Inter-Varsity Stock Research Challenge 2018 Building a League of Hidden Champions Disclaimer 1. The booklet and its contents contain the opinions and the ideas of its authors. It is not a recommendation to purchase or sell the securities of any of the companies or investments herein discussed. The booklet is sold with the understanding that the authors and the organisers are not engaged in rendering legal, accounting, investment or other professional services. If the reader of this booklet requires expert financial or other assistance or legal advice, a competent professional should be consulted. Neither the authors nor the organisers can guarantee the accuracy of the information contained herein the booklet and its contents. 2. The organisers are not in any way related to the companies mentioned in the booklet. 3. The authors and organisers specifically disclaim any responsibility for any liability, loss or risk, professional or otherwise, which is incurred as consequence, directly or indirectly, or the use and application of any of the contents of the booklet. i Preface “Strive not to be a success, but rather to be of a value.” - Albert Einstein Impact. Impact is created when one strives to be of value to They will be passing on the plaque to the next craft insightful research reports on outstanding champion which will be unveiled in our 2nd companies to leave an indelible mark of benefit to Intervarsity Stock Research Challenge. It will be held the business and investment community. within the 7th Value Investing Summit (VIS), a two- day event which attracts a 1,500-strong community Impact is delivered by Warren Buffett, long before of like-minded value investors to participate and is he was the billionaire Chairman of Berkshire held on 27-28 January 2018 at the Singapore Expo. Hathaway and the world’s greatest investor, when he wrote his research article “The Security I Like Best” on auto insurer GEICO which was published in The Commercial and Financial Chronicle in 1951 – when Buffett was only 20-years old. Buffett’s comment that “the major portion of growth lies ahead” for GEICO was audacious; GEICO had already experienced supercharged growth since 1935 in increasing its base of policy holders by over 38- fold to 143,944 and premiums written by over 77-fold to $8 million. A trading or speculative mindset would have resulted in one to sell the shares and take profit – and miss a critical lesson about value investing and business building. GEICO went on to compound growth even further, to 14 million policy-holders and premiums written to $23.3 billion. As Buffett illuminates the evergreen wisdom in value investing back then which still holds true today, “Of course the investor of today does not profit from yesterday’s growth.” And the research article proved instrumental in the years ahead in impacting the long-term career trajectory The Challenge’s mission is to promote the study of of Buffett, who applied the business and investing value investing, to foster intelligent research on approach outlined in the research to go on to build Hidden Champions in Asia, and to allow students to the conglomerate Berkshire Hathaway with a cultivate the portable lifelong skill-set of critical staggering market value of $500 billion, more thinking ability. This booklet publication is a valuable than the annual GDP output of Singapore. culmination of the dedication put forth by the students to apply what they have learnt into the In our first inaugural stock research challenge, we messy world of reality by forming quality analytical had an uplifting experience assessing the well- research output that has timely relevance and balanced presentations put forth by the usefulness to the wider business community. participating teams. The judges crowned Latent Capital who presented Keyence Corporation Who are Hidden Champions? Like GEICO and unanimously as the inaugural champion. Berkshire Hathaway when they were at an earlier ii undiscovered, overlooked and underappreciated rewarding. Entrepreneurs and the wider business stage in their corporate lifecycle, Hidden community could also find inspirations in the Champions are the indispensable companies Hidden Champions in scaling up their business impacting the well- being of our daily life. models. The difference between a businessman and an entrepreneur is that a businessman can always You wear them, the Crizal lens on your eyewear. make money for himself but an entrepreneur Essilor International is the world’s leading focuses on building an idea larger than himself to ophthalmic optics company behind the Crizal, serve others with Purpose and carry more people Transition, Varilux lens and the company is on board the bus. For Buffett-Munger, their idea powered by a unique owner-oriented corporate larger than themselves is manifested in the creation culture with its inclusive plan to enable 50% of of a focused vehicle Berkshire Hathaway, which employees worldwide become shareholders, compounds not only wealth for shareholders but compared to 20% currently. Its share price has more importantly, compounds values and virtues as compounded 2,000% since 1986. an exemplary role model in the way business is conducted and how they live their life in a simple You touch them, the ASSA Abloy system for your and frugal way. The Berkshire Hathaway Bus carries door. ASSA Abloy AB, the global leader in innovative more passengers and supporters who get positively door opening solutions to improve our lives energized towards the right direction in the journey through security, safety and convenience, is up of Life in the increasingly harsh and pretentious 10,000% since 1994. world. Hidden Champions believe commerce is not merely about the measurement of the weight of You cook with them – peep inside a professional profits collected in multiple clever transactions to kitchen and you can find a Rational intelligent build measurable wealth, fame and power, but cooking system on a Norwegian submarine, a Saudi rather it should be defined by the immeasurable prince’s yacht, as well as in hospitals and integrity and virtue. Only in the endeavor to restaurants around the globe. Rational AG perform first for customers, and serve them with commands a global 54% market leadership in the the highest possible integrity and character, can world’s professional kitchens that include the commerce find its foundation for durable business Buckingham Palace and the White House, and is success and create society’s abundance. behind the success of such famous culinary names as Gordon Ramsay. Rational AG is up 1,000% since After a rigorous selection process, we have picked 2000. nine teams to advance into the semi-finals. Apart from it, we have picked up additional three reports You may even use them in emergency care from other groups. Together, their research reports situations, the Ambu bag for manual resuscitation are edited and compiled in this booklet. in hospitals, by ambulance services – in fact in all kinds of emergency environments all over the We hope that the unearthing of Hidden Champions world. Ambu A/S, the company whom millions of will be an enduring endeavour for lifelong learners patients and healthcare professionals worldwide in value investing, entrepreneurs and the student depend upon the functionality and performance of community and that this booklet by these its products, is up 6,000% since 1992. promising varsity students has made an impact to contribute to this continuous pursuit. Essilor, ASSA Abloy AB, Rational AG and Ambu A/S are the successful yet relatively low-profile Hidden Warm Regards, Champions who are focused market leaders in sophisticated, hard-to-imitate niche products and Kee Koon Boon valuable critical niches that are largely invisible to Chief Investment Officer & CEO the average consumer yet are indispensable and Hidden Champions Capital Management impactful to our well-being in daily life. From a value investing perspective, investing at an earlier stage in the long- term growth trajectory path of these Hidden Champions - in Asia - should prove iii TABLE OF CONTENTS 1. HAMAMATSU PHOTONICS K.K.(TSE:6965) 1 2. MASAN GROUP HOLDINGS (HOSE: MSN) 7 3. RYOHIN KEIKAKU CO. LTD (TSE:7453) 16 4. NCSOFT CORP (KRX: 036570) 27 5. NIHON KOHDEN (TSE: 6849) 37 6. BATA SHOE COMPANY (BANGLADESH) LTD (DSE:BATASHOE) 48 7. TIME TECHNOPLAST LIMITED (BSE:532856) 55 8. AEROSPACE INDUSTRIAL DEVELOPMENT (TSEC:2634) 67 9. XINYI SOLAR HOLDINGS LTD (SEHK:968) 75 10. TEIJIN LIMITED (TSE:3401) 81 11. TOKYO ELECTRON (TSE:8035) 88 12. TOTO LIMITED (TSE:5332) 113 iv 1. Hamamatsu Photonics K.K.(TSE:6965) Company Research & Report Quick Stats Date 15/12/17 EBIT/R&D (x) 1.94 EBIT/Employee No. Filing Currency JPY (USD/px) 40K Share Price 3,730 EV/EBIT (x) 22.8 No. of Shares (Mil) 157.6 EV/EBITDA (x) 15.8 Market Cap (USD Mil) 5,214.8 EV/CFO (x) 19.9 Daily Value Traded (USD Mil) 24.3 P/Sales (x) 4.5 GPM (%) 49.7% P/E (x) 25.7 EBIT (%) 17.5% P/B (x) 3.2 Net Debt (Cash) / VQ1: EV/EBIT/ROE Equity (%) -36.25% (x) 1.9 VQ2: EV/EBIT/ROA ROA (%) 9.55% (x) 2.4 ROE (%) 12.22% Team Members Justin is a penultimate year student at Singapore Management University, specializing in finance. He has experience in global consumer banking at Citibank. He is interested in corporate finance, M&A advisory and investment banking. He is currently the president of the SMU Run Team & YogiSMU. Kim Chye is a second-year student at Singapore Management University specializing in finance. He has prior experience in full-stack development and as a financial research analyst. He is currently the vice-president of the SMU Eye Investment Club. Crystal is a final year student at Singapore Management University specializing in finance.