 billion yuan investment for a 15% stake. The agreement would allow users of Alibaba’s Taobao Travel site to book air and train tickets, hotels and vacations online or by mobile with support from Shiji and its hotel network. Alibaba will get access to a Web-to-hotel online reservation system, post-paid reservation product development, member service platform, parking management and QR-scanning bill payment system that is already used by many of China’s best hotels. For Shiji the pact could bring more new hotels into its IT-support fold. The promise for all includes cost savings as IT squeezes out the human element in bookings and other transactions. It is worth mentioning that the equity cooperation between the two parties is also the first capital operation of Alibaba after their NYSE IPO.”

“From the initial provision of these value-added services, we have further developed the functions of self-service selection, self-check-in and facial recognition check-in. The key to the above functions is that the hotel information system from the company’s customers and the Alibaba Fliggy platform system will be connected directly. It is worth mentioning that together we have hatched the innovative product ‘Credit Residence’ 信用住 which has been accessed by more than 100,000 hotel merchants and used by over ten million people. In May 2016, Fliggy joined forces with Shiji and BTG Hotels (SHSE: 600258) to form Future Hotel 未来酒店公司. The number of hotels operated by Future Hotel has exceeded 20,000, and the daily service has reached 100,000 nights. In the future, the cooperation between the two parties will produce more value-added modules. At the end of 2017, Alibaba once again decided to spend US$486 million to acquire a 38% stake in Shiji Retail, a subsidiary of the company engaged in big data business. We decided to carry out in-depth cooperation on the new retail business, using both use our respective expertise to help multi-retail formats such as department stores, supermarkets, convenience stores and specialty chains accelerate digital transformation.. The transaction was completed in early April 2018. The data shows that in the first half of 2018, the total amount of payment transactions between corporate customers and Alipay and WeChat was approximately 49.7 billion yuan, which was the same as that of 2017.”

Given the prevalence of corporate misgovernance and Asian-style accounting tunneling fraud risks that include seemingly high cash amount in the balance sheet audited by Big Four auditors that “suddenly” disappears upon the fraud revelation as a result of unusual related party transactions being misclassified as “cash equivalents” or “other receivables” etc, especially amongst Chinese listed companies listed either in China/HK/Singapore or US, it is crucial to have a systematic fact-based forward-looking framework to detect and eliminate such risks.

The recent correction in the markets is also substantially increasing the downside risks for conservative investors who have saved up cash to deploy in periods of correction, especially those lured into bargain hunting into statistically “cheap” stocks. This seems counterintuitive but value investors cannot look purely at quantitative valuation metrics; investors often overestimated their ability to gain clarity on the mispricing of the cheap-gets-cheaper value-traps whose business models have often been “permanently impaired” or “K-Mart’ed/Sear-ed” in an exponential world by disruptive innovation forces. Once-successful “Stage 1” entrepreneurs may have scaled their companies, but as a result of them mishandling risks or/and under-investing in innovation, their companies are stuck in “Stage 1”. They grow to either become either disillusioned with their core business or contented with what they have achieved (小富即安), oftentimes “straying” to seek “growth” by engaging in private business interests and non-core investment activities.

Accounting information may be used to inform – or deceive. The value trap problem is compounded in the Asian capital jungles by unexpected Asian-style accounting tunneling fraud risk. These “value stocks” are the fertile ground for nefarious insiders (庄家 “Zhuang Jia” or “chng-kay”) who have the incentive and power to “prop up” financial numbers artificially, manipulate prices and volumes and to inject “action” with the prospects of sexy growth projects, luring investors in and then offloading in a pump-and-dump Sisyphus cycle while the studiously-assessed asset value has already been “tunneled out” or expropriated. Western-based accounting fraud detection tools and techniques have not been adapted to the Asian context to avoid these traps. After a decade-plus journey in the Asian capital jungles, it has been disheartening to observe that many fraud perpetrators go away scot-free and live a life of super luxury on minority investors’ hard-earned money. Without going into details into our proprietary framework which we pioneered and had taught as part of our 15-week course Detecting Accounting Fraud in Asia at the Singapore Management University (SMU) that goes beyond a simple checklist of red flags in understanding the underlying economic substance and flow of the accounting tunneling fraud schemes to expropriate cash/asset with demonstrated accounting transgression thumbprints left behind before the fraud implodes so as to stay ahead of the devil, we examine these issues to ensure that risks are mitigated:

  • No pledged shares by the controlling shareholders and the Top 10 shareholders as per mandatory disclosure. For Shiji, the top 10 shareholders which account for 80.11% of outstanding shares were reported to have zero pledged shares in mandatory disclosure.
  • Total receivables as a percentage of sales is below 25%, or a total receivables period of 90 days or below, and generates positive free cashflow. Unlike most Chinese software companies whose total receivables as a percentage of sales easily exceed 50%, Shiji has a far lower total receivables risk and stronger bargaining power at 17.46%, or a total receivables period of 63.7 days.
  • No unusual/toxic and excessive goodwill and intangible assets as a percentage of total asset.
  • No dormant or/and inactive subsidiaries, associates or entities that were often used to engage in money-go-round intercorporate loan guarantees, loans, and deposits and to secure further loans etc to prop up numbers.
  • Few or zero non-core investment activities e.g. entrusted loans, trust loans, negotiable certificates of deposit (NCDs), bank acceptances, repurchase agreements (repos), wealth management products (WMP), NBFI (non-bank financial institutions) loans, etc.
  • No unusual/improper long-term investments in opaque “unquoted investment funds”, “unquoted shares”, “restricted investments”, “pledged deposits” etc with questionable or non-existent impairment allowances.
  • No questionable off-balance-sheet contingent liabilities.
  • No consolidation craftiness fraud in the shifting of expenses, debt and liabilities into unconsolidated entities, jointly-controlled entities, joint ventures, associates, etc.
  • No capex-related fraud and unusual/improper capitalization of expenses to inflate profits and PPE artificially.
  • No unusual/improper unearned or deferred revenue or fee income due to fake customers that also result in double-counting of cash balance that were just related-party loans pushed around to prop up numbers.
  • No over-invoicing fraud or/and opportunistic shifting/deferring of expenses into unusual, improper or related-party other payables/other liabilities.
  • No deferred tax fraud.

The paradigm shift to avoid the cheap-gets-cheaper “value traps”, to keep staying curious & humble, and to keep learning & adapting, has never been more critical for value investors. We believe 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) on the type of business models, the “exponential innovators”, that can survive, compete and thrive in this challenging exponential world we now live in. Tech-focused innovators with non-linear exponential growth potential are the most relevant and mispriced multi-year investment trend and opportunity. And we focus on doing work we are proud of to serve the people we care about. Becoming part of the H.E.R.O. Innovators’ journey is an expression of who you are, the values you inspire in others.

When asked about how he came about to start Shiji and the challenges he faced and overcame during his early entrepreneurial period, CEO Li shared reflectively his inspiring story: “I am born in Hunan province and I am 55 years old this year. I graduated in 1984 from the Department of Space Physics at Wuhan University. In 1987, I obtained a master’s degree in Optoelectronic Technology from the former Ministry of Aeronautics and Astronautics. After graduating, I stayed in the work of the former Ministry of Aerospace. At the age of 25, I served as the director of the Development Department of the Ministry of Aerospace, and was the youngest cadre in that position at that time. I got into computers as a sideline. I liked to study computers, especially network systems. I found that trading companies selling PCs in the Beijing IT hardware hub in Zhongguancun didn’t know much about support. In my spare time, I would help some companies in Zhongguancun to solve technical problems. Moonlighting, I found I could make more in an hour as a technical support (500 yuan) than in a month at his work (361 yuan. That made me interested in entrepreneurship. I set up shop in my bedroom in 1998, investing in a nice fax machine whose letter quality impressed customers.”

“A turning point came when I was called in by the Shangri-La to troubleshoot and replace an outdated mainframe with a PC-based system. Opened in 1986, Shangri-La Hotel is the tallest and most luxurious five-star hotel in Beijing. The difficulty of the Shangri-La project is not much different from the other projects I have dealt with, but the project has paid off in surprising ways. I learned later that in fact, the remuneration that Shangri-La gave me was only a fraction of the cost of maintenance that they pay to their IT vendors in Hong Kong. Even if I wanted a higher price, Shangri-La will give it because no one can solve their problem right away. After many years of dealing with Shangri-La and other customers, I have maintained this kind of honesty. This makes everyone willing to introduce more business. At the time, they put the reward in the envelope and gave it to me with the number 5,000 on it. This number is already much higher than the list I usually received. But when I opened the envelope, I found that the envelope was in US dollars at US$5,000. Shortly thereafter, Shangri-La recommended and help bring us high-end customers such as Kempinski Hotel, Hilton, and Wangfu Hotel. Having made a name in the hotel circle, I sniffed the opportunity and resigned from the stable work of the former state-owned unit and started Shiji in 1998. I got a further boost from Y2K worries in 1999 and then after the SARS crisis, when I had cash to snap up hotel-IT support rivals that were hurting. By the year 2000, the number of hotels using the Shiji information network system reached 100, and the number of employees increased to about 20.”

“The most critical transformation of the company took place in 2003, the year of SARS. The domestic high-end hotel industry was extremely depressed, and the overall occupancy rate was less than 20%. Most practitioners believe that China’s high-end hotels will definitely not last for the next two years. That same view was held by global hotel management software leader MICROS-FIDELIO which was formed by the merger of MICROS, the largest restaurant management system company in the United States, and FIDELIO, the world’s best hotel front management software company. At that time, MICROS-FIDELIO’s business in China was mainly concentrated in a few foreign-funded hotels, and the Chinese business accounted for a small proportion of their entire business. Taking advantage of their chief representative’s opportunity to meet in Beijing, I proposed to him the idea of ​​acquiring MICROS-FIDELIO’s China business. According to his judgment at the time, if MICROS-FIDELIO can be successfully acquired, Shiji will provide the most competitive hotel system overall solution in the market, and basically dominate the entire market. Therefore, I am determined to win this deal. MICROS sold the source code to Shiji for US$1.8 million. My judgment was fulfilled less than a year later. With the disappearance of SARS, the high-end hotel market in China recovered in 2004 and opened up to a rapid growth rate of more than 50%. Through this transaction, combined with our own technology and self-developed software, Shiji realized the transformation from system service provider to software supplier. This year is the establishment of Shiji Information for 20 years. Looking back on the past, I always believed that I am lucky, and that reform and opening up of China gave me these opportunities. Several members of the Shangri-La staff whose faith in me was a turning point for Shiji. I believe that the sector will have strong demand for a decade as leisure and basic business travel spreads in the country.”

CEO Li also shared how the Chinese name Shiji originates from the Japanese word for the “Go” chess: At the early stage of founding the company, all the work is done by myself. The Chinese characters of company name Shiji 石基 means the ‘Go’ chess 碁 in Japanese. There are three red spheres in the old logo meaning the chess pieces, the blue ball in the middle with irregular color changes from shallow to deep that cannot be digitalized (at that time we did not even know that it is going to be much easier for printing to use digital color means that there is no certain chess mode, the key is to look at the overall situation instead of partial gain and loss. This is the idea of operating Shiji’s business at that time. We must win the strategic projects, but in some cases we don’t care of losing some projects. The long-term cooperation with our partners is more important for us.”

On Shiji’s globalization strategy, CEO Li commented: “Globalization and Go Platform are key strategies. We carried out a series of practices to enhance the Go Platform strategy in 2017. By way of continued improvements, the new generation cloud hotel and catering information systems, our cloud POS system ‘INFRASYS CLOUD’ made milestone progress and has been certified by several internationally recognized hotel groups as their global and next generation POS system of choice; the reservation and payment platform has maintained momentum; the integrations of Efuture, Changyi, Techtrans and Shiyun into Shiji Retail proved to be strong in the market as a suite of modules, realizing high speed increase in both revenue and profit, which further consolidated Shiji’s indisputable leadership in the Chines retail information systems industry. Similarly, CHINAonline improved reservation technology and realized positive increase of transaction volume. The Company has maintained steady progress with its Globalization strategy throughout 2017. To expand our system solutions for upscale hotels outside of the home region, we have set up international offices in Singapore, US, Australia, Germany and Hong Kong to provide service for our global clients, supported by over 300 employees internationally.”

“The Company conducted investments primarily focused on next generation cloud hotel information system and hotel big data. The ecosystem of Shiji’s cloud and data has been consummated by 100% owned Hetras, the leading cloud-based PMS/CRS provider in Europe, investing in Snapshot GmbH, the big data platform for hotels, and acquiring ReviewPro, the hotel review management company. More importantly, all the investment has accelerated the platform strategy driven by data. We acquired 79.47% stock shares of the Spanish hotel reputation and management platform Review Rank S.A. in January 2017. With more coordination in market, technology, data and teamwork, courtesy of  previously acquired Snapshot and Hetras, a new hotel data technology and product will be the result, covering data chains that complete and enhance guest journey, represented by the latest internationally available technology. Moreover, we have been exploring the financial and channel data services to the 3rd party companies based on the Shiji’s data platform. The cooperation between CHINAonline and distribution channels at home and abroad has been strengthened, meanwhile, the collaboration with AliTrip has increased the room nights significantly. From the perspective of payment business, Shiji provides segmented applications to different market and keeps the passion of extension and innovation, which has brought the explosive transaction increase on the platform integrated with Alipay, WeChat and other payment channels. Our payment platform is ready for serving massive customers and dealing with higher volume transactions with all-in-one technologies and service capabilities, which lays solid foundation of payment platform business.”

Shiji’s COO Kevin King, who was a long-time Micros executive before he was hired to join Shiji in 2015, shared on how Shiji envisions being a part of consumers’ lives when they ‘eat, sleep, shop, and play’: “Shiji envisions being a part of consumers’ lives when they ‘eat, sleep, shop and play’. This forms the basis of group’s latest transformation – being a platform service provider with strong data and analytical capabilities encompassing various sectors. It was in 2015 when there was a major introspection, and fundamentally being a technology company, it was acknowledged there have been dramatic changes, be it for consumerism in China or the technology landscape, and the time was ripe for transformation. Delving deep into what would be our responsibility towards the industry that has helped grow over the years, we realized the need of the hour is a platform solution, and data-driven offering, and that just not limited to hotels, but to other sectors too.”

“Strategic alliances are part of the plan that would not only facilitate servicing of hotels’ operations, but would also pave way for actionable data via connectivity among systems. This is where ReviewPro and SnapShot are tipped to contribute, be it for the ease with which data can be accessed or even the quality of data. With all the systems we have, with all the information we have access to we are able to provide data in a certain format whereby our customers and even the industry at large would have the ability to act on what would be actionable data, real data. Importantly, this would feature data about what guests are thinking – prior to the stay, during the stay and after the stay. Access to such data is vital as the platform isn’t just about predictive information, based upon what happened in the past. It is time hotels look beyond historical data on occupancy, average room rate etc. Listening to customers is a must now. If you look at different pieces of data – reservation of the guest, pre-arrival period, stay including commenting and sharing on TripAdvisor, WeChat, Facebook etc. and then post stay period, there is socialization of travel. There is a need to make the most of data that is actionable for what is happening ‘now’. This way a hotel can identify and work on their services, offer better value, and can define a price and rate around that.”

“As long as the decision-making of a guest is within the systems that are connected, be it for hopping on to different devices for shopping for a room or till the point the guest stay is over or loyalty program, the guest can be ‘tracked’. You can provide a service to them. Consider this to be a journey that begins when one is looking for a room and shopping, and books it. And that’s the time servicing needs to begin, not when check-in happens. There is a need to know their preferences, and the reason for travel. So from booking to check-in to stay, there is a need to have a say in the experience. Guests do tweet, do interact on WeChat, comment on TripAdvisor…so via reputation management system, one can follow the guest. The information is pushed by the relevant system, and hotels can take charge accordingly. Taking appropriate action denotes that you know about the guest. This would make the guest realize that the hotel values my stay, for instance, taking a corrective measure against what has gone wrong with the experience. Similarly, one can identify opportunities for revenue generation. What did the survey say about the experience? Listen to the guest more, rather than just looking at numbers/ data from the past. When the guests talk or comment, analyze it.”

COO Kevin King also commented on the 7 aspects of Shiji’s business model to capture relevant data: “There are several aspects of Shiji’s business model that would ensure that the platform captures relevant data.

(1) Covering every data element within the hotels sector: Shiji has a strong ‘above the property’ capability (CRS, loyalty and payments) and maintenance of critical data within those systems, and this is available across first-tier, second-tier and third-tier cities in China. Also, all these products and solutions in China – payments, central reservations, loyalty, switching technology etc. – are ‘transportable’ for international markets. Then through our acquisitions in China, we have a wide range of PMS solutions across different companies. This was vital in order to provide actionable data based on systems that control such data, and this route has helped Shiji to cover properties across China. So with this sort of PMS coverage, and then being able to put data and with that connectivity to all those ‘above’ systems, and data into our platform solution paves way for actionable data as being envisioned. In addition to this, CHINAonline offers an ‘agnostic switch’, connecting various stakeholders, and then goes into the channel management solution, and maintaining rates, availability etc. The CRS also connects to the property via the CHINAonline switch.

(2) Solutions for hospitality: Shiji also owns a number of POS systems, and this includes a full ERP offering for restaurants, including centralized kitchen processing. Plus there are payroll, accounting and inventory control solutions at a group level as well as individual property level, so Shiji’s portfolio covers what all is needed in the hospitality sector. And each component of that has different data element, complementing the platform strategy.

(3) Offering solutions via connectivity: Shiji is a platform provider. In order to run a platform, you need to be ‘open’ to be able to connect with different stakeholders within the industry. For instance, Joint Wisdom is one of our partners. We have not only jointly looked at booking, switching, but are also looking at other areas of data collaboration and certain products. For instance, Joint Wisdom’s PMS is integrated into our payments platform. We are also looking at working with them for our value added tax (VAT) solution. The Chinese government last year took a decision related to VAT and it was a mammoth change for the hospitality, retail industry etc. Shiji has worked out online connectivity for hotels, retail players, restaurants etc. to manage VAT in conjunction with Baiwang. So such integrations are vital for the industry. We are a platform service provider, and this provides connectivity for a range of products, including ones from our partners, that hotels need for their operations.

(4) Analytics: Shiji has already shared plans to set up a business information technology unit with 100 million yuan. This division is currently focused on the retail sector, specifically supply chain management solutions – taking data from retailers and offering it to supply chain stakeholders and letting them come to grips with the sort of goods that are being bought by retailers. This data is part of a platform, so essentially, what this means is that in the future it would have relevance to hospitality. This is because data is being utilized by the retail sector and hospitality players also procure from different vendors. So by using similar analytics, data mining and data sharing, one would be able to contribute in the hospitality food servicing sector. So we are looking at supply chain analytics.

(5) Destination management: China has been investing in the infrastructure– rail network development, the airports around the country etc. This enables one to travel across the nation and this opens up avenue for ‘easy, short’ holidays. Destination management is extremely important to us, in addition to hotels, retail and food servicing. So in the whole environment of the destination side, Shiji has presence when consumers eat, sleep, shop and play. So Shiji with its competencies in PMS, POS, theme park solutions, retail solutions etc. is able to provide technology that touches the consumers’ daily lives. And the data that comes into our platform helps customers to analyze. Shiji acquired 20% equity in theme park software and system integration firm Galasys for GBP4.593 million (US$5.96m) in April 2015.

(6) Dealing with diverse systems and bringing them onto platform: It is time for the sector, including hotels, to move into the cloud. One of the options is our domestic offering, Foxhis, which has a hosted solution environment, where the technology is hosted in a data center, and then it provides the connectivity to the hotel. We have also acquired Hetras, which has worked on an Internet-based management application for hotels. Hetras was designed around true cloud environment, has full PMS functionality as well as API connectivity for other companies to integrate within. Of course, Shiji has the ability to capitalize on the technology to connect offline solutions, say PBX telephone system from a hotel. For their part, Shiji has worked on a fully cloud-based restaurant management solution for global use. When you have cloud-based systems in the cloud, then those systems can ‘talk[ (communication between systems) cloud to cloud.

(7) Data strategy: Companies create a platform, put data in that platform, and try to visualize the data and eventually attempt to work on a commercial reality. SnapShot platform is a company set up with initial backing from STR and citizenM, and a subsequent investment from Shiji. The Berlin-based company, which has also forayed in the U.S., has in place over 40 data partnerships, including Oracle, Baylakes etc. The platform helps hotels to take action as it blends data from PMS, RMS, CRM, reputation aggregators, social data, website analysis etc. It is tailored for the hospitality sector, and not distracted by retail and food servicing. This is how Shiji’s platform, based on data-driven and cloud-based environment, is going to ensure there is a capability to understand every online and offline footprint of customer’s (say a hotel’s) customer (guest). This is the main reason why we are moving into retail and food servicing. So this way we are vertically (different business areas) and horizontally (supporting them) equipped. For instance, our payments’ offering covers all the verticals. Beyond our competencies, we are also respectful of the fact there are other partners who can contribute to the industry. We are not the only one, but we are the dominant one. That’s where our transformation comes in, the responsibility of taking the industry forward with other stakeholders. So it’s sort of a garden, and anybody can play in there.”

COO King also discussed about Shiji’s platform strategy and how it differs from Amadeus and “Shiji is not taking the Amadeus approach of a single-sign-on for services that sit on top of a shared codebase. Shiji’s platform creates an environment with a mix of cloud-based data infrastructure to support exchanging large amounts of data and an aggregation of several innovative tech companies. Predictive analytics companies, OTAs (online travel agents), food services companies, hotel inventory management companies, and revenue management companies use our cloud-based environment to access data. But they don’t all log into a Shiji master account and pay a standardized fee to access the buffet of services. The staff who use Infrasys, a restaurant point of sale system, versus the staff who use Shiji Distribution Solutions are quite different. So a single-sign-on wouldn’t really make sense for our markets. However exchanging data from such systems into a company-wide analytics dashboard would be much more helpful for them. This is where we see the platform element in addition to the offices, sales and support. Shiji’s environment for the international markets gathers tools for functions like distribution, payments, operations, data management, analytics, and business intelligence, and so forth. For instance, Shiji Distribution Solutions, the inventory management and distribution set of services for hotels, is part of Shiji’s environment. Another analogy is that what Salesforce has is a marketplace with applications that can be purchased off-the-shelf and which are integrated with their system since they’re built on their cloud database system. Shiji has a-la-carte services and solutions that hotels can choose. We also bring the consultative aspect to the data through our investments in Kalibri Labs. Kalibri is used by hoteliers to evaluate and predict revenue performance. It collects daily hotel transactions from more than 31,000 hotels and it helps to calculate the cost of guest acquisition for hotel owners, operators, and brands. Hotels aren’t the only target for Shiji. Some of Shiji’s group’s tools serve more segments than hotels. SnapShot, an analytics dashboard service Shiji has acquired, can be used by hotels, attractions, and other vendors. It offers connectivity to application developers, consultancies, and enterprise clients.”

“The hotel industry has been following trends in other sectors by moving from buying suites of software products for specific functions to using a foundational software infrastructure that supports multiple functions and encourages third-party integrations. A platform approach allows for a smoother exchange of data. Issues of antiquated systems that don’t always communicate seamlessly with each other stems from the fact that hotel ownership remains very fragmented and service-focused as well as there is a general complacency with legacy systems that work just fine. The hospitality industry is being held back in its ability to understand and serve guests because guest data is fragmented and poorly managed. Before a reservation is even booked, guest data can be processed by more than 10 different systems that are disconnected or poorly connected. Once a guest is at a property, a guest may interact with multiple touch points at a hotel which, again, typically don’t coherently talk to one another. Shiji aims to smooth out the friction points. Today guest profiles, for example, are managed with bits and pieces in multiple parts of the hotel’s IT infrastructure. We need that single guest profile which is a challenge we want to raise awareness about.”

CEO Li summed up by expressing his confidence in Shiji’s big data driven application service platform business model riding on the exponential rising tide of the consumer industry’s transformation: “More investment will be put on the R&D of new generation hotel and restaurants IT solutions. Business data from IT systems of different business sectors from hotels to F&B and retail will be connected with Shiji’s business application platform by promoting data services provided by ReviewPro and Snapshot worldwide. We are on the way to be the leading data-driven application platform operator of local and even global big consumption industry. Shiji’s new logo enhances the meaning that data is Shiji’s core asset: 7 spheres, suggesting that data flows around Shiji, while the original 3 spheres represent chess pieces. Shiji will be no longer limited to its original network, software and technical services. I hope that Shiji will be an internationally well-known company in the coming 10 years.”

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 300 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.

It started with rethinking a few questions. Question No. 1: Can the megacap tech elephants still dance? Or is this the better question: Is there an alternative and better way to capture long-term investment returns created by disruptive forces and innovation without chasing the highly popular megacap tech stocks, or falling for the “Next-Big-Thing” trap in overpaying for “growth”, or investing in the 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? How can we distinguish between the true innovators and the swarming imitators?

Question No. 2: What if the “non-disruptive” group of reasonably decent quality companies with seemingly “cheap” valuations, a fertile hunting ground of value investors, all need to have their longer-term profitability and balance sheet asset value to be “reset” by deducting a substantial amount of deferred innovation-related expenses and investments every year, given that they are persistently behind the innovation cycle against the disruptors, just to stay “relevant” to survive and compete? Let’s say this invisible expense and deferred liability in the balance sheet that need to be charged amount to 20 to 30% of the revenue (or likely more), its inexactitude is hidden; its wildness lurks and lies in wait. Would you still think that they are still “cheap” in valuation?

Consider the déjà vu case of Kmart vs Walmart in 2000s and now Walmart vs Amazon. It is easy to forget that Kmart spent US$2 billion in 2000/01 in IT and uses the same supplier as Walmart – IBM. The tangible assets and investments are there in the balance sheet and valuations are “cheap”. Yet Kmart failed to replicate to compound value the way it did for Walmart. Now Walmart is investing billions to “catch up” and stay relevant. Key word is “relevancy” to garner valuation.

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”, to keep staying curious & humble, and to keep learning & adapting, has never been more critical for value investors. We believe 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) on the type of business models, the “exponential innovators”, that can survive, compete and thrive in this challenging exponential world we now live in. Tech-focused innovators with non-linear exponential growth potential are the most relevant multi-year investment trend and opportunity.  

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, defeating the buy-and-hold strategy and giving currency to the practice of trading-in-and-out of stocks. On the other hand, there exists an exclusive, under-the-radar, group of innovators who are exceptional market leaders in their respective fields with unique scalable business models run by high-integrity, honorable and far-sighted entrepreneurs with a higher purpose in solving high-value problems for their customers and society whom we call H.E.R.O. – “Honorable. Exponential. Resilient. Organization.”, the inspiration behind the H.E.R.O Innovators Fund, (surprisingly) the only Asian SMID-cap tech-focused fund in the industry.

The H.E.R.O. are 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 continuing to do their quiet inner innovation work, persevering day in and day out. There’s a tendency for us to think that to be a disruptive innovator or to do anything grand, you have to have a special gift, be someone called for. We think ultimately what really matters is the resolve — to want to do it, bring the future forward by throwing yourself into it, to give your life to that which you consider important. We aim to penetrate into the deeper order that whispers beneath the surface of tech innovations and to stand on the firmer ground of experience hard won through hearing and distilling the essence of the stories of our H.E.R.O. in overcoming their struggles and in understanding the origin of their quiet life of purpose, who opened their hearts to us that resilience and innovation is an art that can be learned, which can embolden all of us with more emotional courage and wisdom to go about our own value investing journey and daily life.

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.

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. 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 | | WhatsApp +65 9695 1860

H.E.R.O.’s Journey in Tech (17 November 2018) – Altium outlined Altium 365, which aims to connect the electronics design to the manufacturing floor, which is an industry first + Truth About Finding Fulfilment In Life: Joseph Campbell on following your bliss.

H.E.R.O.’s Journey in Tech (17 November 2018) – Altium outlined Altium 365, which aims to connect the electronics design to the manufacturing floor, which is an industry first + Truth About Finding Fulfilment In Life: Joseph Campbell on following your bliss.


  • The problem of US Mercari is “cognition” (Techcrunch); Mercari and UPS offer anonymous shipping in US (Nikkei)
  • China probe raises shield for domestic precision tool makers (Nikkei); China probes Fanuc and 9 other foreign factory automation players (Nikkei)
  • Altium share price rockets 9% on AGM presentation; Altium also outlined Altium 365, which aims to connect the electronics design to the manufacturing floor, which is an industry first. (MF)

FAANNMG – Facebook, Amazon, Apple, Nvidia, Netflix, Microsoft, Google

  • Goldman Says It Was “Wrong” on Nvidia Stock and Boots It From Best Ideas List (Barron’s); Supply glut mars Turing effect for Nvidia shares (Reuters)

Asia Tech & Innovation Trends

  • Faraday Future: How a “Tesla-killer” became a zombie company (Technode)
  • China-based supplier of Apple screens Biel denies it has laid off thousands of workers (SCMP)

Global Tech & Innovation Trends

  • Startups: Finland’s ray of light: How the small, risk-conservative nation became a hotbed for startups (BT)
  • The Impact of Artificial Intelligence on the World Economy (WSJ)
  • The Story Nobody’s Telling About Our Robot Future: A Q&A with ROBO Global CIO Bill Studebaker (ETFT)
  • How Digital Voice Assistants Can Be Used To Revolutionize Your Work Day (Forbes)


  • Munger: If you have a passionate interest in knowing why things are happening, you always are trying to figure out the world in terms of why is this happening or why is this not happening, that cast of mind, kept over long periods, gradually improves your ability to cope with reality. And if you don’t have that cast of mind, I think you’re destined, probably, for failure, even if you’ve got a pretty high IQ. (VIW)
  • Truth About Finding Fulfilment In Life: Joseph Campbell on following your bliss. (Medium)
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