Tuesday, May 1, 2018

Big Idea 1

I have stated numerous times that I wanted to consolidate/reduce my positions in my blog. But it has been in vain.

However, a chat with Simple Investor SG recently made me understand the real power of a concentrated portfolio (Read his last year review here). If you knew about his current returns in 2018, you will get a reality hit like me.

Thus, I decided to focus and cut down from 26 counters at last count to a current 20 counters. I foresee myself reducing further after World Cup and Full Year Results releases in May/June.

Nevertheless, I have also decided that I will focus about up to 50% (could rise to 60% or more) of the portfolio on a group of 6 to 8 counters (not yet decided fully on the exact numbers), which I will rename them as "Big Idea". These counters are meant to be potentially vested till the end of the year (unless it rises too fast).

Image from Freepik.com

Big Idea 1
will be the company that I stated in this previous post.

I released minimum information about the company in that post and many of you may brush off this idea. But I will be revealing more information about this company and why I intend to keep it as a "Big Idea".

Do note that I have written about this counter before and have been vested in this counter for more than 1 year as of today.

Reasons Why This Counter Qualifies as a "Big Idea"

1. Discovering Of Its Moats

Comparsion to Competitors

This will be a much better presentation that the one in my previous post.

Big Idea 1 financials are in the 2nd column as compared to its competitors. It was able to gain a higher Gross Profit Margin (GP Margin) as well as an incredible net profit margin (NPAT Margin) as compared to its competitors.

Do note that I consider Company 1 to be its direct competitor and you do have to look at the differences.

Although not all the competitors are listed here, but I deem the above as some of the better companies in the industry. 

Therefore, I deem this discovery as a Moat. The reasons below are my assumption/considerations of why this company was able to achieve such good results as compared to its peers.

2. Low Cost Of Goods As Compared To Direct Competitors

After reading the full post and if you already knew which counter I am talking about, then you should looked into their "products". 

The company do not sell this particular product as compared to its competitors, and I am not solely referring to the competitors I stated above. 

Although it refers itself to a certain branding/industry and a customer will directly relates the company to that product, but if you look closer, it does not sell that particular product in its shops. 

I believe it is able to keep its cost of goods low because they do not sell this product as compared to its direct competitors (not sole referring to the one listed in reason 1).

3. Multi-brand Strategy

Firstly, investors should acknowledge that Singaporean like new stuff. With a Kiasu attitude, we want to be the first to try out the new stuff in the shopping malls.

This company must have understood this concept since it was established in Singapore in 1997. Therefore, with a multi-brand strategy, the company is able to switch the shops around if a certain brand is not performing well as compared to others in that particular location.

By switching brands, it injects a new atmosphere in the shop and will encourage shoppers to come back to the shop.

4. Location, Locations and Locations

The company has over 45 shops in Singapore. In your mind, you will be wondering that the rental cost will have killed their operating expense. Then why is it able to achieve such high net profit margin?

Locations of the Shops
I have 2 reasons for this question. 

Firstly, renting in bulk is always cheaper than renting 1 location. From the pictures above, you will have notice that the company have many shop locations under each mall management. This will potentially reduce their rental expenses for each location. 

Secondly, competition for tenants for shop rentals should be high. You can take your reference to this IN post or just look around the shopping malls and see how many outlets have changed tenants over the years. 

Therefore, if you are a mall management firm, will you give in to a company that has many shops located under your management if it comes to you to negotiate the rent?

5. Overseas Expansion With Local Partners

In my opinion, another good strategy that the company engage in is its overseas expansion. Most of its overseas expansion are franchises or joint venture with local partners. Although this could results in lower returns, but there are also lower risk involved. In fact, this strategy will potentially boosted its net profit without gaining much expenses.

In Short

The above stated reasons are explanations of why I decided to list this counter as one of my Big Idea. Do note that there are still many potential reasons to why I continue to stay vested in this counter. But the above discovery of its Moat and the factors behind it made me more assured that this is a counter to keep for the longer term unless fundamental changes occurs.

Please do your own due diligence before you invest this counter (if you knew what it is).

If you are interested to know more about The Ultimate Scorecard or Full Analysis, do visit the Fundamental Scorecard website for more information! Do sign up to get the latest scorecard of all the SGX counters now! Only about $10 a month!

You can also purchase a copy of our Guide to SG Stock 2018 for only $8 via this link.

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