Mike Kruger of MPK Partners presented his in-depth investment thesis on Texhong Textile (Hong Kong: 2678) at Wide-Moat Investing Summit 2018.

Thesis summary:

Texhong Textile is by far the world’s leading producer of spandex yarn. Founder, CEO, and 53%-owner Hong Tianzhu started Texhong from scratch by buying distressed PP&E. Today, the company has become what Buffett refers to as an “inevitable”. Texhong is now vastly larger and more profitable than any of its direct competitors and is consolidating this fragmented sector.

Cotton price volatility is a distraction — tough times put competitors out of business or up for sale.

Tangible book per share plus cumulative dividends has grown at a CAGR of 29% since 2001, yet the shares trade at 1.9x tangible book and less than 7x EV/EBIT or P/E on 2018E estimates.

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About the instructor:

Mike Kruger’s first investment experience was watching his shares of Berkshire Hathaway get cut in half during the tech-mania of the late 1990’s. But he didn’t panic, and today manages a global focused value portfolio of equities and distressed debt in New York City. He previously worked as a former equity and credit analyst at Promethean Asset Management LLC in NYC, and prior to that as a high-yield credit analyst at Liberty Mutual in Boston. He holds a Bachelor’s degree from the College of Arts and Sciences at Cornell University.