- 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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