- Dominant market share in Taiwan (cap & closure 80%, PET 60%, label 40%), one of the three largest PET bottlers in China and has fast-growing presence in Southeast Asia.
- “In-House Strategy” since 2008 to break out of price competition and command significantly higher profit margin and ROA 8.4%, figures that are more than double those of rivals. EPS up 254% from FY08, or a CAGR 23.5%.
- Sustainable margins: 60% of “In-House” customers are locked in 10-year contract with bigger companies such as Coca-Cola, Pepsi, Uni-President; the other 40% are higher-margin smaller customers.
- Chairman Dai and CEO Cao deserves credit for spotting the trend of PET as the dominant form of beverage packaging in 1993 and persevering to execute the “In-House” business model.
- Incentivized but not entrenched owners and management with 6.9% of equity stake.
- Current market cap $586 million (TWD 67.4)
- PE13e 12x, div yield 4.4%
- Potential valuation: $1.5-1.6 billion market cap, +150-170% in 3-5 years
- In 1990 when Crown was generating $100 million in profit and operating cashflow at ROA 4.1% as Peter Lynch retired, market cap was around $1.6 billion. If THC is able to double its FY13e $48 million profits in the next 4 years to $100 million at 20% CAGR, there is likely a PE-rerating upwards to a market cap of $1.5 billion.
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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.
More posts by Koon Boon Kee