8l investments

Our Investment Strategy: Inves1ng With Convic1on To Outperform in Times of Vola1lity and Uncertainty “Extractors Vs Compounders in the Asian Capital Jungle”

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All Rights Reserved by 8 Investment Pte Ltd. No Copy and Reproduc>on Allowed. 2

Our Investment Team F

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Protect the Downside: Extrac1ng the “Extractors” with our Systema1c and Disciplined Investment Process

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Capturing the Upside with the Hidden Champions in our Daily Life Presenta>on at 8I Networking Nite at MND in March 2014

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“Paris BagueIe”: Up 16-‐Fold (2004-‐March 2014) to Market Value US$525 Million

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The Compounding Power of Focused Entrepreneurs “Paris BagueLe” Up Another 480% Since March 2014 to US$2.08 Billion

  Operates over 6,000 food service outlets in Korea and globally   The average daily sales of a Paris BagueLe outlet is around W1.9-‐2m

($1,800), at least double that of rival; Singapore stores generate W12-‐13m ($11,000-‐12,000) in daily sales   Largest industrial baked goods sold through convenience stores,

supermarkets, grocery stores with dominant 71% domes>c market share   Elas>c distribu>on that uses hub systems (24 DCs) to ensure freshness   The temperature and humidity at which dough was thawed is the

company’s secret   Bankrupt under leadership of brother during Asian Financial Crisis;

Huh, second son of the founder, acquired the company in 2002 out of court receivership

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Two-‐Step Process to PorWolio Construc1on

OUT: Poten1al Accoun1ng Fraud

OUT: Corpo

rate

Misgovernanc

e

Indestruc1ble Intangibles

ü  Proprietary know-‐how ü  Trust and support from community of customers, suppliers, partners

Core-‐Periphery Network Open Innova1on

ü  Both internal and ezeternal partners co-‐develop new products and services

ü  Scaling by empowerment and decision-‐rights beyond the founder ü  Scaling by technology as an enabler and embedded into the business model design

Inves1ng Universe >25,000+ Listed Stocks in Asia

Eliminate “Extractors”

“Wide-‐Moat Compounders”

& Hidden Champions

Wide-‐Moat Business

Model Analysis

Dissec1ng Corporate Culture

Step 1: Elimina1ng “Extractors” to protect downside risk

Step 2: Elimina1ng value traps and narrow-‐moat companies

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Stock-‐Picking is a Dangerous Game A minority of stocks are responsible for the majority of the market’s gains

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Disposi1on Effect to Sell Winners Too Early and Ride Losers for Too Long – Overcoming with Knowledge and Convic1on

  Reflexive choice under uncertainty and reflects an aversion to loss realiza>on.   In our view, investors ride losers far too long to

postpone regret, hoping for a rebound in prices, and sell winners too quickly because they want to hasten the feeling of pride at having chosen correctly in the past.   Market vola>lity and chaos, mania and panic -‐ they

would be our friend if we have the willpower quo>ent to overcome this harmful disposi>on effect.   This willpower comes from anchoring ourselves with

knowledge i n i den>fy ing and i nves>ng i n misunders tood , neg lec ted , over looked and underappreciated wide-‐moat companies and sizing up the porholio bets with convic>on when the management con>nues to deliver in their long-‐term business plans.   Such convic>on requires intensive analysis and

monitoring of companies and entrepreneurs.

Peter Lynch: “Some people automa4cally sell the “winners”—stocks that go up—and hold on to their “losers”—stocks that go down—which is about as sensible as pull ing out the flowers and watering the weeds.”

The image cannot be displayed. Your computer may not have enough memory to open the image, or the image may have been corrupted. Restart your computer, and then open the file again. If the red x still appears, you may have to delete the image and then insert it again.

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BuffeI: Sizing Up High-‐Convic1on Bets

“Charlie and I decided long ago that in an investment life4me, it’s too hard to make hundreds of smart decisions. We adopted a strategy that required our being smart only a very few 4mes.. If you are a know-‐something investor, able to understand business economics and to find five to ten sensibly-‐priced companies that possess important long-‐term compe44ve advantages, conven4onal diversifica4on makes no sense for you. It is apt simply to hurt your results and increase your risk. I cannot understand why an investor of that sort elects to put money into a business that is his 20th favorite rather than simply adding that money to his top choices – the businesses he understands best and that present the least risk, along with the greatest profit poten4al. In the words of the prophet Mae West: Too much of a good thing can be wonderful.” -‐ Warren BuffeL in Berkshire Hathaway’s Annual LeLer to Shareholders in 1993 F

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BuffeI: 42% of Fund’s Asset in Amex in 1964 Amex Has Since Compounded Over 3,000%

"Charlie and I operated mostly with 5 posi4ons. If I were running 50, 100, 200 million, I would have 80% in 5 posi4ons, with 25% for the largest. In 1964 I found a posi4on I was willing to go heavier into, up to 40%. I told investors they could pull their money out. None did. The posi4on was American Express a[er the Salad Oil Scandal. In 1951 I put the bulk of my net worth into GEICO. There were various 4mes I would have gone up to 75%, even in the past few years. If it's your game and you really know your business, you can load up." -‐ Warren BuffeL, February 25, 2008

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Wide-‐Moat Business Model Dynamics: Lanchester Strategy Adopted by Toyota, Denso, Fast Retailing (Uniqlo), SMC Corp, Canon etc

Market share benchmarks   Dominance (73.9%): Unassailable posi>on   Stable target (41.7%): Top share can be

maintained at this level   Minimum target (26.1%): Minimum share

necessary for a strong player to becoming the dominant player   High-‐level target (19.3%): This level normally

ranks a company within the top three, and should be the ini>al target for a “weak player”   Influence target (10.9%): Level at which a

player begins to influence the market; compe>>on begins to intensify above the level   Presence target (6.8%): Level at which a player

has a presence in the market   Base target (2.8%): Entry posi>on

  Bri>sh aeronau>cal engineer F.W. Lanchester (1868-‐1946) made important contribu>ons to automo>ve engineering, aerodynamics and co-‐invented the topic of opera>ons research. He is considered one of the "big three" English car engineers, the others being Harry Ricardo and Henry Royce.   Lanchester researched aLri>on in land, sea and

air combat. Based on these studies, he developed the Lanchester Laws and the importance of the scale of the figh>ng force in warfare.

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Applica1on of Lanchester Strategy: Canon Vs Xerox   Overwhelming rival in Rank Xerox

  Took a foothold in the market by first

concentra>ng its resources in Scotland   Achieved a 40% market share

  ALacked selected and >ghtly defined

regions in England   Invested more and more in product

development and sales resource   Final push into the lucra>ve London

market   Superior product and a numerically

superior sales force. Rank Xerox didn’t stand a chance

Nikkei

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Applica1on of Lanchester Strategy: SMC Corp (MV $17.7Bn) 60% market share in Japan, 33% global market share, 39% in China

  Global leader in pneuma>c machines with a 33% market share (60% market share in Japan, 39% in China)   SMC’s high profitability and market share is due to its ability to rapidly supply customers with 630,000

dis>nc>ve products combining parts from 11,000 basic shapes. SMC can quickly supply products on the day they are ordered, even overseas, and that 60-‐70% of products can be delivered within three days.   Over two-‐thirds of all products are manufactured at its Tsukuba plant. Essen>ally, SMC engages in flexible,

mul>ple, small-‐lot produc>on centered on cell units. It constructed its own dis>nc>ve produc>on lines which automa>cally receive detailed orders from marke>ng staff via computer.

SMC is founded in 1959 as Sintered Metal Company by S u s um u Om u r a a n d Yoshiyuki Takada (photo)

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Our Investments

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8IH Interim Report as at Sep 2015

Source: 8IH Interim Report on ASX hLp://www.asx.com.au/asxpdf/20151102/pdf/432nk9r3hhw4nf.pdf

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Major Cineplex (SET: MAJOR): #1 Lifestyle Entertainment Company in Thailand

1.  What makes it a wide-‐moat business? –  Consolidated the cinema market with dominant 80% market share,

aLrac>ng 30 million Thai consumers to its “des>na>on to be” –  Adver>sing services business segment is crown jewel asset with

underappreciated network effect •  Increase bargaining power as it gets bigger; adver>sers will pay even more

for the consumer reach •  Addi>onal revenue generated on exis>ng assets with high gross profit

margin of 86-‐88% with minimal capex investments

2.  Why it has the poten>al to double in 3-‐5 years? –  Expanding into the provinces and regionally (Cambodia and Laos)

•  To double up its capacity within 5 years

3.  Management/Corporate Culture –  Visionary, leading and shaping the Thai movie industry –  Poolvaraluck family with ~34.5% ownership F

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Financial Summary 2012 2013 2014 TTM

Gross,Profit,Margin 32.3% 35.0% 36.5% 35.3%EBIT,Margin 13.6% 15.8% 16.1% 13.5%ROE 10.6% 13.6% 15.4% 18.6%Gross,Profit/Total,Assets 19.8% 19.8% 22.6% 22.6%

Cash,Conversion,Cycle 12 15 10 11EBIT/CAPEX,(x) 2.5 2.1 2.4 0.7Net,Debt,%,of,NTA 45.5% 80.7% 69.6% 71.0%

EV/EBIT,(x) 17.3 13.4 19.2 31.1EV/EBITDA,(x) 11.7 9.3 12.7 14.3

Sales 23.8% EBIT 28.4% EBITDA 31.1%

2012 2013 2014Sales 6,965,,,,,,,, 8,623,,,,,,,,EBIT 1,168,,,,,,,, 1,500,,,,,,,,

Profitability

Operating,Efficiency

Valuation

3,Year,GrowthFor

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Price Chart Performance F

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Hartalega (KLS: HARTA) 1.  What makes it a wide-‐moat business?

–  World’s largest-‐scale nitrile gloves manufacturer, highly innova>ve, fastest speed, high quality •  Launched the world’s thinnest 4.7g nitrile glove in 2005 and subsequently an even

thinner 3.7g nitrile glove in 2007 •  Before Hartalega, nitrile gloves were chiefly used in industrial applica>ons and not in the

medical sector due to their heavy weight and thickness •  Invested in automated mechanical stripping system that mimics the human hand mo>on

of stripping gloves off and industrial bar code tech system to scale up to 45,000 gloves an hour at a lower cost

–  Global 16-‐20% market share 2.  Why it has the poten>al to double in 3-‐5 years?

–  Reinves>ng profits into widening the moat with disciplined capex growth plans in NGC: NGC Plant 1 and 2 up & running

3.  Management/Corporate Culture –  Innova>ve management who created crea>ng a pull-‐based market in

which the nitrile gloves can be used by healthcare professionals –  Kuan family 55% ownership F

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Gross-Profit-Margin 33.6% 33.2% 29.8% 29.2%EBIT-Margin 39.9% 32.5% 22.3% 22.6%ROE 33.7% 27.3% 19.0% 17.9%Gross-Profit/Total-Assets 36.9% 33.1% 23.1% 21.8%

Cash-Conversion-Cycle 62 68 94 81EBIT/CAPEX-(x) 1.6 1.6 0.7 0.7Net-Cash-%-of-NTA 22.2% 17.8% 5.1% 1.0%

EV/EBIT-(x) 11.5 16.7 33.6 30.6EV/EBITDA-(x) 10.4 14.6 28.9 25.7

Sales 11.0% EBIT Q9.2% EBITDA Q4.2%

Profitability

Operating-Efficiency

Valuation

3-Year-GrowthFor

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Price Chart Performance F

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Target Weight in Types of Business Model and By Country

Source: 8IH Interim Report hLp://www.asx.com.au/asxpdf/20151102/pdf/432nk9r3hhw4nf.pdf

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Investment Process

Search •  Idea sources: Internal research,

Industry network of entrepreneurs

•  Determine companies that qualify

•  Understand/ evaluate the long-‐term “story” of the company, its business model and economics

•  Visit and read management to ascertain quality

Valua1on •  Provide independent base

conserva>ve valua>on •  Assess >pping point in business

model valua>on

PorWolio Management •  Monitor the core stocks

(news/events, interims, annuals)

•  Add stock posi>on into the porholio i.e. has story changed for the beLer. Build up stock posi>ons progressively as the company hit business milestones

•  Reduce or Remove stock posi>on from the porholio i.e. has story changed for the worse

•  Build value with exis>ng stocks eg advisory on business model analysis, corporate governance issues and financing solu>ons to help company grow further

Search: Finding the Hidden

Champions

Valua1on: Pivot of Value Between Search and Porholio

Management

PorWolio Mgmt: Buy Enough and Hold Long Enough

It is the hole in the middle which makes the wheel useful – Lao-‐Tzu

Investment “Technology” + Teamwork

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We Are Cognizant of the Macroeconomic Risks Ahead

  Uncertainty surrounding the US Fed rate hike decision and its avermath on asset pricing and asset risk

  Sharp devalua>on of EM/ Asian currencies X Highly-‐geared Asian companies loaded on dollar-‐based loans = Recipe for disaster for wave of corporate default and profit warnings.

  Fragility of China’s financial sector.

  Demise of petrodollar flows into equi>es and the capital markets.

  Commodi>es bust and its impact on the financial sector.

  Internet sector correc>on, death of unicorns and the cooling of VC investment environment has taken its toll on startups.

  Harvard University endowment fund warns of market “froth” in Sep 2015 and is looking to allocate funds into investment managers with exper>se as short-‐sellers.

EBIT-‐debt coverage: A quarter of Chinese firms with debt unable to cover their annual interest expense currently

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  Aeon Bhd: Best shopping mall in Malaysia, wide-‐moat business but narrowing moat?   FY2013 and 1Q14 results: Resilient retailing segmental profits s>ll ok

We Are Vigilant of the Corporate Developments and Management Execu1on of Our PorWolio Stocks: The Case of Aeon Bhd

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We Are Vigilant of the Corporate Developments and Management Execu1on of Our PorWolio Stocks: The Case of Aeon Bhd

  1H14 results announced on 28 Aug 2014: Retailing segmental profits showed significant deteriora>on   Share price performance aver PEAD (post earnings announcement driv) =

Down 30% vs Bursa index down 10%   Lesson: Importance of vigilant monitoring and the power of PEAD F

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Staying Vigilant for Tipping Point in Business Model to Lower Valua1on Risk

  New products or services, and new markets and customers -‐  Textual analysis of the companies with relevant keywords using linguis>c databases e.g. “new

product(s)”, “new development”, “patents”, “research and development”, “innova>on”, etc. -‐  Monitor the ra>o of the sales contribu>on from new products/services and markets/customers.   Robust improvements in capex execu>on efficiency and cash conversion cycle (CCC)

  Significant corporate event in spin-‐offs, M&As, restructuring

  Overall health of value chain and ecosystem

  Corporate culture, strategy, innova>on, partnerships: -‐  (1) the management desire to cul>va>ng a culture of decentraliza>on, trust and coopera>on to

foster innova>ve experimenta>ons, including inves>ng in a system to cascade decision rights throughout the organiza>on;

-‐  (2) the management discipline in handling power and wealth; -‐  (3) the management focus and sense of urgency to build something with a Purpose and commit to an

idea larger than themselves to care for and serve others with love; -‐  (4) the management skin in the game with aligned performance-‐based incen>ves

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Comment on Concentra1on Risk and Valeant: An1dote = Understanding Corporate Culture

  Hedge fund manager Bill Ackman compared “plahorm stock” Valeant to early-‐stage Berkshire Hathaway in early 2015; William Thorndike, author of The Outsiders, compared Valeant’s CEO Michael Person to Liberty’s cable billionaire John Malone. Valeant’s share price collapsed in Oct 2015, hur>ng many sophis>cated ins>tu>onal investors with concentrated porholio bets on the drug firm.

  We noted various ar>cles back in 2014 that shed insights about the corporate culture and accoun>ng of Valeant: Valeant CEO Michael Pearson is known as an aggressive cost cuLer. Valeant’s corporate culture is that it does not want to spend money on science and sees no wrong in substan>ally jacking up prices of drugs aver acquiring them.   Charlie Munger in March 2015: Companies like ITT Corp.,

made money back in the 1960s in an “evil way” by buying businesses with low-‐quality earnings then playing accoun>ng games to push valua>ons higher. “Valeant, the pharmaceu>cal company, is ITT come back to life,” Munger said. “It wasn’t moral the first >me. And the second >me, it’s not beLer. And people are enthusias>c about it. I’m holding my nose.” Valeant relied on “gamesmanship” to run up its value and created a “phony growth record.”

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BuffeI on Valua1on F

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Tencent (700 HK): Always “Expensive” in Valua1on? PE 20-‐50x; Market Value Compounded >180X Since 2004 to $170Bn

20.0

25.0

30.0

35.0

40.0

45.0

50.0

55.0

60.0

-‐

20

40

60

80

100

120

140

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180

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

PE Ra1

o

Market V

alue

$bn

Market Value (LHS) PE Ra1o (RHS)

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Valua1on & Evolu1on Path of Wide-‐Moat Compounders

3 7 10 15 Time (Years)

2.5

2.0

1.5

1.0

0.5

Fundamental PEG = (EV/EBIT)/ ROE

Financial market holds back, as company grew in market cap too fast despite the strong fundamentals and growth; market panics and PEG falls

As company con>nues to deliver, there is posi>ve re-‐appraisal of the company and PE re-‐ra>ng; PEG climbs back up again

PEG remains rela>vely steady as company “milks the cow” for cashflow – or company gets complacent with size and falters

Stage I Stage II Stage III Stage IV

Emerging Leaders Rides the Rising Tide, Niche Poten1al Transforms to

Mass Market

Milks the Cow/ Consolida1on or “Icarus-‐Faltering”

Dominance/ Legacy/ Build-‐to-‐Last

Growth slows down, but PEG climbed due to “dominance” or “winners-‐take-‐most” factor, resul>ng in steady market cap

0.8

1.0

0.6

0.4

0.2

PEG = PE/ Net Profits Growth

Small-‐to-‐Mid Cap $300M-‐S$1B

Mid-‐to-‐Large Cap $1-‐20B

PE-‐Micro-‐to-‐Small Cap <$50M-‐S$300M

Large-‐to-‐Mega Cap >$20-‐400B

20X: $50M to $1Bn 20X: $1B to $20Bn 20X: $20B to $400Bn Compounding Poten1al

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Tencent (HKG: 700 HK)

0.71

2.36

1.58

2.27

0.57

0.94

0.64 0.51

0.69

1.43

0.94

-‐

0.5

1.0

1.5

2.0

2.5

0

10

20

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40

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60

70

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Fund

amen

tal PEG

(x)

“PE” (x), “ROE” (%

)

EV/EBIT ("PE") (LHS) EBIT on Equity ("ROE") (LHS) Fundamental PEG (RHS)

33 All Rights Reserved by 8 Investment Pte Ltd. No Copy and Reproduc>on Allowed.

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Tencent (HKG: 700 HK)

34

-‐

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1.0

1.5

2.0

2.5

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2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Fund

amen

tal PEG

(x)

Market C

ap (U

SD Billion)

Market Cap (LHS) Fundamental PEG (RHS)

All Rights Reserved by 8 Investment Pte Ltd. No Copy and Reproduc>on Allowed.

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Corporate Lifecycle & Business Model % PorWolio Weight

Source: 8IH Interim Report hLp://www.asx.com.au/asxpdf/20151102/pdf/432nk9r3hhw4nf.pdf

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Lowering Our Risk: Float Like BuIerfly, S1ng Like a Bee

  We have been following closely a number of entrepreneurs building their enterprises in Asia over the years, observing up close their struggles and their breakthroughs, compiling the progress of their corporate lifecycle dynamics by “Stage 1”, “Stage 2”, “Stage 3” in our “Watchlist”.

  To lower our risk that comes from inves>ng in new stock ideas, we float around like buLerflies in our “Watchlist”, obsessively gathering relevant informa>on about the business model dynamics, value crea>on levers and cri>cal success factors, management and corporate governance quality.

  Before we s>ng like a bee to jab in a stock inclusion, to guard against the risk of confirma>on bias, we insist on every investment team member to voice out and write down their “Top 3 Dislikes” about the company – and we make a cri>cal and calculated evalua>on on whether the posi>ves s>ll overwhelm these “dislikes”. “What’s your Top 3 Dislikes?” F

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If All Else Fails, Apply BuffeI’s Folksy “Marriage Test”

Buffeb: “Tom Murphy and Don

Burke [of Cap Ci4es] are not only great managers, but they are precisely the sort of fellows that you would want your daughters to

marry.”

A shareholder who bought in when Capital Ci>es went public in the late 1950s would have made a 2,000-‐fold return at its exit when Disney acquired the company. F

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Our Own Folksy “Proud Parent” Acid Test

If not, it’s probably a value trap…

“Would you be proud and happy for your children if they are working in the

company you are going to invest in?”

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Recent Investments

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40

No.1 Data Analy1cs and Service Provider

1.  What makes it a wide-‐moat business? –  Data analy>cs and service provider. Informa>on cri>cal for mul>ple

industries. (Shipping, Avia>on, Land Transport, Key Events, Mass Media, Natural disaster management, Energy, Investments, Agriculture, Travel…)

–  Market-‐share: ~70% overall domes>c & 30 % global for shipping industry. 2.  Why it has the poten>al to double in 3-‐5 years?

–  Innova>on with out-‐of-‐the-‐box thinking that can cause industry disrup>on. •  Create new compe>>ve advantage, opportuni>es & sales for

themselves. •  Building world’s largest social plahorm for live feedback to enhance

current data analy>cs. –  Venture into developing markets.

3.  Management/Corporate Culture –  Passion on value crea>on, service to humanity and saving lives. –  Hidden champion with near customer strategy. –  Nurtures entrepreneurial spirit, dreams and passions of the staff.


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41


40.7% 44.1% 44.2% 44.2%21.2% 24.7% 24.9% 24.4%19.8% 20.1% 18.9% 19.4%53.5% 49.4% 45.8% 49.8%

78 76 74 734.7 6.1 4.7 4.3

35.2% 55.5% 60.3% 53.7%

7.4 7.4 9.1 11.66.1 6.3 7.8 9.9


Net;Cash;%;of;NTA

EV/EBIT;(x)EV/EBITDA;(x)

Profitability

Operating;Efficiency

Valuation

3;Year;Growth

ROE

Gross;Profit;MarginEBIT;Margin

Gross;Profit/Total;Assets

Cash;Conversion;CycleEBIT/CAPEX;(x)


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Leading FMCG Company with Innova1ve Health and Natural Food

1.  What makes it a wide-‐moat business? –  >80% domes>c market share with 96% brand recogni>on and leadership. –  Constant urge to want to do beLer

•  Relentless drive to be the lowest cost operator by taking a thoughhul look into exis>ng produc>on lines and modifying it to be beLer via incorpora>ng carefully selected systems and machines.

•  Prides itself as an innovator when it comes to unique product packaging designs which create opportuni>es for their products to be sold overseas.

•  Constant care and aLen>on given to its suppliers to inspire loyalty, trust and confidence.

2.  Why it has the poten>al to double in 3-‐5 years? –  Entry to highly lucra>ve export markets

•  Along with choosing the right distributors, it makes conscious decisions in seeking beLer returns for their products and poten>ally benefi>ng from future falling trade barriers.

–  Visible roadmap to higher margins premium products •  Developing its capability to offer beLer products and to deliver material earnings.

–  Ability to increase its supply over the >me. 3.  Management/Corporate Culture

–  Strong and highly passionate management who loves the business, and demonstrated their ability to deliver growth to shareholders despite the complexi>es of the business.

–  Several members of the management are found in company’s Top 20 shareholders list. It has a well-‐known cornerstone investor that provides stability within the shareholders’ base.

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2013 2014 2015 TTM

Gross-Profit-Margin 30.6% 27.8% 31.2% 31.2%EBIT-Margin 7.4% 7.3% 9.8% 9.8%ROE 9.9% 12.3% 23.3% 23.3%

40.3% 48.0% 54.9% 54.9%

Cash-Conversion-Cycle 152 110 103 103EBIT/CAPEX-(x) 4.4 3.0 3.3 3.3

60.0% 27.0% 14.0% 14.0%



2013 2015Sales 71.96 120.48EBIT 5.31 11.77

Profitability


Valuation

3-Year-Growth

Gross-Profit/Total-Assets

Net-Debt-%-of-NTA


Financial Summary F

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Connec1ng People and Bringing Tourism to the World 1.  What makes it a wide-‐moat business?

–  Largest provider of na>onal-‐wide tourism and transporta>on services with quasi-‐monopoly status in certain services, rendering the company a huge market share in the industry. •  The only operator with a strong marke>ng and sales infrastructure to do sales funneling. •  A strong track record of reliability among its customers and it owns certain iconic brands that have undeniable popularity among

tourists and promoted as one of the key experiences.

2.  Why it has the poten>al to double in 3-‐5 years? –  Growing and sustainable appe>te for its service

•  The weakening of currency s>mulated strong demand for its service where passengers alike would enjoy to use in order to visit certain must-‐see travel des>na>ons.

•  A restless a|tude to improve the overall u>lisa>on of the vehicle through the introduc>on of dynamic pricing models and secure newer routes to grow the business further.

•  The relevant exper>se to leverage on technology to increase sales with a target to generate more sales from online sources. Currently, it generates 21% from online sources.

3.  Management/Corporate Culture –  Clear philosophy on the company’s family-‐oriented culture and staff engagement. –  Management prac>ces an “owner-‐operator” mentality where commercial decisions are

carefully deliberated and if necessary, put through extensive analysis and modeling. –  Formed partnerships with the government to grow the tourism sector together; strong,

mature, sensible culture with mutual respect; a healthy degree of trust within the company is present and there is a constant monitoring of the business performance every month.

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39.5% 38.3% 41.5% 41.5%

Cash-Conversion-Cycle G7 G2 1 1EBIT/CAPEX-(x) 2.8 0.6 1.3 1.3

59.8% 16.7% 13.1% 55.7%

EV/EBIT-(x) G 12.8 11.8 14.9EV/EBITDA-(x) G 9.8 9.4 11.6


2013 2015Sales 90.99 110.87EBIT 9.32 15.09

Profitability


Valuation

3-Year-Growth


Net-Debt-%-of-NTA

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No.1 Consumer Healthcare Innovator 1.  What makes it a wide-‐moat business?

–  50% domes>c market share in its consumer healthcare product. Global 90% market share in its industrial business niche.

–  Highly innova>ve and constantly widening its moat by con>nuing to introduce many first and best in its class, where high-‐tech western peers are unable to duplicate its technology even aver more than 10 years.

2.  Why it has the poten>al to double in 3-‐5 years? –  Premiumisa>on of products where their new product is sold out despite

being priced 400% more than their previous best product. –  For the first >me in their corporate history, they decided to invest in their

China produc>on plant, so as to directly serve their growing customer base and grow their 14% market share in China. There is a long runway to grow as China’s usage rate is far below that of SG and HK.

–  EBIT in 1H16 matches EBIT FY2015. 3.  Management/Corporate Culture

–  Family owned business with more than 80 years of reputa>on to uphold. –  Consistent dividend payout and share buyback for last ten years.

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No.1 Premium Consumer Product Ar1san 1.  What makes it a wide-‐moat business?

–  Enjoy a 60% global market share where its brand is synonymous with the best quality and innova>on; The Louis VuiLon of its class.

–  The company grew its moat with more than 50 years of innova>on and invested in extensive tests equipment which helped it designed many new func>onali>es. It also has a worldwide aver-‐sales-‐support network.

2.  Why it has the poten>al to double in 3-‐5 years? –  Growth amongst its loyal fans as it rolls out its new series. It is currently

having low valua>ons and a recent inclusion into the mainboard should spur much interest in it.

3.  Management/Corporate Culture –  It survived a corporate bankruptcy when its previous owner over-‐leveraged

and diversified out of its circle of competence. –  Current management focused relentlessly on Research & Development and

Inventory & Manpower Management; They reduced manpower by 50% over 10 years while improving u>lisa>on rate of produc>on plants and improving the industry standards and growing their global sales network.

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8I Hidden Champions Fund

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What is a BeIer Strategy -‐ Invest in Berkshire, or BuffeI's Stock Picks?

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8I Hidden Champions Fund

  Currently, we have the problem of having more ac>onable stock ideas than funds to fully execute our investment process to deliver poten>ally greater returns to our shareholders. We are exploring the se|ng up of an offshore Mauri>us-‐based fund structure to house our investments to tap funds from poten>al external ins>tu>onal investors.   New ins>tu>onal investors and high net-‐worth individuals subscribe to

get units in the fund, like a unit trust or mutual fund. Fund registered with regulators/agencies in various jurisdic>ons for distribu>on permission in US, UK, Switzerland and HK. Handling regulatory repor>ng requirements such as issuing PFIC statements for US investors.   Tax-‐free for both capital gains and dividend distribu>on.

  Daily NAV repor>ng and porholio aLribu>on analysis; listed with Bloomberg >cker code; compliance with regulatory standards; external custodian & banker (Standard Chartered Bank), auditor (KPMG), administrator (Trident Trust).

  Fund factsheet and quarterly commentary on investment strategy, porholio ac>on.

Bamboos are among the fastest-‐growing plants in the world. Remaining hidden underground for the first several years, bamboo has been clocked surging skywards as fast as 47.6 inches in a 24-‐hour period. Had the bamboo not developed a strong unseen founda>on it could not have sustained its life as it grew. Hidden Champions, who pa>ently toil towards worthwhile dreams and goals, building strong character while overcoming adversity and challenge, grow the strong internal founda>on to handle and scale up success.

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Entrepreneurs Inves1ng in Entrepreneurs

  Caring is an exac>ng, serious and demanding business, especially when it comes to inves>ng in another person’s financial assets, which are a tangible product of his or her life’s work, a repository of aspira>ons for the future.

  We do not believe in pain>ng rosy pictures or beau>fying ourselves. We tell cold, hard truths – with a warm and devoted heart.

  We hope this will capture the 8IH investment philosophy of entrepreneurs inves>ng in entrepreneurs. We are of the convic>on that the future is created one wide-‐moat innovator at a >me and each will flourish from their own wisdom.

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Q&A F

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Appendix: Some of Our Poten1al Ac1onable Stock Ideas

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Crea1ng Unique and Authen1c Holidays for Travellers 1.  What makes it a wide-‐moat business?

–  Exclusive leases to must-‐see award-‐winning aLrac>ons and key player providing popular and essen>al services travellers in the country; and it is the market leader in its vehicle category.

–  A 3-‐year relook into its business model resulted in successful execu>on of stringent cost management, a less capital intensive model and drama>c improvement in opera>onal profitability.

2.  Why it has the poten>al to double in 3-‐5 years? –  Well-‐posi>oned to focus on significant growth with geographical diversifica>on and leading

market posi>on with a posi>ve tourism environment. –  The embrace of technology to create ‘shared economy’ businesses to deliver further returns

without running the risk of high capital expenditure, building the AirBnb equivalent to its version. –  On the back of suppor>ve dynamics for the industry, it has the ability to scale the business further

through value accre>ve acquisi>ons but at the same >me, it has to make sense in the long term. 3.  Management/Corporate Culture

–  Management is cognizant to the changing landscape of the industry, and benchmark themselves with world class standards. They are never contented with the performance and con>nually assess the categories and markets it operate within.

–  An inclusive culture that shares team success and believes in crea>ng a culture with trust and fun. It invariably helps the company to perform well in its customer engagement.

–  Management prac>ces financial prudence and careful alloca>on of capital.

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2013 2014 2015 TTM


49.4% 55.6% 54.7% 54.7%

Cash-Conversion-Cycle 7 F59 F87 F87EBIT/CAPEX-(x) 5.0 15.7 9.9 9.9Net-Debt-%-of-NTA 74.8% 49.2% 40.1% 40.1%



2013 2015Sales 110.2 112.93EBIT 14.27 36.98

Profitability


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HungryGoWhere Equivalent

1.  What makes it a wide-‐moat business? –  Strong ecosystem >e-‐in with suppliers, users and customers: Connect

the vast number of eateries to one by the Internet and create a "food" culture of the 21st century

2.  Why it has the poten>al to double in 3-‐5 years? –  Master the “art of mone>zing” from their users: direct visits by sales

staff to deliver tailored services, the more the owners see the results, the higher they are willing to spend on adver>sing/promo>ons

–  Real >me online reserva>on system driving customers

3.  Management/Corporate Culture –  Founder ~37% ownership –  Various long serving employees: great signal of intrinsic mo>va>on and

confidence in the business –  Place customer sa>sfac>on first and provide fun, up-‐to-‐date gourmet

informa>on to internet users every day.

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2013 2014 2015 TTM


Cash-Conversion-Cycle 48 56 58 56EBIT/CAPEX-(x) 1.3 1.9 2.5 2.5Net-Debt-%-of-NTA 68.8% 75.1% 75.2% 70.8%



2013 2015Sales 27,265------ 30,519------ 32,637------EBIT 2,993-------- 4,119-------- 5,129--------

Profitability


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Financial Summary F

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World’s #1 Innovator of Money Handling Machines 1.  What makes it a wide-‐moat business?

–  Customer-‐centric business model backed by a highly specialised intangible know-‐how to con>nuously roll out industry-‐first high-‐performance products, from single-‐func>on to high-‐specifica>ons.

–  Undisputable market leader in certain product categories na>onal-‐wide, it con>nues to acquire complimentary, synergis>c businesses to widen its moat.

–  A ver>cally integrated business model that creates a virtuous cycle by offering solu>ons at different stages of customers’ needs, enables cross-‐selling and ability to generate higher revenue per customer.

2.  Why it has the poten>al to double in 3-‐5 years? –  There is immense untapped growth opportuni>es in overseas markets where the company previously

could not access. There is momentum and growing revenue contribu>on from overseas market by tapping on its recently-‐acquired subsidiary’s worldwide and impressive customer base.

–  Compared to few years ago, the company is beLer equipped with new capabili>es to upsell their high margin services aver every point of sale to each customer.

–  The exponen>al increase in money supply, created by unprecedented quan>ta>ve easing (QE), livs the demand of its product because it solves the urgent need for speedy money handling.

3.  Management/Corporate Culture –  Management is cognisant about relentless push to innovate their products to meet the needs of the

society and stay ahead of the industry. Value crea>on is in their company’s DNA. –  Employees are encouraged by a set of guidelines such as collabora>on, respect, innova>on, and cost-‐

conscious. The culture believes in making the impossible, possible. –  The core management team have a combined long tenure in the business and laid out clear medium to

long term plans to grow the business.

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2013 2014 2015 TTM


23.1% 25.6% 25.7% 25.7%

Cash-Conversion-Cycle 111 119 127 145EBIT/CAPEX-(x) 2.3 2.8 2.7 2.5

16.0% 6.7% M1.6% M1.4%



2013 2015Sales 190938 226974EBIT 14457 19179

Profitability


Valuation

3-Year-Growth

Net-Debt-/-(Cash)-%-of-NTA



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#1 Nutri1ous and Healthy Beverage

1.  What makes it a wide-‐moat business? –  Ability to inculcate the fondness for the drink in the consumers at a

young age so that it eventually develops into a “habit” consuming it –  The beverage is more than a casual drink. It represents quality and

wholesomeness. 2.  Why it has the poten>al to double in 3-‐5 years?

–  Building factories to fund the next stage of growth in China –  “Tailwind” of health trends for nutri>ous products –  Constant products innova>on and localiza>on to increase sales

3.  Management/Corporate Culture –  Old heritage family business with a reputa>on to upkeep thus

lowering corporate governance risk –  Family ~15% ownership –  Idea larger than oneself: providing nutri>ous beverage for the

masses at the lowest possible price

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2013 2014 2015 TTM


Cash-Conversion-Cycle 69 67 69 59EBIT/CAPEX-(x) 2.6 2.0 1.0 0.9Net-(Debt)/Cash-%-of-NTA P1.9% 11.4% 9.4% 10.0%



2013 2015Sales 4,051-------- 4,494-------- 5,052--------EBIT 442----------- 467----------- 527-----------

Profitability


Valuation

3-Year-Growth

63

Financial Summary


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Hidden Global Mo1on Enabler 1.  What makes it a wide-‐moat business?

–  More than 50 years of innova>on and acquired technologies; its solu>ons are the quietest, lightest and have the highest power-‐to-‐weight ra>o.

–  It has global produc>on facili>es in Asia, Europe and the Americas, allowing it to have a lean logis>cs management solu>on that serves its clients very closely. Its Automo>ve clients include premium brands.

2.  Why it has the poten>al to double in 3-‐5 years? –  Ver>cal and horizontal integra>on with synergis>c M&A, increasing their

cross sales and new sales poten>al. –  The US automo>ve industry is experiencing a boom, and there is a structural

adop>on of motorized func>onali>es, in both automo>ve and industrial segments.

3.  Management/Corporate Culture –  Family owned business with more than 60 years reputa>on to uphold. –  Has an excellent M&A execu>on track record. All three acquisi>ons turned

out to be their top business units which lasted more than 10 years, increasing their overall sales manifold.

–  Increasing dividends, very aggressive share buyback in last one year. For

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Global #1 Bus Manufacturer 1.  What makes it a wide-‐moat business?

–  Having the largest and the most technologically advanced manufacturing base of large and medium-‐sized buses in the world.

–  Enjoyed great economies of scale and reinvest substan>ally back into R&D to widen the edge over compe>tors

–  Domes>c market share ~30% / Global ~12% 2.  Why it has the poten>al to double in 3-‐5 years?

–  Constant innova>on over the years. •  Successfully engineered the world 1st driverless bus •  New Energy Bus

–  Further consolida>on of the market –  Expansion overseas

3.  Management/Corporate Culture –  35 years of vast experience in the company –  Worked his way from a small engineer to the CEO of the company –  Management philosophy: Customer and employees always comes first

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2012 2013 2014 TTM


Cash,Conversion,Cycle 15 41 32 32EBIT/CAPEX,(x) 0.8 2.0 1.4 1.4Net,Cash,%,of,NTA 30.4% 43.1% 35.3% 35.3%



2012 2014Sales 19,748,,,,,, 25,679,,,,,,EBIT 1,489,,,,,,,, 1,857,,,,,,,, 2,737,,,,,,,,

Profitability


Valuation

3,Year,Growth


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#1 Cookware Company

1.  What makes it a wide-‐moat business? –  Constant innova>on yearly tailoring to the demand and needs of the consumers –  #1 in its country: pressure cooker, frying pan, wok, steamer and electric cooker –  #2 in its country: Rice cooker, electric pressure cooker, electric cooker, electric

keLle

2.  Why it has the poten>al to double in 3-‐5 years? –  Great synergies between European MNC owners whereby owners transfer orders

to company to lower cost, the company tap onto the owners network to expand overseas and also exchange of technologies to improve on cookware produc>on.

–  Strong local and overseas demands

3.  Management/Corporate Culture –  Majority owned by a European MNC with capable local managers with “owner

operator” mindset –  Typical Berkshire Hathaway opera>ng company where owners/managers have

autonomy

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Cash,Conversion,Cycle 73 65 56 56EBIT/CAPEX,(x) 6.2 7.3 6.8 6.8Net,Cash,%,of,NTA 39.9% 45.5% 54.2% 54.2%



2012 2014Sales 6,889,,,,,,,, 8,383,,,,,,,, 9,534,,,,,,,,EBIT 578,,,,,,,,,,, 752,,,,,,,,,,, 852,,,,,,,,,,,

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2nd Largest Domes1c Elevator Maker 1.  What makes it a wide-‐moat business?

–  It has a 20% domes>c travellator market share. Its products are exported to 80 countries globally, including US, EU, AU, ME & Asia. Its clients include IKEA, Carrefour, Wal-‐Mart, LVMH and Burberry.

–  Constant research and innova>on enables it to recently rank on par with high-‐tech established peers with its high speed and eco-‐friendly livs.

–  It has a superior 24-‐hour servicing capability that forms a virtuous cycle with its manufacturing and sales division.

2.  Why it has the poten>al to double in 3-‐5 years? –  Domes>c market has low liv density compared to developed countries, and most of the

livs are old and due for replacement. Local government enacted tough safety rules that requires replacement and servicing.

–  Established a training center to improve industry standards by training and cer>fying service crew. Implemented Internet of Things system onto its network of livs, travellators and escalators which enables them to pre-‐empt breakdowns and servicing needs and have faster response >me.

3.  Management/Corporate Culture –  Humble management who worked through the ranks over 10 years. Treats team

members as family – Family has 30% shareholdings, veteran team members owns another 20%.

–  Distributed 90% of IPO proceeds to shareholders in 3 years while management were paid 2% of Profit Before Tax (PBT).

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Leading Healthy Snack Company 1.  What makes it a wide-‐moat business?

–  Hidden Champion with 62% domes>c market share in healthy snacks while expor>ng to 35 countries.

–  Export revenue has been growing steadily and con>nuously, which accoun>ng for 43% of total sales now.

–  Ability to constantly introduce new taste and flavor snack into the market which is well received.

2.  Why it has the poten>al to double in 3-‐5 years? –  Target to be the leader of the snack market in Asian by 2018 –  Aggressive expansion plans in place to increase current produc>on

line and capacity to feed increasing demand.

3.  Management/Corporate Culture –  Entrepreneur-‐run business emphasizing a lot in innova>on and R&D F

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Financial Summary 2012 2013

Gross)Profit)Margin 29.7% 34.5%EBIT)Margin 6.8% 6.8%ROE 42.5% 49.9%Gross)Profit/Total)Assets 72.9% 86.0%

Cash)Conversion)Cycle 22 22EBIT/CAPEX)(x) 1.6 2.5Net)Debt)%)of)NTA P133.2% P145.1%

EV/EBIT)(x) P PEV/EBITDA)(x) P P


2012 2014Sales 2,542)))))))) 2,726))))EBIT 172.58 274.31

Valuation

3)Year)Growth

P95.3%

P

74.2%

P

2014

34.8%10.1%56.3%

172.8

Profitability

Operating)Efficiency

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Leading Fully Integrated In-‐land Logis1cs Service Provider

1.  What makes it a wide-‐moat business? –  Hidden Champion owns and operates 40 different warehouses with total space of 210,000 m2

and an area of around 557,000m2 for automakers to rent for parking their cars before expor>ng. –  Opera>ons located at the busiest port in the country having 30 years of exclusive rights to

manage chemical & dangerous goods –  Has the ability and know-‐how in develop and employ warehouse management sovware to

ensure maximum efficiency.

2.  Why it has the poten>al to double in 3-‐5 years? –  Venture into neighboring country to capture exploding demand for logis>cs services. –  Looking to form a logis>cs REITs to expand business through M&A to gain more market share –  Aim to be ASEAN leader by 2019

3.  Management/Corporate Culture –  Entrepreneur run business –  Emphasizes a lot on innova>on. Developed strong know-‐how and gained prac>cal experiences

for more than 35 years in warehouse management efficiency –  Founder’s family holds 50% of the company

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GrossProfitMargin 37.8% 41.0% 36.0% 36.6%EBITMargin 17.4% 25.2% 11.6% 18.0%ROE 16.7% 25.3% 9.5% 10.6%GrossProfit/TotalAssets 19.4% 20.9% 18.0% 18.0%

CashConversionCycle 7 -13 19 6EBIT/CAPEX(x) - - - 1.3NetDebt%ofNTA 120.0% 144.2% 274.4% 64.1%

EV/EBIT(x) - - - 20.7EV/EBITDA(x) - - - 13.4

Sales 36.4% EBIT -8.6% EBITDA N/A

2012 2014Sales 1675 2284EBIT 291 266

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OperatingEfficiency

Valuation

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No.1 Domes1c Air-‐con & Refrigerator Maker 1.  What makes it a wide-‐moat business?

–  It Innovated an air-‐con solu>on that addresses local needs and thus garnered a loyal following over the past 50 years.

–  It has a 35% domes>c air-‐con market share, and a 25% domes>c refrigerator market share.

–  It has an unparalleled extensive aver-‐sales service network. 2.  Why it has the poten>al to double in 3-‐5 years?

–  Domes>c market has low air-‐con and refrigerator densi>es compared to other Asian countries. Thus, there is a long runway to grow as disposable income grows.

–  Great focus to grow its building management solu>on business which require much higher barrier to entry and increases its s>ckiness as customers are >ed to their solu>on through the lives of the buildings.

3.  Management/Corporate Culture –  Family owned business with more than 50 years of reputa>on to uphold. –  Current management built the current deep reach of aver-‐sales servicing,

and the new building management solu>on business.

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Gross,Profit,Margin 25.8% 32.3% 33.1% 31.0%

EBIT,Margin 10.4% 11.8% 12.9% 15.9%

ROE 33.3% 22.1% 23.5% 20.5%

Gross,Profit/Total,Assets 35.1% 50.9% 40.1% 39.5%

Cash,Conversion,Cycle 123 121 136 133

EBIT/CAPEX,(x) 10.8 15.0 22.5 16.3

Net,Cash,%,of,NTA 107.2% 59.2% 26.4% 34.3%

EV/EBIT,(x) O 3.4 11.7 9.2

EV/EBITDA,(x) O 3.2 11.1 8.7


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Top Educa1on Solu1on Provider 1.  What makes it a wide-‐moat business?

–  Hidden Champion with strong, leading posi>on and the only player with ICT know-‐how in educa>on solu>on provider industry to win government tenders and penetrate into new business segment and market.

–  Operates in a boring industry which Industry peers become complacent and lack of commitment and innova>ve ideas to grow their business forward.

2.  Why it has the poten>al to double in 3-‐5 years? –  Quietly consolida>ng this fragmented industry, taking over its peers that has valuable

Intellectual Proper>es. –  The only player in the industry that meets Government’s latest educa>on material

requirements making them able to win more tenders. –  Growing into ASEAN market providing publishing, content crea>on and digitaliza>on services.

3.  Management/Corporate Culture –  Entrepreneur run business –  Managing Director with 30 years experience, while core team members work in the company

for more than 20 years. Management hold >50% of the company. –  Managing Director: “This business is not a typical family business where it will be handover to

my 2nd genera>on. I constantly tell my team that anyone with extensive experience in this industry and have the capabili>es to bring the company forward will become the next CEO. This company is aiming to become a regional player, not just locally.”

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2013 2014 2015 TTM


Cash-Conversion-Cycle 193 297 361 361EBIT/CAPEX-(x) 13.2 14.4 1.0 1.0Net-Cash/(Debt)-%-of-NTA 18.1% 22.9% P2.2% P2.2%

EV/EBIT-(x) P 8.8 13.3 15.3EV/EBITDA-(x) P 7.9 11.9 13.8


2013 2015Sales 78 87EBIT 18 22

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Valuation

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1.  What makes it a wide-‐moat business? –  Focus on tailor-‐made elevator to differen>ate itself with other players. –  Synergy across 3 business segment (Manufacturing, Distribu>on of E&E

components, Maintenances). By serving 1 customer, all 3 segments has sales. –  The maintenances base will con>nue to enlarge because more than 90% of its

new manufactured elevators are serviced by them every year. –  It is a rule by government that ALL elevators must be serviced on monthly

basis.

2.  Why it has the poten>al to double in 3-‐5 years? –  Increasing EBIT contribu>on from Services and Maintenances segment -‐ from

3.2% in FY2010 to 22% in FY2015 –  Aggressive growing its business in oversea market by con>nue M&A. Their

profit contribu>on from domes>c and interna>onally will be 50:50 by FY2020.

3.  Management/Corporate Culture –  3 Execu>ve Directors has more than 20 years experience in elevator business –  Founders holding ~36% stake

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2013 2014 2015 TTM


Cash-Conversion-Cycle 294 194 214 214EBIT/CAPEX-(x) 41 1 16 16Net-Cash-%-of-NTA 10.2% 5.8% 12.4% 12.4%



2013 2015Sales 189 215EBIT 21 28

Profitability


Valuation

3-Year-Growth


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8l investments

Documents