Sid Choraria of Amiral Gestion presented his investment theses on three wide-moat ideas in Asia at Wide-Moat Investing Summit 2019: Pigeon (Japan: 7956), Netease (US: NTES), and Moutai (China: 600519). Jon Xu, John Kum, and Nat Banyathipod, analysts at Amiral Gestion, joined Sid for the session.
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Pigeon (7956 JP) is a $4.9 billion, 60 year old Japanese brand, specializing in breastfeeding and child-rearing products with high market shares ranging from 30-70%. Pigeon’s product designs are based on six decades of breastfeeding research and infant behavioural observation, inspired by its founder, Yuichi Nakata who tried milk from over 1,000 mothers in the 1940s to develop the best baby bottles. Today, Pigeon has over 3,000 niche products such as a special bottle for babies with cleft lip (a rare birth defect) and baby shoes that were developed by studying walking motions of toddlers. Pigeon has significant pricing power as mothers trust the brand, resulting in 40-50% ROE ex-cash. This wide moat has led Pigeon to successfully generate 34% of their revenues in China, which is the highest amongst all Japanese companies selling in China ahead of other good Japanese businesses like KOSE, Yakult and Lion Corp. This is a testament to the competitive advantage of Pigeon. Due to its growth in China and India, Pigeon has had 15 consecutive years of revenue and operating income growth and consistently increased gross margins. The company rewards shareholders as it has paid out nearly 60% of its free cash flow over the last 15 years in dividends.
Netease (NTES) is a $30 billion market cap company in a largely duopolistic market and has grown revenue double digits for the last 17 years and is still growing over 30% with high returns on equity. The founder, William Ding, owns 45% (amongst the highest insider ownership for Chinese internet) and is one of the best capital allocators in China returning over $3.5 billion to shareholders over the past 15 years and repurchasing shares at good prices. Netease reputably has the best product development culture among Chinese internet companies. The company has large reinvestment opportunities in new growth areas like music and education in the hands of a great capital allocator.
Kweichow Moutai (600519 CH) is a $170 billion market capitalization company with #1 consumer mind share entrenched in Chinese culture for hundreds of years, specializing in premium baijiu. Moutai is known as China’s Guojiu or “National Liquor” – an irreplaceable brand image built over decades of toasting by Chinese leaders and visiting head of states including former US President Nixon during his historic visit to China in 1972. The company has significant pricing power having grown prices in 10 of the last 18 years, while expanding volumes. Moutai has achieved 22 years of consecutive revenue, EPS and tangible book growth and is still available at very reasonable prices. Impressively, Moutai is still growing revenue over 20% with high returns on unlevered tangible equity (over 30% over long periods) and reinvestment opportunities on a product that has stood the test of time.
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About the instructor:
Sid Choraria joined Amiral Gestion as Portfolio Manager and Head of Asia Research to adopt value investing in the inefficient Asian equity markets. He was instrumental in the launch of the Singapore office of Amiral, a $4.5 billion global investment firm with offices in Paris, Madrid and Singapore. Amiral Gestion was founded by Francois Badelon in 2003.
Prior to Amiral, Sid worked as Portfolio Manager at APS in Singapore, a $2.7bn hedge fund in Asian equities. Previously, Sid worked at Goldman Sachs and Merrill Lynch in Hong Kong. Over the last five years, Sid has won multiple investment research awards, judged by over 70 global fund managers and allocators.
In 2014, Sid piqued the rare response of Warren Buffett on a Japanese investment research report, which elicted a response from Mr. Buffett of “keep your eyes open!”. Sid was a Harvey Beker Scholar and received his MBA from New York University in 2011. He is a member of Value Investors Club.