Singapore’s Super H.E.R.O. Roundtable: Re-imagining Value Investing in an Exponential World – VALUE 3.0 With Ever More “Value Trap” Losers & A Selected Under-the-Radar Group of Winners with Exponential Edge

Amidst escalating trade war, 29 May 2019 was the eventful inaugural roundtable of the Singapore’s Super H.E.R.O.s who come together to brainstorm about “Re-Imagining Value Investing in an Exponential World: VALUE 3.0 With Ever More Value Trap Losers & A Selected Under-the-Radar Group of Winners With Exponential Edge”.

The Singapore Super H.E.R.O.s in the Roundtable are:

• François Badelon, business owner/CIO of French-headquartered Amiral Gestion Group who manages over 4bn euros in AUM
• Raymond Goh, business owner/CIO of New Silk Road Investment who manages over US$2bn AUM in Asia ex-Japan equities; Raymond was the former MD in equities at GIC
• Benjamin Ng, business owner/CIO of Whitefield Capital who manages money for sovereign wealth fund and pension/endowment fund in Asia ex-Japan equities
• Hemant Amin, business owner/CIO of Asiamin Capital, a highly successful single-family office and one of the early major investors in Indian-listed Bajaj Finance/Bajaj Finserv which compounded >100X to a market value of US$24bn/US$17bn

We are grateful to also have two great friends of H.E.R.O. joining the Roundtable: Jacqueline Too, senior advisor and award-winning veteran banker at multi-generational wealth management & IAM group Crossinvest; and Anton Chua, one of the branch business owners of Finexis which is one of the largest independent financial advisor firms in Singapore.

As Adam Seessel elucidated of the profound structural shift towards “Value 3.0” on 21 Nov 2018 in his Fortune article titled: “An Evolve-or-Die Moment for the World’s Great Investors: The dominance of tech stocks has forced some of the best investing minds—including Warren Buffett himself—to re-examine their thinking. Who will adapt and survive?”:

“As these platform companies create billions in value, they are simultaneously undermining the post-war ecosystem that Buffett has understood and profited from. Entire swaths of the economy are now at risk, and investors would do well not only to consider Value 3.0 prospectively but also to give some thought to what might be vulnerable in their Value 2.0 portfolios.”

Benjamin was the kind affable host where we gathered at his heartwarming office to collectively think, dream, argue, heal, envision, trust and connect; and to find investment-business-life principles and axioms that are stable and consistent that in times of joy and toil, we can still depend on them to grow together in the H.E.R.O.’s Journey together.

Long-term investing works because there is less competition for really valuable bits of information. The real advantage comes from asking more valuable questions. The short-term investor asks questions in the hope of gleaning clues to near-term outcomes: relating typically to operating margins, earnings per share and revenue trends over the next quarter.

The longer one owns the shares, however, the more important the firm’s underlying economics will be to performance results. Long-term investors therefore seek answers with long shelf life. What is relevant today may be relevant in ten years’ time if the investor is to continue owning the shares. Information with a long shelf life is far more valuable than advance knowledge of next quarter’s earnings. We seek insights consistent with our holding period.

With the escalating trade war wiping out US$4 trillion off the US market in its second-worst May since 1960s, US$515 billion in the overall tech sector, and trillions off the emerging markets, including melting away the traditional “safe-haven” sentiment-driven tactical trades such as dividend stocks, the risk-off environment has positively fueled a selected group of winners who are benefitting in a structural way due to improving fundamentals.

The group of 45 SaaS (software-as-a-service) companies with positive operating cashflow (OCF), with a combined market value of US$640 billion, have stayed resiliently positive while the NASDAQ index fell 6% in the month of May, extending their YTD average gains in 2019 to 43.1%. Amongst the biggest winners in May 2019/YTD 2019 are SaaS innovators with high OCF margin and they include Atlassian +16.2%/+41.9% (OCF margin 35.6%), Veeva +11.5%/+72.8% (OCF margin 36.1%) and Zscaler +10.3%/+86.2% (OCF margin 20.1%).

Raymond, who is very well-read, wisely asked a question which he also answered himself – are there any listed SaaS companies in Asia, to which he added himself, nearly all of them are in Japan and Oceania. Asia ex-Japan & ex-Oceania fund managers and analysts are not exposed to SaaS innovators in their scope of work experience, and might not have the world view and wisdom of Raymond to appreciate both the compounding potential and resiliency of these recurring-revenue business models in volatile markets.

We briefly discussed one of the 40 H.E.R.O. portfolio companies, the only listed profitable IoT-SaaS innovator in the world which is up 21% in the month of May, extending its gains to 54.2% YTD in 2019. It has an operating profit margin 24.7% (1Q FY12/2019: 25.6%), ROE (= OP/Equity) 17.4%, ROA 13%, positive free cashflow margin 11.9%, net cash as % market value of 4.3% (net cash as % of book equity is 43%).

IoT devices have long service life while unit prices are low, and the typical project-based OEM/ODM business model are vulnerable to the unpredictability in capex spending and orders from their customers. This listed Asian innovator’s AI-powered and multi cross-communication IoT platform supports continuous automatic IoT data control and monitoring and it has the largest AI-powered surveillance center in its country. The process of connecting sensors to the Internet is complicated. The innovator can complete complicated processes simply by installing a dedicated device, and users can easily and inexpensively introduce IoT utilization of various sensors (compatible with all sensors) into their business in a few days via recurring subscription service. It has very high customer retention rate of 98%.

On 10 May 2019, this listed SaaS cloud innovator announced a healthy set of first-quarter results in which sales increased 28.3% and operating profit rose 40.3% with improving margin and record-high in monthly recurring subscription sales.

Some specific application scenarios of its recurring-revenue subscription services include:
• Preventive maintenance of factory/robot equipment: Semiconductor giant Tokyo Electron’s equipment are equipped with sensors (vibration sensors, acceleration sensors etc) whose data are connected to Microsoft Azure cloud and this innovator’s AI/IoT cloud platform with its unique algorithm-cloud data-sensor connect service monitors abnormal vibrations and speed associated with equipment outages to prevent equipment malfunction in order to ensure the stable operation of plant facilities. Customers of Tokyo Electron equipment subscribe monthly for the monitoring services.
• Abnormality detection of commercial kitchen equipment (freezer/refrigerator): Temperature and humidity management is important for food companies. In addition to visual dashboard confirmation at regular intervals, there is real-time management and quick awareness and response to unexpected situations that will ensure safe hygiene management.
• Autonomous and operation control of construction equipment, forklift, etc: Sakai’s compact roller construction machine utilizes this innovator’s IoT/AI control & monitoring platform to realize joint human or full autonomous operation. The innovator’s automatic steering and emergency braking software technology improves efficiency and safety.

Our strategy remains: 0% in OEM/ODM + 0% in component makers + 0% in semiconductor & related sector + 0% in capital equipment, tech hardware & big-ticket items + 100% singular focus in a portfolio of highly-profitable listed Asia SMID-cap tech-focused exponential innovators = Higher probability of resiliency in both fundamentals and investment returns that are highly impervious to the US-China trade war risk and market volatility which have escalated since 6 May 2019.

The portfolio of 40 H.E.R.O. innovators, which has an average market cap of US$1.39bn (median market cap of US$858m), delivered strong interim results growth amidst the US-China trade tensions: overall weighted sales rose 30.5% YoY and operating profit grew faster with increasing returns to scale at 58.7% YoY, supporting the portfolio returns.

An overwhelming majority (82.5%) of the 40 HERO portfolio stocks are highly profitable “SaaS (software-as-a-service), information & data analytics/AI” companies and “platform business models”, a group which we believe is highly impervious to trade war risks.

We briefly debated about the challenging question of whether “Are ‘cheap stocks’ risky ‘value traps’?” with a series of examples and the crucial need for VALUE 3.0 investors to stay curious, open-minded, vigilant and diligent to a bigger context of the disruption at play impacting individual stocks in the portfolio.

The wise Hemant made the striking point that when there is the compelling alternative to invest in the superior exceptional highly-profitable businesses that increase their competitive leadership and widen the gap with the Value 2.0 businesses exponentially over time, it will be increasingly very difficult to justify high-conviction investing with a meaningful position size for the long-term in the disrupted Value 2.0 stocks and the masqueraders of Value 3.0 stocks, although it may be possible to earn some opportunistic transitory returns in such stocks.

Amongst various long-range thought-provoking questions, we also discussed the dangers of superficial thematic/ macro-based investing without a deep understanding and analysis on the quality of the business model and management, including that of investing in supposed “disruptors” (or companies in general) in the sexy popular Vietnam stock market which is increasingly an investor’s favorite due to its supposed young demographics tailwind.

But the market microstructure, with its block trading cornered by a few market participants, stock illiquidity and market prices that may not fully reflect the underlying true market conditions, can be treacherous for investors lured by the attractive headline-grabbing macros.

A disruptor-pretender that we had earlier cautioned back in Nov 2018 was Vietnam-listed Yeah1 which has since collapsed 60% in under six months after Google’s YouTube terminated their business relationship with Yeah1 indefinitely starting 22 May 2019 due to its violation in business conduct and dealings. We shared this consistent message about the pitfalls of investing in the Asian capital jungles illustrating Yeah1 as an example with a US investment organization, who invests US$9.5bn on behalf of endowment and foundations, who had connected with us then.

While Yeah1 fell over 60% to VND 91,100 in the sexy “safe-haven” Vietnam market, UUUM (TSE: 3990) rose 26% over the same period in the unloved, disliked and overlooked Japan market since we shared our thoughts in the earlier HeartWare weekly tech series on 23 Nov 2018. UUUM had announced on 12 April 2019 a robust set of results: 9M FY05/2019 sales rose 69.4% and operating profit jumped 2.2X, while generating healthy positive free cashflow and valuable original content. Excerpts from our HeartWare back in 23 Nov 2018 below:

“The recent listing of Vietnam’s largest MCN and digital media company Yeah1 Group (HOSE: YEG) in Jun 2018, which is valued at over US$400m at IPO at VND 300,000 per share (now VND 230,000), has brought about a comparison with UUUM in the business model quality and growth potential, further highlighting the distinctive exponential edge of UUUM. Despite both companies having a roughly similar profile in monthly views (over 4bn views) and subscribers (~160m), due to a difference in engagement, interaction, video watch time and playbacks, UUUM produces twice the revenue (US$107.9m vs Yeah1’s US$52.5m) and generates 3.4X more in ad revenue from YouTube when compared to Yeah1 (US$61.4m vs Yeah1’s US$18.1m). In addition, we are cautious of Yeah1’s balance sheet, working capital dynamics and bargaining strength in the ecosystem when compared to UUUM, which led to a much lower operating cashflow…”

One of our focused portfolio stocks, a Korean-listed SMID-cap tech innovator with dominant 80% domestic market leadership in recurring information & big data services, remains resiliently positive since 6 May 2019. Since we highlighted this Korean firm about three months ago to one of our advisory clients, a business owner/CIO of an established Asia ex-Japan value fund management company in Singapore who manages sovereign wealth and pension/endowment money, the stock is up over 40% to a market value of US$740m. We are grateful to be able to deliver our recently operationalized bespoke investment solution for family offices, UNHW, corporates and long-term institutional investors with satisfactory results to this wise business owner/CI client whom we like and respect and care for.

Farsighted investors and our clients are experiencing first-hand and benefitting from the flight-to-quality effect in the market to quality listed innovators that are most relevant in this exponential world, because each time the market corrects, the stronger hands of longer-term farsighted investors will accumulate more and more of these quality innovators, while the weaker short-term opportunistic hands sell out, creating a resiliency effect in these stocks. Listed profitable SMID-cap tech innovators with non-linear exponential growth potential are the most relevant and mispriced multi-year investment trend and opportunity.

Inspired by the Singapore’s Super H.E.R.O. Roundtable meaningful discussions, we are planning to organize a series of workshops on “100X: Be Exponential, Be Exceptional in the H.E.R.O.’s Journey – VALUE 3.0 Investment Insights to Navigate the Volatile World”, starting in the third week of June till July. Do watch out for more updates on this and we look forward to having you join us as a founding member and farsighted explorer in the H.E.R.O.’s Journey participating in the long-term exponential growth of a selected group of outstanding entrepreneurs.

Download the Singapore’s Super H.E.R.O. Roundtable discussion slides:

Inspiration for CENTERED With H.E.R.O.: Our clients, just like our H.E.R.O. innovators and business owners, understood the profoundness that it’s not about a Maslow-type pyramid that they need to scale upwards in profits and returns; the H.E.R.O. journey is not upwards, but a deeper journey inwards and towards the center, about the kind of person you want to become through the work you build and invest in to serve those you care about.

Deeper and inwards towards the center. As Einstein elucidates: “Strive not to be a success, but rather to be of value” – Amid all of life’s chaos and challenges, a restorative balm to all of us to be Centered in values with focus and purpose to be of value in serving an idea larger than ourselves and the people we care deeply for.

Thus far, of the 72 entrepreneurs and CEOs whom we had highlighted in our previous weekly research brief HeartWare, less than one-third are in our focused portfolio of 40 HERO Innovators, while the rest (50+) are in our broader watchlist of 200+ stocks.

If you are not moving forward in this exponential world, you are going backwards. If you want to join us at the leading edge of opportunity, if you identify yourself in the values and bigger sense of purpose in H.E.R.O., or you wish to tell from your heart to your most important person, son, daughter, wife, husband, or best friend that you are a farsighted and thoughtful explorer in the H.E.R.O.’s Journey participating in the long-term exponential growth of a selected group of outstanding entrepreneurs, standing up for the embracement of the human spirit, please contact us via email or WhatsApp at +65 9695 1860. Thank you very much for your patience and support and we look forward to growing exponentially with you as we explore the H.E.R.O.’s Journey together.

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 recurring-revenue profitable 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 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.

Warm regards,
KB | | WhatsApp +65 9695 1860


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 (, 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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