Basso (MV $264m): Global #1 ODM Maker of Pneumatic Power Tools
ROE 18.5% and trading at EV/EBIT 10.8x with 5.3% dividend yield
Basso (TWSE: 1527) is the world’s largest pneumatic power tool ODM producer with global market share of 20-25% and its operating profit margin is higher than that of its branded clients because of its negotiating and pricing power, technological prowess and vertically-integrated business model from upstream tooling design/ manufacturing to downstream final assembly. Around 44% of FY14 revenue came from pneumatic nailers which are mainly used in housing construction and renovation, with a focus on the higher-end professional segment rather than the price-competitive DIY segment. About 37% of revenue came from auto power tools such as pneumatic impact wrenches. Basso also utilize its magnesium alloy die casting technology in pneumatic tools to produce aluminium-magnesium alloy bicycle frames for leading bicycle parts providers such as SRAM, contributing to 7% of revenue (8% in 1H15, up from 5% in 2010). Basso was co-founded in Jul 1983 as a trading company and distributor of pneumatic power tools. by chairman Wilson Lai after his retirement as Chief Judge of Taiwan’s Taichung District Court. Nearly a decade later in 1992, Basso merged with a pneumatic power tool manufacturer, transforming itself from a pure trading company into an ODM/OEM supplier for global leading power tool brands. Son Eric Lai is VP of Sales and R&D. Lai family control 30-35% of the company. Basso was listed first on GreTai in 1999 and relisted on main board in 2000.
1) What Makes It a Wide-Moat Business?
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About The Author: Koon Boon Kee
Koon Boon 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.
Starting his career at a boutique hedge fund in Singapore and later, at Korea’s largest mutual fund company, Koon Boon started to make headway into the investment arena. In his early successes, Koon Boon was part of the core investment decision committee which achieved 700% in returns (net of fees), in its flagship Asian fund.
A prolific writer and thought leader, Koon Boon has contributed hundreds of articles to Bamboo Innovator and BeyondProxy, an acclaimed series of subscription-based, research-intensive publications for serious investors; and is Managing Editor of the Moat Report Asia, a research service focused exclusively on highlighting undervalued wide-moat businesses in Asia. He had also presented in top banking and finance conferences in Sydney, Cape Town, HK and Beijing, as well as in the Emerging Value Summit and Wide Moat Investing Summit. His work has been featured in local and international media such as, TEDxWallStreet, Investopia, BeyondProxy, Greatinvestors.tv, Jakarta Post, Straits Times Singapore, TODAY Singapore, Business Times Singapore, as well as a publication in the BoğaziçiJournal.
With the wide occurrences of financial fraud committed by listed firms in China during 2015, Koon Boon went to further his studies, from which he saw a gap in the curriculum for accounting fraud. He went on to pioneer the first-of-its-kind course on Accounting Fraud in Asia, which is now an official course in the SMU curriculum.
Today Koon Boon is the Chief Investment Officer at 8I Holdings Limited, where he is responsible for the sustainable growth and outperformance of listed Asian equities investments in the Hidden Champions Fund.
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