KB Kee of presented his in-depth investment theses on Hosokawa Micron (Taiwan: 6277) and Tocalo (Tokyo: 8035) at Asian Investing Summit 2018.

Thesis summary:

Hosokawa Micron is the global leader in powder and particle processing equipment and high-performance plastics thin-film blowing manufacturing equipment, with clients in the pharma, cosmetics, food and beverage, auto, and other industries. Hosokawa has a strong reputation for world-class technology and advanced technical capabilities. Hosokawa has five R&D centers and eight test centers, enabling it to launch new products that meet customer needs quickly.

Since current CEO Yoshio Hosokawa took over in 2014 to rationalize the business, financial performance has improved significantly. Yoshio has made difficult decisions, such as divesting the loss-making confectionery equipment segment in 2015. CFROA (operating cash flow divided by assets) of 13% is one of the best in the industry (Alfa Laval 8%, GEA 5%, John Bean 8%, IDEX 13%, Marel 14%).

Yet, the market quotation of EV/CFO of 6x, EV/EBIT of 8x, and EV/EBITDA of 7x represents a discount to comparable companies. Hosokawa implemented shareholder-friendly actions in 2017, including a share buyback. Hosokawa has the potential to grow operating profits by 50-80% in the next 3-5 years to $70-83m, and spur an upward valuation re-rating based on EV/EBIT 15x towards a 95-134% rise in market cap from its present $534m to cross $1.04-1.25bn in the next 3-5 years, or a share price of JPY 13,800 to 16,600 from its present JPY 7,090.

No thesis summary is available for Tocalo.

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About the instructor:

Koon Boon (KB) is the former Chief Investment Officer of Hidden Champions Fund where he was responsible for the sustainable growth and outperformance of listed Asian equity investments in the Hidden Champions Fund. 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. KB was also the Managing Editor of the Moat Report Asia, a research service focused exclusively on highlighting undervalued wide-moat businesses in Asia. Paid subscribers to the Moat Report Asia from North America, Europe, the Oceania and Asia include professional value investors with over $20 billion in asset under management in equities, some of the world’s biggest secretive global hedge fund giants, hidden billionaires and savvy private individual investors who are lifelong learners in the art of value investing. interval. KB was also a faculty (accounting) at SMU teaching accounting courses and had pioneered the course on Accounting Fraud in Asia, an official module in the undergraduate curriculum. KB is also honored and grateful to be able to have the opportunity 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.