8I HOLDINGS LTD — Management Reports 2017

Jun 4, 2017

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8I Holdings Limited Business Segment Review

1 8I Holdings Limited

Investment in Public Markets

Hidden Champions

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Extraordinary returns follow extraordinary discipline.

Kee Koon Boon Chief Investment Officer

Investment in Public Markets

Business Segment Review 2

Investment in Public Markets

Just Monozukuri It Like the Hidden Champions: Finding Investment Resilience in a Wild World

“When you make something, when you improve something, when you deliver something, when you add some new thing or service to the lives of strangers, making them happier, or healthier, or safer, or better, and when you do it all crisply and efficiently, smartly, the way everything should be done but so seldom is—you’re participating more fully in the whole grand human drama. More than simply alive, you’re helping others to live more fully, and if that’s business, all right, call me a businessman.” – Nike’s founder Phil Knight in his autobiography Shoe Dog: A Memoir by the Creator of Nike

Dear Valuable Partners,

Portfolio Performance

Your funds in listed Asian equities achieved a 12-month rolling return (in SGD terms) of 15.9% as at 31 March 2017 against an increase of 14.0% for the MSCI Asia Pacific index and 11.8% for Singapore’s FTSE STI over the same period. The cost of the total invested active portfolio in listed Asian equities was S$22.89 million with a market value of S$26.36 million as at 31 March 2017 generating an overall net investment gain of S$3 million for the financial year. Adopting the focused investment strategy of investing in successful, yet relatively low-profile, underappreciated Hidden Champions, this has brought our cumulative consolidated absolute gains, since its inception in 31 September 2015, to S$4.30 million as at 31 March 2017, or a return of 21% against the MSCI Asia Pacific Index return of 18.7%.

Overall market performance in the second half of the financial year since September 2016 till March 2016 has been driven primarily by cyclicals, which we have consciously avoided; excluding cyclicals in commodities, property and financials, the FTSE STI rose by a more subdued 2.1% and 8.1% for the past 6 and 12 months respectively.

Returns in SGD	Hidden Champions	MSCI AP	STI
Mar’16–Mar’17	15.9%	14.0%	11.8% Ex-Cyclicals: 8.1%
Sept’15-Mar’17	21.0%	18.7%	13.8%
Dec’15-Dec’16	14.9%	2.3%	-0.1%
YTD 2017	3.3%	8.8%	10.2%

The investment objective is to invest at an earlier or tipping point staged innovative Hidden Champions in Asia, with a long-term growth trajectory path and a wide-moat that is usually overlooked and underappreciated. They are focused market leaders in sophisticated, hard-to-imitate niche products and valuable critical services that are largely invisible to the average consumer, yet are indispensable to our well-being in our daily lives. These Hidden Champions weather multiple crises and recessions to deliver outperformance often not linked to general economic conditions, thus offering de-correlated and resilient investment returns. Their simplicity and constant decentralisation enables them to focus on their core competencies, stay clear of potential pitfalls, and quickly respond to changes in customer needs, or new technological developments.

Hidden Champions are guided by the ancient philosophy of monozukuri, a Japanese word embodying the spirit and pursuit of excellence, of “craftsmanship”, of “calling”, and the values of responsibility and social conscience. Like Phil Knight, the Hidden Champions are “shoe dogs”, whose entire lives and passions are consumed by shoes, or the products and services they obsessively tinker and innovate to add ever more value to others.

Our portfolio weighted winners-to-losers ratio in the 26 Hidden Champions companies remains healthy at around 91.1% to 8.9%; in other words, over 91% of our portfolio stocks have experienced positive absolute returns. We are among the Top 20 Shareholders for four of these Hidden Champions. Our aim is to be among the Top 20 Shareholders of the companies we invest in as a demonstration of our conviction and transparency in our investment process. We look to become a substantial shareholder with a 5% stake as they continue to deliver in their business fundamentals. We were among the Top 20 Shareholders in some of these Hidden Champions as: (1) they are under-researched despite their quality and growth; (2) we were one of the earlier foreign institutional investors; (3) founding owner-operator and promoter group have a substantial equity stake to provide stability in the shareholder base, and we have a rigorous systematic investment process to seek out companies aligned with our values.

More importantly, our portfolio stock characteristics displayed excellent and improving fundamentals with many of our portfolio companies delivering record profits, backed by innovative products and services, including Sealink Travel Group (ASX: SLK), Japan’s Okamoto Industries (TSE: 5122), “Japan’s IKEA” Nitori Holdings (TSE: 9843), India’s woven sack and technical textile specialist Emmbi Industries (NSE: EMMBI), and Taiwan’s innovative fabless IC designer Nyquest Technology 九齊科技, with their corporate developments and business prospects elaborated in the ensuing section on Portfolio Activity.

Our portfolio’s weighted market capitalisation is US$639 million and weighted revenue grew by 18.3% over the past three years, generating increasing returns to scale with a 50.9% growth in operating profit with weighted return on equity (“ROE”) of 26.1% (1H FY17: 23.7%). This is due to the scalability of the business model forged by an indestructible intangible knowhow, accumulated over the years, to create new categories of growth for their targeted customers and the ability to compound growth with resilience in a difficult business environment.

Business Development

We achieved an important business milestone in April 2017 as 8 Capital Pte Ltd, a wholly-owned subsidiary of 8IH, has obtained approval from the Singapore regulator Monetary Authority of Singapore (“MAS”) to operate as a Registered Fund Management Company (“RFMC”). Since our inception in September 2015, from the permanent capital provided by 8IH to an asset under management (“AUM”) size of over S$26 million, we have delivered a credible absolute gain of 21%. Hence, we are looking forward to open the Hidden Champions Fund to qualifying external investors to participate in the journey of the outstanding and hardworking founders and owner-operators invested by our Fund - including Jeff Ellison of Australia’s Sealink Travel, Yoshiyuki Okamoto of Japan’s Okamoto Industries, Akio Nitori of Nitori Holdings, the husband-wife

Investment in Public Markets

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Investment in Public Markets

team Makrand and Rinku Appalwar of Emmbi Industries, the trio Guo Qiuli 郭秋麗, Chen Jianlong 陳建隆 and Lin Mengyi 林孟逸 of Nyquest Technology 九齊科技 and so on - who have and are likely to continue to outperform and deliver compounding returns over the long-term.

Our Fund had also generated strong returns in its investments in publicly-listed Asian small- to mid-cap tech companies. The portfolio stocks have a focus on subscription-based business models, which provide a strong foundation of recurring cashflow to reinvest into creating new categories of growth in innovative products and services, and the potential to further expand globally. They include: e-Guardian Inc (TSE: 6050) +116% from our average investment cost, Vector Inc (TSE: 6058) +38.8%, Rozetta Corp (TSE: 6182) +74.3%.

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We identified the attractive investment opportunity of overlooked listed small- to mid-cap Hidden Tech Champions with (1) healthy ROE and operating cashflow; (2) low gearing or net-cash balance sheet; and (3) pricing power with healthy working capital dynamics. A number of small- to mid-cap Hidden Tech Champions are also trading at private equity-level valuations. There is potential for the targeted listed tech companies to be acquired by giant tech companies, limiting downside risks for investors and offering takeover premium in valuation re-rating. The mispricing opportunity comes about from the crowding of money in (1) popular “Stage 4” mega-cap companies, including Apple, Facebook, Amazon, Google, Microsoft, Netflix, Tencent, Alibaba; (2) popular privately-held tech darling companies and unicorns such as Uber. There is an unsettling bursting of bubble with an increasingly number of them trading at significant haircut discount of 20-50% to their previous valuation rounds, including Cloudera, Dropbox, and Square. Private equity funds in tech are also facing immense pressure to deliver despite many private tech entrepreneurs with me-too, cash-burning business models that demand unrealistic sky-high valuations.

As a result, we may work towards potentially launching a newly focused Hidden Champions Tech Fund, which reinforces our longterm goal to expand our unique investment solution in identifying more Hidden Champions for investors. We will update more in due time.

Video Illustrating Our Investment Strategy

We would like to share our video which illustrates our investment philosophy and strategy in Asian Hidden Champions. It features role models such as Adi Godrej of Godrej Consumer, KBS Anand of Asian Paints, Alan Wilson of Australis’s Reece, Scott Lin of Taiwan’s Largan Precision, Akio Nitori of Nitori Holdings, Takemitsu Takizaki of Keyence Corporation and Shigetoshi Sakamoto of Hoshizaki Corp: https://www.youtube.com/watch?v=VeTAiH_2gP0

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Mentioned in our video, Taiwan’s Largan Precision, a little-known company making camera lenses for Apple’s iPhone and others, compounded 4,000% since 2002 to a market value of US$21.7 billion. When compared to Germany’s Carl Zeiss which has a 171year history, this relatively young company established in 1987 by Scott Lin and Tony Chen, can out-compete the German and Japanese lens makers due to its relentless pursuit of perfection and monozukuri in lens-making techniques.

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Source: Financial Times (https://www.ft.com)

For many years, the company was a small niche manufacturer, one of dozens in the optics industry clustered around the central Taiwan city of Taichung. Largan’s focus has always been on producing high-quality lenses from plastic rather than glass. Plastic lenses were deemed more as a novelty and considered too low in quality to ever seriously compete with the fine glass lenses made in Japan for the country’s major camera brands. Largan’s plastic lenses were originally used mainly for desktop scanners and projectors. Then, the smartphone came along. A decade ago, only half of smartphones sold each year had built-in cameras. Now, nearly all do. Megapixel count has also risen from 2 to 16, and sometimes higher. A handset camera is now expected to take great pictures, without adding much weight, sucking too much battery power or hogging too much space. Glass simply cannot cut it. Amongst plastic lens manufacturers, none can match Largan’s know-how, speed, precision and manufacturing skill.

To meet its customers’ ever demanding specifications, Largan often resorts to making its own customised machinery for its production lines – an option that is possible only because of the speedy, robust, highly-skilled and flexible machinery industry cluster in Taichung. Japanese and German manufacturers could undoubtedly match Largan’s technical quality, but are unable to compete on price and/ or speed. The result is a world-leading company capable of staying ahead of its competition, and supplying Apple and other smartphone makers with higher resolution lenses at reasonable price.

Investment in Public Markets

Business Segment Review 4

Our Commitment to Clients

“Everyone else bullshits, you guys always shoot straight. So if you say this new shoe, this Nike, is worth a shot, we believe.” – Phil Knight in Shoe Dog

One of my favourite investing lessons is from the business biography “It’s Not All About Money: Memoirs of a Private Banker” by the late Hans Julius Baer, the indefatigable owner-operator of the Julius Baer Group who helped to develop it into one of the largest independent wealth managers in Switzerland during his near sixty-year career:

“My grandfather used to say occasionally, ‘What would I do with all the money that I have already lost?’ He always lost money in speculations. From childhood on, he was more interested in his father’s credit business than in the animal skin trade; as I said before, he learned the systematic side of banking from August Gerstle. The Augsburg banker was heavily engaged in financing industrial enterprises; for example, he invested in Maschinenefabrik Augsburg Nurenberg (MAN), a truck manufacturer the size of Freightliner, and Rudolf Diesel, the inventor of the diesel engine.”

Han’s account illuminated that the foundation of long-term wealth creation is to think of investing as financing and owning a piece of resilient compounders, such as Man SE, which has grown from its small business roots to a global champion with a market value of US$15.7 billion, rather than to peddle or speculate in the next big get-rich-quick schemes, or investment products, deals, or trades.

It is not rare in the asset management industry to be sales-driven by launching funds when the market outlook is euphoric or speculative, or launching funds with hot and popular themes to attract fund inflow and gather assets. We believe “noise traders” who “invest” in hot and popular themes almost always find themselves taken advantage of by clever arbitrageurs. As the influential finance researchers Andrei Shleifer, Bradford De Long, Robert Waldman and Lawrence Summers noted in their classic 1990 paper “Noise Trader Risk in Financial Markets” published in the Journal of Political Economy: “When noise traders are optimistic about particular securities, it pays arbitrageurs to create more of them. These securities might be new share issues, penny oil stocks, or junk bonds: anything that is overpriced at the moment. Just as entrepreneurs spend resources to build casinos to take advantage of gamblers, arbitrageurs build investment banks and brokerage firms to predict and feed noise trader demand.” Funds that raise capital based on concepts such as “Belt and Road”, “Iskandar”, “Myanmar”, and “Mongolia”, could potentially be seen as attracting “noise traders”.

As CIO and CEO of 8 Capital, I would like to make the commitment that we will never raise capitals based on fads, and will serve our existing and prospective clients to make informed, intelligent decisions based on facts and knowledge. A general rule of thumb: clients should stick to plain funds with understandable, and not “black box”, investing strategies and have a clear sense that the fund manager goes the distance to demonstrate dedication and craftmanship in articulating and implementing the uniqueness and scalability of the investment process to generate returns.

An important metric that we coined and employed in communicating with our clients on the health and intrinsic value of the fund portfolio, beyond the current NAV price, is the metric the “Value-to-Quality” (“VQ”) ratio. It has guided our investment thinking to uncover underappreciated investment opportunities. While the principles of value investing – to buy undervalued assets at a margin of safety – appears simple, its complexity lurks beneath in the actual practice. This is because investors tend to commit the investment errors of:

• (1) solely focusing on buying statistically cheap stocks while sacrificing or misevaluating “quality”. For instance, screening for high net cash, or high net current asset, as a percentage of market value of the company might be the first step for many “Graham-style net-net value investors” to determine the discount in valuation of certain stocks. However, in Asia, their financial numbers often are revealed to be “propped up” artificially to lure in funds from investors, while the studiously-assessed asset value has already been “tunnelled out” or expropriated in moneygo-round tunnelling opportunities via unusual related-party transactions. A plethora of examples of former stock darlings favoured by value investors include DBA Telecom (3335 HK), Dynasty Fine Wine (828 HK), China Animal Healthcare (940 HK), China Lumena (67 HK), Boshiwa (1698 HK), Z-Obee (948 HK), Flyke (1998 HK), Sihuan Pharmaceutical (460 HK), Mingyuan Medicare (233 HK), China Taifeng Bedding (873 HK), SCUD Group (1399 HK), Tianhe Chemical (1619 HK), Qunxing Paper (3868 HK), Zhongda International (909 HK), and Huishan Dairy (6863 HK). These seemingly cheaply valued stocks often turn out to be either value traps, or worse, unravel into fraudulent blackholes; and

• (2) overpaying for popular “quality” stocks whose growth underwhelms expectations. As recounted by Peter Lynch in his book One Up on Wall Street: “You’ll never lose your job losing your client’s money on IBM. If IBM goes bad and you bought it, the clients and the bosses will ask: ‘What’s wrong with that damn IBM lately?’ But if La Quinta Motor Inns goes bad, they’ll ask: ‘What’s wrong with you?’ That’s why security-conscious portfolio managers don’t buy Wal-Mart when the stock sells for $4, and it’s a dinky little store in a dinky little town in Arkansas, but soon to expand. They buy Wal-Mart when there’s an outlet in every large population center in America, fifty analysts following the company, and the Chairman of Wal-Mart is featured in People magazine as the eccentric billionaire who drives a pickup truck to work. By then, the stock sells for $40.”

	Company A	Company B
(A)“Value”: EV/EBIT	5x	15x
(B)“Quality”: ROE(= EBIT/Equity)	2%	30%
(C)Value-to-Quality (VQ)ratio(A/B)	2.5x	0.5x

A seemingly valued stock trading at an enterprise value-to-operating earnings (EV/EBIT) ratio of 5x (Company A) is not informative on a stand-alone basis of its cheapness in value if the company generates ROE of 2%; similarly, a stock trading at EV/EBIT of 15x (Company B) is not necessarily expensive if the company generates ROE of 30% and is growing healthily. However, growth can be destructive, as growth can outstrip the capabilities and competencies of a company and its management team, and can stress quality and financial controls, eventually destroying or diluting one’s culture. This is especially so for companies generating low ROEs, who want to grow at a rate faster than their ROE by pursuing supposed new value-creating projects, as they need to tap the external capital markets using debt or equity. Is this good news or bad news for minority shareholders? Building upon Nobel Laureate George Akerlof’s classic research in 1970 on The Market for Lemons, due to the presence of asymmetric information with entrepreneurs knowing more about the private value of their firm than investors, the adverse selection problem is created: if consumers cannot tell the quality of a product, and are willing to pay only an average price for it, then this price is more attractive for sellers who have bad products (“lemons”) than to sellers who have good products. Thus, selling equity is more attractive to owners of bad firms (lemons). This implies that investors should be suspicious if they are offered equity.

Investment in Public Markets

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Investment in Public Markets

The ills and lapses that come with growth is a key reason why many Asian businesses, or over 80% of the 24,000 listed firms in Asia, fail to scale up beyond the billion-dollar market capitalisation mark, and remain statistically cheap value traps whose share price and volume are also often manipulated by syndicates and insiders. Therefore, a VQ ratio matters in overcoming the two investment errors, and separating the winners from losers in the pari-mutuel race between Value and Quality. In the first example of Company A trading at EV/ EBIT 5x with ROE of 2%, the VQ ratio is 2.5x while Company B trading at EV/EBIT 15x and ROE of 30% has a VQ ratio of 0.5x. A simplified description is that investors are paying a value of $0.50 per dollar worth of “quality” in Company B as compared to $2.50 for Company A. We usually do not invest in companies with VQ ratio above 1x.

To illustrate the application of the VQ ratio with a simple example, one of our portfolio stocks Sealink Travel Group generates an operating profit of S$43.8 million on ROE of 29.3% with a long runway for growth, due to the structural rise of Australia as the new Mecca for global tourism. It trades at EV/EBIT 11-12x and has a market value of around S$430-450 million. Despite being in a different industry, Jumbo Group, a Singapore-listed restaurant operator, generates an operating profit of S$15.9 million, nearly three times smaller on a weaker ROE of 23.5%, yet trades at EV/EBIT 23-24x with a similar market value to Sealink at S$440 million. Sealink’s VQ ratio of 0.4x is 60% superior and cheaper than Jumbo’s VQ of 1x. When compared with ASX-listed tourism-related company Skydive the Beach, which has a VQ ratio of 2x (a weaker ROE of 12.7% and more expensive EV/EBIT of 24-25x), Sealink’s superior fundamental qualities and valuation attractiveness is further amplified. We believe Sealink Travel could rise to a market value of A$750-900 million in the next 12-18 months as it continues to deliver A$50-60 million in operating profit and trading at an EV/EBIT of 15x, indicating an upside of 70100%.

100%.
	Sealink	Jumbo	Skydive
Market value(S$m)	410-450	420-450	190-220
EBIT(S$m)	43.8	15.9	8.1
(A)“Value”: EV/EBIT	11-12x	23-24x	24-25x
(B)“Quality”: ROE(= EBIT/Equity)	29.3%	23.5%	12.7%
(C)Value-to-Quality (VQ)ratio(A/B)	0.4x	1.0x	2.0x

As discussed in our previous Letters, in determining our “Quality”, we incorporate our fact-based, forward-looking fraud detection system that combines accounting data, especially footnotes, with a wide array of contextual information – including unusual relatedparty transactions; money-go-round off balance-sheet activities; governance, group structure, consolidation accounting and ownership analysis; textual and linguistic analysis; analysis of eventbased “catalysts” (information-based manipulation) and sensitive market announcements (action-based manipulation in prices and volume) – to provide fresh insights in equity valuation to support our decision-making process in investments.

To build our investment conviction to size our investments with prudence, we are vigilant to tipping points in business models that could result in a valuation re-rating. We are watchful for longer-term fundamental changes, as opposed to reacting to short-term news “catalysts,” which could be manipulated to create buzz around a stock, monitoring the ratio of the sales contribution from new products/ services and markets/customers; overall health of value chain and ecosystem; corporate culture, strategy, innovation, partnerships. We are fervent readers of interview transcripts and articles on the management to gain a better understanding of the management’s (1) desire to cultivate a culture of decentralisation, trust and cooperation to foster innovative experimentations, including investing in a system to cascade decision rights throughout the organisation; (2) discipline

in handling power and wealth; (3) focus and sense of urgency to build something with a purpose and commit to an idea larger than themselves to care for, and serve, others with love; (4) skin in the game with aligned performance-based incentives. Our three-step investment process:

• Eliminating companies with potential accounting tunnelling FRAUD and mis-governance risk prevalent in Asian companies with unusual related-party transactions, which escape the detection by western-based financial tools and techniques, using on our proprietary fact-based, forward-looking fraud detection system. We are grateful to have been invited to present our system to the top management of the Singapore financial regulator;

• Analysing the business model for QUALITY, including: (1) Resilience to stay profitable and protect market positions through up/downturns in the economy, and to allow companies to better manage rapid, sometimes disruptive, technological change; (2) Strong leading market positions with proven records across business cycles as this enhances pricing power and creates the foundation for sustainable good profitability, as well as an attractive position in the value chain without being dependent on specific suppliers or customers; (3) Continuous innovation and R&D to achieve and ensure strong market positions, create new categories of growth and profitability over time; (4) Long runway and addressable market to compound growth from solving pressing problems for their customers; (5) Exposure to service and after-market sales to improve the understanding of customer needs, building customer loyalty, and also offers attractive profitability, additional growth opportunities and increased product penetration; (6) Prudent stewardship and allocation of capital; (7) Strong balance sheet and robust cash flow generation that can be used for reinvestment into the business, for example in R&D and market expansion, to capture attractive opportunities, as well as steady cash distribution to the investor;

• Selecting entrepreneurs and owner-operators with VALUES & PASSION for their business. This is seen through their thought leadership and value-add to the community as they serve with integrity, and the corporate culture they build.

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Source: Kee Koon Boon, 2003-2017 ©

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Business Segment Review 6

Corporate Lifecycle Stage	Valuation Dynamics
Stage 1: 20x from $50m to $1bn Emerging growth industry companies started by wide- moat innovator	At several points in time, the fnancial market holds back in according a proper price on the company, as the company grew in market cap too fast despite the strong fundamentals and growth; market panics and PEG falls.
Stage 2: 20x from $1bn to $20bn Rides the rising tide, niche potential transforms to mass market scalability	As company continues to deliver, there is positive re-appraisal of the company and PE re-rating; PEG climbs back up again.
Stage 3: Milks the cow and consolidator	PEG remains relatively steady as company “milks the cow” for cashfow – or company gets complacent with size and falters.
Stage 4: 20x from $20bn to $400bn Dominance/Legacy/Built-to- Last	Growth slows down, but PEG climbed due to “dominance” or “winners-take-most” factor, resulting in steady market cap.

We have been following closely a number of entrepreneurs building their enterprises in Asia over the years, observing up close their struggles and their breakthroughs, compiling the progress of their corporate lifecycle stage by Stage 1 to 4 and valuation dynamics according to the VQ ratio, which guided our investment thinking and action to avoid the costly errors of over-emphasizing “value” without regards to “quality” or/and overpaying for “quality”.

While it is true that there are many Stage 1 companies trading cheaply from a quantitative perspective, many of these business models are impaired and stuck in Stage 1. In the past decade, once-successful “Stage 1” entrepreneurs have scaled their companies by multiplefolds to under a billion dollar in market cap. However, as a result of them mishandling risks, or even preventing risks through business model design, an overwhelmingly majority of companies remain in Stage 1, unlike the rare few like Largan Precision who are able to make the successful transition from a billion to $20 billion in market value. Nonetheless, entrepreneurs still push the same, possibly inappropriate, levers for growth, or worse, start to stray as they find it easier to seek growth by engaging in non-core business activities, and private business interests outside of their listed vehicles. These are the value traps to avoid.

Peter Lynch’s Magellan fund makes superb returns over the longerterm but when they dig further into individual unitholder’s average returns, the performance results were surprisingly disastrous. This was because they were fleeting investors in the mutual fund who did not stay the course. Through the study, Lynch and Templeton guided a profitable investment strategy for their clients: buy more units of the fund whenever the fund experiences a drawdown, despite the healthy and improving fundamentals of the portfolio.

Table: VQ Ratio of Hidden Champions Fund – 85% Superior Than the Market Comparable

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When we compare the weighted profits of our portfolio companies in the Fund to the 346 Asia Pacific companies with a similar operating profit range of US$40-70 million, our weighted portfolio return on assets (“ROA”) and ROE are around 50% better than the Asian companies of comparable profit scale, yet the valuations in terms of EV/EBIT are around 23% cheaper. With the VQ ratio of our Hidden Champions Fund presently superior by 85% than the market comparable, we believe the Fund is significantly undervalued relative

to its intrinsic value and the downside risks are limited to protect investors.

Guided by this, we will open the Fund to external clients in an initial subscription for a limited window period before soft closure. More details will be shared later. As an added disclosure, both senior management of 8IH and the entire Hidden Champions Fund investment team have invested our own personal capital into the Fund to commit our skin – and more importantly, our soul – in the Fund alongside our clients on the same terms and fees.

As the current market hype over the “flight to junk” carry trade that is groping for yield subsides and the overall market retreats, we expect our Fund to outperform. We have also taken the opportunity to make some divestments over the period at a significant net absolute gain and our cash level is around 20% in late April/early May 2017. Given the significant undervaluation of our Fund, despite the continued strong fundamentals, we reframe our YTD positive but lagged results as a setback akin to the cutting of a string that reaches between where you are now and your goal; if you make the effort to retie the string, the distance between your position and your goal shrinks. We believe our focused Hidden Champions will continue to monozukuri their way to “retie the string” to outperform with resilience.

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Source: How Reframing Builds Resilience by Brett & Kate McKay | May 9, 2017

Just Monozukuri It for Business & Investment Resilience

When NASA searched the world over for the critical part of advanced lightweight mechatronic gear system used in the driving axles and robot arms for its Mars Curiosity Exploration Rover and to steer the solar panel on an orbit, they found only one company that could satisfy their stringent requirements. This Hidden Champion is Harmonic Drive Systems (JASDAQ: 6324) (“HDS”). Besides spaceflight applications, HDS’ innovative high-performance gears also play a critical role in multiple fields from robotics, semiconductor, and factory automation equipment to medical diagnostics and surgical robotics. HDS is in Hamamatsu, a city of “monozukuri”, located at the central area of Japan, in between Tokyo and Osaka. Some of the world’s leading companies are located here, including Suzuki Motor, Yamaha Music, and Hamamatsu Photonics, which commands a 90% global market share in the sensor devices, known as photomultipliers, that play important roles in everything from X-ray machines to DNA sequencers and pollution monitors. People in this area have traditionally embraced the spirit of challenge, which has cultivated the creative culture that produced many innovators and innovative technologies.

HDS CEO Akira Nagai attributes its success to its monozukuri craftsmanship culture: “Every year we have fresh high school graduates. It takes about 20 years for an engineer to be qualified to this level. Our business is about craftsmanship and Monozukuri, but it does not entirely depend on the individual skill. The trick is,

Investment in Public Markets

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Investment in Public Markets

we have a corporate culture whereby nobody will tolerate submicron differences.” Source: http://www.theworldfolio.com/news/monozukuri-the-japanese-way-ofinstilling-values-of-responsibility-and-consequence-for-the-world-at-large/4176/

	30 Sep'15	31 Mar'17	01 May'17
Price (JPY)	1,704	3,505	3,605
MCAP (USD)	1,304	2,879	2,958
EBIT (USD)	62	67	67
“Value”: EV/EBIT	18.2	39.1	40.2
“Quality”: ROE (%)	21.3	20.1	20.1
Value-to-Quality (VQ)	0.9	1.9	2.0

We were deliberating whether to invest in HDS during our fund inception in September 2015, when it traded at EV/EBIT 18.2x and generated an ROE of 21.3%, yielding a VQ ratio of 0.9x, which we deemed as not cheap. The stock then doubled to ¥3,600, with a market value of nearly US$3 billion, and its VQ ratio is now 2x.

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Source: https://www.giken.com/ja/developments/eco_cycle/

To illustrate our investing discipline in not chasing and overpaying for quality stocks, and yet generate healthy returns, we would like to highlight another Hidden Champion, which we invested in with a better risk-reward ratio and generated a 40-45% return. This Hidden Champion is Giken Ltd (TSE: 6289), whose founder Akio Kitamura invented the world’s first “silent pile” in 1975, providing a silent and vibration-free pile installation, a disruptive technology in construction method whose unique environmentally-friendly implant structure and press-fitting method can minimize the contact area of the

structure to the earth. The current silent pile incorporates the most up-to-date technology and has achieved a massive size reduction, and a 70% weight reduction, with much higher performance. The result is a technology that can cut over half of all project material costs and time, while working quietly beside houses, hospitals and other densely-populated areas, without much disturbance to the surrounding from the piling work required. Giken also enjoys a huge addressable market as it disrupts the US$4.4 billion global piling market. The innovation has also sparked new growth applications in foundation work, tidal and flood defence, transport, automated underground parking facilities, the innovative EcoCycle underground bicycle parking system, and many more.

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Giken’s monozukuri and craftsmanship corporate motto and culture is “To Leave One’s Mark” in contributing to the world by creating original products and technologies that benefit society. As articulated by its founder Kitamura: “On repudiated Japanese swords, crafted by expertise, experience and know-how, the name of the swordsmith who made it is deeply engraved. The engraving shows that the sword was crafted by the master whose name is shown and the name is passed down from generation to generation forever. Our work should be equally as good a quality as a sword made by a reputed master. When each one of us realizes, as a member of an organization, his own role and responsibility and sets out on the task with a definite goal and objective, he has made the first step to inscribe his signature on his/her job. It is very important to complete a job that you can say to others with pride and confidence, ‘This is a job I have done by myself.’ Especially it is important for each Giken member that he/she stands on own and proudly proclaims as such.”

Source: https://www.giken.com/en/company/vision-philosophy/

	30 Dec'16	31 Mar'17	01 May'17
Price (JPY)	1,898	2,153	2,770
MCAP (USD)	402	477	612
EBIT (USD)	37	42	42
“Value”: EV/EBIT	10.6	11.7	13.0
“Quality”: ROE (%)	16.6	17.6	17.6
Value-to-Quality (VQ)	0.6	0.7	0.7

We first invested in Giken in December 2016 when it was trading at EV/EBIT 10.6x with a market cap of around US$400 million and generating an ROE of 16.6%, yielding a Value-to-Quality ratio of 0.6x. The stock went on to generate returns of 40-45% for our portfolio as the company continues to deliver quality growth and earn an upward re-rerating in valuation. We use internal codewords for all our portfolio stocks, so that even if people were to overhear our discussion about portfolio stocks, they would not know of the name of the companies. We have dubbed Giken the “Silent Swordsman”.

Ancient Monozukuri philosophy still guides an exclusive group of corporate Japan in the 21st century. With a focus on a long-term vision rather than short-term results, selected Japanese Hidden Champions push for sustainable growth, while adhering to age-old principles of craftsmanship and contributing to society. At the Hidden Champions Fund, we endeavour to dig deeper into the quality of the business models and owner-operators who exemplify the monozukuri philosophy grounded in high quality and craftsmanship like Harmonic Drive Systems, Giken, YKK and Pola Orbis, and invest in them at an earlier or tipping point stage to participate in their longterm growth trajectory.

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We first came across the term and concept of monozukuri some years ago in a Hidden Champion that might be familiar to many of us: YKK, the privately-held dominant global market leader behind the ubiquitous high-quality zippers found everywhere from our jeans to handbags. YKK also leveraged on its bonding and fastening technological core competencies to high-end architectural product and airbag fastener. Below is a message from YKK’s second-generation leader Tadahiro Yoshida, son of the founder Tadao Yoshida, about their “never-ending pursuit of the culture of monozukuri” and “the cycle of goodness” where “no one prospers unless he renders benefit to others” as the key ingredients behind their phenomenal global success.

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Source: YKK Group, 2015 Annual Report

Portfolio Stock Case Study: Monozukuri at “Japan’s SK-II” POLA ORBIS (TSE: 4927)

“A cream created for one person alone” - 80 years ago, the company’s late founder Tsuneshi Suzuki studied on his own and developed a new cream for his wife who had roughened hands. This was the beginning of the beauty care company POLA ORBIS, focused on natural and organic products with strong and distinctive brands that include the venerable high-prestige POLA that has been imbued with a “timeless” image; the unique non-oil based formula and minimalist packaging and value-priced ORBIS; organic Jurlique, which uses herbs and roses grown on the company’s own plantation; and H2O+ with its sea-derived natural ingredients. By focusing on the high- and low-ends of the Japanese cosmetics markets, while avoiding the shrinking middle, and focusing on skincare, where prices, margins and growth rates are higher than average, POLA ORBIS is better positioned than most of its competitors.

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Source: Financial Times (https://www.ft.com)

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Source: http://ir.po-holdings.co.jp/en/Management/ManagementMessage.html

Led by Satoshi Suzuki, the adopted son of the late founder, POLA ORBIS innovated new lines like anti-aging series Red B.A, health supplement White Shock Inner Lock IX, sensitive skin brand Decencia, Wrinkle Shot Medical Serum (January 2017) to grow quietly and resiliently against the trend and power the company to scale greater heights, compounding over 500% since its listing in December 2010 to a market value of US$5.7 billion.

POLA ORBIS pursues monozukuri excellence not only in flexible, high-mix-batch-volume quality manufacturing, but also in its selling and sales strategy, and a scalable business model built upon a flexible cost structure.

(1) Flexible high-mix-batch-volume quality manufacturing

POLA ORBIS pursues its monozukuri excellence on skincare product with high repeat ratio, concentrates resources into high value-added skincare, particularly anti-aging and skin whitening products in which it has cutting-edge technology, and collects and utilises over 16.8 million data sets of Japanese women’s skin attributes obtained from customers in the course of sales activities.

A tipping point in the monozukuri structure for POLA ORBIS occurred in September 2014 with the consolidation of domestic production activities at one site — the Fukuroi Factory. In machine-driven manufacturing, mass production is the standard approach. Similarly, skincare products and cosmetics have always been made in larger quantities than required as it was difficult to produce only small quantities while ensuring consistent quality. By focusing on skincare and base makeup, and effectively maintaining consistent levels of quality, the one-site production structure with the application of advanced robotics technology reinforces the production system — a wide variety of products made in small quantities — that comes with the Group’s multi-brand portfolio. The design Pot-shaped machines, which were more suited to volume requirements, led to the development of POLA original manufacturing equipment with capacity perfectly suited to the required amount of product when it was needed. Every employee on the factory floor takes to heart the idea that “not even the smallest malfunction should be missed because customers deserve the very best,” and all personnel dutifully apply this concept as they perform their jobs.

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(2) Controlling the entire value chain to create a good experience and emotional bond with the consumer

Unlike most cosmetics companies, which rely on department stores, drug stores, and convenience stores to sell their products, POLA ORBIS controls the entire value chain for its products, including the crucial point of sale. This gives it a big advantage in terms of controlling the firm’s image and pricing, becoming better connected with its clients and receiving direct feedback from them. Since the 2005 rollout of POLA THE BEAUTY (“PB”) shops, which are roadside shops with an aesthetic salon, the company’s strategy of “experience marketing” has created an emotional bond with the consumer via repeated positive experiences, most importantly at the point of purchase. The PB sales channel augments a direct sales model with promotions, such as discount aesthetic treatments that are delivered in a customised setting, optimising the purchasing experience. Jurlique, the Australian skincare company acquired by POLA ORBIS, employs similar methods to enhance consumers’ image of the brand. Even the mail order sales model employed by the ORBIS brand has been optimised to the point where, based on the Nikkei Business Survey, ORBIS is regularly nominated as the number one website in terms of client satisfaction.

The commission-based direct sales channel employed by the POLA brand and Internet sales channels employed by the ORBIS brand do not rely on an army of salaried sales consultants, which is the major cost item for companies such as Shiseido, and confer an advantage over its peers. In September 2014, the firm abolished its scheme, which offered discounts in step with purchase volumes, and switched to a scheme awarding reward points in line with a customer’s stage and purchase value. While this was potentially a negative for consumers who were attracted by the discount scheme, it acted as an incentive for sustained purchases for keen users of the ORBIS brand. POLA ORBIS has a large base of repeat users, which results in greater earnings stability than is typical in the cosmetics industry.

(3) Decentralisation and autonomy

To protect the integrity and guard against the dilution of each brand’s well-defined image, the company is structured as a holding company to give the key managers autonomy, with each product line established as an independent entity responsible for all branding, pricing, marketing, advertising and promotion decisions. However, each business is backed up by the parent entity, which supports all back-office functions and helps optimise purchasing and logistics functions.

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Source: http://www.po-holdings.co.jp/en/group/policy/index.html

Portfolio Activity: Nyquest Technology

Successful value investing is perhaps commonsense, but definitely not straightforward. Consider this: in this digital era of iPad and iPhone, wherein lies the role of non-digital traditional toys? Yet, toymaker Hasbro continues to grow healthily to a record market value of US$12.6 billion to compound wealth for its shareholders. Ironically, traditional toys are also benefitting from a reverse trend toward active play, as parents grow increasingly concerned with too much digital screen time for their kids.

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Source: Financial Times (https://www.ft.com)

Hasbro has assembled a portfolio of iconic entertainment properties and developed a core competency in storytelling and content generation around its brands, which provide a sustainable competitive advantage. Hasbro set the groundwork for today’s success over the past decade as it gathered extensive consumer insights and established its “brand blueprint” go-to-market strategy. Innovation is also driving the business on a sustainable level, rather than being driven by one-hit products. Therefore, despite the toys being classified as discretionary consumer items, Hasbro displayed defensive characteristics given the desire for parents to do the best they can for their children, which includes helping them feel joy. Toys fulfil this “need” in a relatively inexpensive way. While a family may cut back on vacations or eating out, spending some money on a toy will likely continue, particularly during the holiday season or birthdays, when toys are top-of-mind as gifts. This provides some safety and consistency should the macro economy face a slowdown.

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Nyquest Technology Co., Ltd. (GTSM:6494) Guo Qiuli 郭秋麗 (CEO), Chen Jianlong 陳建隆 (President) and Lin Mengyi 林孟逸 (VP) Current market cap : US$45m

Updates: 1Q/FY results (YE Dec) announced on 5 May 2017 Upcoming: 2Q/FY results to be announced on 4 Aug 2017

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Quick Stats

LTM Sales = +23.8% to US$30m “Value”: EV/EBIT = 9.3x LTM EBIT = +48.1% to US$4m “Quality”: ROE = 22.7% to 24.3% GP Margin = 40.6% to 40.5% Value-to-Quality (VQ) = 0.38x EBIT Margin = 10.5% to 12.5%

The winning story of Hasbro – and the survival of many other toymakers - is in fact also powered by an Asian Hidden Champion who is the innovative fabless IC designer supplying value-added consumer ICs, including the voice-synthesizer chip, to give smart toys a voice. This company is Taiwan’s Nyquest Technology (GTSM: 6494), 九齊科技 which we added into our portfolio and is now one of our top positions. Nyquest has market leadership in the niche market for voice-synthesiser ICs and microcontrollers (“MCUs”) for

Investment in Public Markets

Business Segment Review 10

smart toys which is experiencing a rising recurring demand. Nyquest generates an ROE of 24.3%, trades at an EV/EBIT of 9x and has a sustainable cash dividend yield of around 6% backed by its healthy net cash balance sheet that is around 20% of its market value and strong cashflow generation ability. Nuvoton Technology Corporation (TSEC: 4919), part of Winbond Electronics (TSEC: 2344), is also a strategic shareholder with a 16.9% stake to provide stability in the shareholder base.

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From L to R of Nyquest’s three musketeers: Chen Jianlong 陳建隆 (President), Guo Qiuli 郭秋麗 (CEO), and Lin Mengyi 林孟逸 (Vice-President)

Nyquest has a diversified customer base, breaking into the ecosystem of Hasbro and Mattel in 2016, adding on to its North America customers that include Canadian-listed toymaker Spin Master, Hallmark, MGA, Gemmy, Little Tikes, Fisher-Price, Bratz; penetrating into the supply chain of Japanese toy makers Bandai, Sega, Benesse, TakaraTomy in 2014-15; and the Chinese toymakers Auldey 奥迪双鑽, Blue Cat 蓝猫, Goodbaby International 好孩子国 际, Meisida 美斯达, Guangdong Huawei Toy Art And Craft Group 骅 威, Guangdong Alpha; as well as Francis Choi’s Early Light Industrial and LT Lam’s Forward Winsome, who are both known as the “kings of toys” controlling the Chinese factories that produce much of the output for global industry leaders Hasbro and Mattel. Nyquest recently announced in May 2017 that they won orders from Spin Master to supply the touch controller chips for its popular Hatchimals product range.

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From L to R of the Hidden Champions Fund team with each holding a talking smart toy possibly given a voice by Nyquest’s chip: Investment managers Joshua Zhang Yaolin and Richard Sim Zhipeng, KB Kee, business development analyst Tho Jin Liang and investment analyst Joyce Pang

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Source: http://mops.twse.com.tw/nas/STR/649420160411E001.pdf Video: https://www.youtube.com/channel/UCvBZkafRBmztyZh47Eqlmkg

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ource: http://www.express.co.uk/life-style/science-technology/730180/Hatchimals-Tesco-ArgosSmyths-how-to-buy-in-stock

Since the 1990s, the fabless IC designer industry has grown from strength to strength, from only three companies – Cirrus Logic, Adaptec and Xilinx – to the breathtaking successful rise and rise of Nvidia to a market value of US$84 billion, the fabless IC designer of high-end graphics processing unit once confined in the niche of computer gaming units and breaking out to become key components of nascent technologies in multiple new growth applications from smart cars to artificial intelligence.

Just as Nvidia, dubbed the “New Intel”, was started back in 1993 by three young electrical engineers – Chris Malachowsky, Curtis Priem and Nvidia’s current CEO, Jen-Hsun Huang - devoted to making specialised chips that would generate faster and more realistic graphics for video games, Nyquest was established in 2006 by the three musketeers Chen Jianlong 陳建隆 (President), Guo Qiuli 郭 秋麗 (CEO), and Lin Mengyi 林孟逸 (Vice-President) to target the Western and Chinese markets of consumer ICs powering devices and appliances. Chen is the “brains”, the R&D engineer specialist; Lin is the “marketer” in charge of business development; and Guo is good in strategic market analysis and applications. Nyquest found a growing niche in designing good quality, fast-to-deliver and solutiondriven OTP (one-time programming) ICs with its proprietary software and development tools that can offer its clients a comprehensive library of customised solutions to choose from and delivered in as short as three days(!) Additionally, given the much short product cycle of toys, this helps shorten the lead time in launching new products to the market and reduce inventory risks, critical qualities that the customers value.

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The power of speed makes us think of Zara, the fashion empire built on an unconventional idea: speed and responsiveness are more important than production cost, “reducing stock to a minimum and diminishing fashion risk to the greatest possible” as articulated by Zara’s multi-billionaire founder Amancio Ortega. Zara is renowned for its ability to design and deliver new clothes to stores and in small batches in about 20 days, at least four to five times faster than its peers. We think Nyquest’s mastery of speed and responsiveness in designing and delivering mass-customised batches of consumer and voice synthesiser ICs makes it the equivalent of a Zara in the growing smart toy and smart appliances industry.

As Nyquest continues to extend its market leadership with more innovative value-added solutions for its customers, its gross margins climbed steadily from 32.3% in 2012 to the present 40.5%. Nyquest’s recent 1Q2017 results announced on 5 May 2017 saw its sales and EPS grow 16% and 22% year-on-year. Its management commented that they are making greater progress in higher value-added 32bit consumer ICs for the smart household appliance market as they continue their growth trajectory in the long runway ahead in the micro-component market, where they focus and specialise in the niche MCU segment, comprising 22%, or $14.8 billion, of the burgeoning industry that is injected a new life by the Internet-ofThings trend powering smart appliances.

Portfolio Activity: Emmbi Industries

Another new stock that we added is Emmbi Industries (NSE: EMMBI), one of India’s largest technical textile and specialty polymer processing company manufacturing: (1) woven sacks and Flexible Intermediate Bulk Containers (“FIBC”), which are used in the transportation of bulk commodities such as chemicals, fertilisers, cereals, and detergent (39% of FY16 sales); (2) advanced composites of pharma and food grade, such as anti-carcinogenic, anti-bacterial, anti-corrosive and tapered-proof FIBC, with an R&D centre Emmbi Innovation Lab recognized in April 2016 by India’s Department of Scientific and Industrial Research (“DSIR”) to differentiate from its other peers in the fragmented industry (43% of FY16 sales); (3) various technical textiles and advanced composites, such as container liners, protective irrigation system, canal liners, flexible water tanks (patent registered), car covers used in water conservation (16% of FY16 sales) and (4) agricultural products (2.8% FY16 sales).

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Emmbi Industries (NSE: EMMBI) Makrand and Rinni Appalwar (MD and CFO) Initial purchase price : INR135.40 Current market cap : US$46m Updates: 4Q/FY results (YE Feb) announced on 28 Mar 2017 Upcoming: 1Q results to be announced on 30 Jun 2017

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Quick Stats LTM Sales = +7.7% to US$33m “Value”: EV/EBIT = 14.7x LTM EBIT = +5.5% to US$4m “Quality”: ROE = 32.6% to 30.2% GP Margin = 24.2% to 32.0% Value-to-Quality (VQ) = 0.49x EBIT Margin = 11.0% to 10.8%

Established in 1994, by first generation owner-operators and husband-wife team, Makrand and Rinku Appalwar, Emmbi is based in Maharashtra with its manufacturing facility located at Silvassa in Gujarat where 48% of their product sales are derived from international markets. Emmbi’s customers include established consumers and industrial companies such as Hindustan Unilever, Tata Chemicals, Godrej Industries and ITC, as well as e-commerce players like Flipkart, Amazon and eBay. Emmbi generates an ROE of 30.2%, trades at an EV/EBIT of 14.7x.

The mispricing opportunity arose because Emmbi’s business model was misunderstood. While the domestic bulk packaging industry is fragmented with around 30 FIBC manufacturers producing undifferentiated volume-driven products, Emmbi is the only company who is using the woven polymer as a base while others use the film side base. We believe Emmbi is at a tipping point in its corporate life-cycle, following the launch of an increasing number of innovative products whose applications can be found in food, safety, water conservation, agriculture, infrastructure, e-commerce, crop protection, hazardous and nuclear power plant waste management and solid waste management.

For instance, Emmbi recently inaugurated the world’s widest width pond lining facility at its Silvassa plant in Gujarat in April 2017. Emmbi will produce 4,380 pond liners per year under the “Jalasanchay Brand”, creating an extra water storage capacity of 48 million litres per day for rural India. The states of Maharashtra and Rajasthan, where the company is presently active, have plans to produce 110,000 and 50,000 pond liners per year respectively, for the next five years. This is the new market segment for Emmbi with a potential size of Rs 2,000 crores (US$310 million). Emmbi is among the top 3 players in the pond liner business and aspires to get 10% market share of pond lining business in the coming years.

Emmbi is also working with five banks to make funds available for farmers for its pond liner business, which the management expects to bring in huge opportunities going forward. Emmbi has also started a 15-day certificate course for building a team of Emmbi certified pond lining operators who are the distributors to penetrate the market. Makrand commented that “We are creating a complete ecosystem around it. We have a toll-free number where we run and advise people that how to make a pond, what should be your size of the pond, what crop you are taking, if this particular crop has to be taken, then what is the return on investment for you, one season or two seasons, how fast you will get the money. So all these organisational and operational things must be understood before we go in with a much larger scale of operation, because when we have this pulse of knowledge in the business, success is closer.”

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Source:http://www.wovensackindia.com/Upload/InvestorPresentation/Emmbi%20Investor%20 Presentation%202016-17.pdf

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Source: Emmbi Industries Limited’s 2016 Annual Report

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Emmbi has also created a brand mascot “Dr.M” to advise farmers and rural customers on the application of “Jalasanchay” and “Krishirakshak” specialised range of crop protection products.

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Source: http://www.wovensackindia.com/Upload/InvestorPresentation/InvestorPresentation.pdf

Emmbi’s CEO Makrand-ji commented, “It pains me to see our country suffer from acute water shortages and hence water conservation has been at the heart of Emmbi. In the recent years, water has become a national priority, so our investments in this line have paid off positively, we expect the Water Conservation segment to grow in double digits over the next five years. This business is not only about weaving textiles that find applications in lining of lakes, or canals, it is also about touching human lives. We have been exporting our pond lining, canal lining, and check dam products across the globe, and now we are adapting to the Indian market. We have researched, designed, and perfected collapsible water tanks that are convenient for storage at homes while saving space. We have also devised flexible tanks for easy transportation of water on bicycles and motorbikes. Our customers love this product, and now we have engaged a well-reputed international consultancy firm to devise a strategy to grow this business. In short this would be Emmbi’s foray into the consumer segment, whilst the core remains specialized polymer processing. The latest segment we have entered is the Agri-Business. India being an agrarian economy, this segment offers tremendous growth potential.” Source: Emmbi Industries Limited’s 2016 Annual Report

Another new innovative advanced composite product launched In FY17 is the ‘Aroma Lock’ technology that uses an aluminium liner to seal the aroma of products like coffee. Emmbi has created a 1-tonner to 10-tonner larger-size bulk packaging transport. Makrand-ji commented, “I am glad that Emmbi has now been active in touching your lives every morning through a strong cup of coffee.” Thus, the DNA to innovate and adapt to changing market needs gives visibility on long term sales growth and profitability.

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Source:http://www.wovensackindia.com/Upload/InvestorPresentation/Emmbi%20Investor%20 Presentation%202016-17.pdf

Video: https://www.youtube.com/watch?v=mNvYEybuc4I

Upcoming new innovative products to drive Emmbi’s growth include: (1) Advanced composites: The start of the clean-room food and pharmaceutical grade FIBC packaging material plant on 21 June 2017 with an installed capacity of 2,400 MT per annum and estimated revenue at peak utilization of Rs 40 crores (US$6.2 million) per annum and 15%+ EBITDA margins; Pneumatic human safety fall arrest systems & dunnage systems; E-commerce tamper evident multi trip packaging; Infrastructure road and roofing underlayment, Fire retardant scaffolding; (2) Water conservation: Retail distribution of pond liners, flexi tanks; canal liners, check dams, lapeta pipes; (3) Agro-Polymers: Export substitution crop protection, mulch films, silage incubators, agro sheds. Emmbi is also one of the key beneficiaries from Prime Minister Modi’s export vision and dream of building a global supply chain and exploring the potential for growth of technical textiles in India. The Textile India 2017 mega exhibition, the world’s first B2B event, in June 2017, will be an important event to showcase innovative Hidden Champions such as Emmbi to the world.

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Source: Emmbi Industries Limited’s 2016 Annual Report

More importantly, we see Emmbi’s transformational story from B2B to B2C as hugely overlooked. Emmbi, in the initial days, would turn down small orders due to long machine downtimes from the changeout of extrusion molds, lowering their economies of scale. As the first in India to achieve ISO in the industry, big clients like Hindustan Unilever and Tata Chemicals, and international players like Honda Motors and Dow Chemicals Inc have kept them sufficiently busy. Emmbi’s closeness to customers allows them to have a finger on the pulse of their customers and markets to keep them at the forefront of the industry in innovation.

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Investment in Public Markets

Emmbi’s founder and CEO Makrand Appalwar listened intently to the voice of his smaller customers, realising that there was a huge unmet demand: “We began to realise that since there were so many queries for small orders, clearly there was a market need, and by saying no to it, we were sending business to our competitors. Somebody, somewhere was fulfilling these demands, and had the capacity to produce smaller quantities. We should be able to do so too.”

The tipping point in the business came from a smart manufacturing innovation which enabled them to scale from the low margin lowmix high-volume (B2B) business model to court the higher margin of the high-mix low-volume B2C mass market. To solve the twohour tool-change downtime per yarn specification, Makrand and his team piloted the idea of producing multiple specification of polymer yarn within one mold, successfully eliminating downtime after much perseverance. With the new ability to service smaller orders without compromising on machines productivity, combined with “quality endorsement” of the well-known big clients, they gobbled up market share within a year to rise as India’s top three exporters of technical textile.

We like Emmbi’s relentless pursuit of excellence and innovation which we believe will drive the company to scale greater heights. As articulated by Makrand: “Differentiation is not only what you know, but also is about what you notice. It is our constant endeavour to listen to needs of the society and our ability to meet demands that has kept us on the growth path. The fact that we are constantly innovating, and bringing tangible benefits to our clients, glues the customers to us. I also believe that innovation is not only about creating value in a laboratory environment, it is also building a culture of innovation around the company. It could come from any of our employees, a scientist, an operator of a machine or from an accountant. We have invested in creating this environment through regular ideation exercises, creative competitions, and workshops. We believe in our people, and are consciously building a team of competent and motivated professionals. These are the facets of our success. We continue to constantly ask ourselves, ‘What next? What would be the next area of growth, and how can Emmbi participate?’. This is what has kept our wheels rolling and would continue to do so in the future.” Source: Emmbi Industries Limited’s 2016 Annual Report

Portfolio Activity: Sealink Travel Group

We will briefly update the continued performance of our existing core stocks in the portfolio:

Australia continues to prove itself as the new global Mecca for tourism. The Federal Tourism Minister revealed in March 2017 that tourism dollars cracked A$100 billion for the first time and exceeded coal exports on continued record tourist arrival, both inbound and domestic, and across different markets from China, Japan, and India.

Under the strategic initiatives implemented by the Coalition Government, the Australian tourism industry is growing three times faster than it was under the previous Labor Government. Sealink Travel is a key beneficiary of this positive structural trend and it continues to deliver record performance across all its businesses for its 1H17 interim results announced on 14 February 2017, growing sales and operating profit by 60% and 94% respectively on rising profit margins, generating an ROE of 29.3% and delivering a 33.3% increase in dividend payment. Sealink Travel trades at an attractive EV/EBIT of 11.4x with a dividend yield of over 3%.

	Sealink Travel Group (ASX: SLK) Jeff Ellison(CEO)	Sealink Travel Group (ASX: SLK) Jeff Ellison(CEO)
	Initial purchase price : A$3.32 Current market cap: US$309m
	Updates: 1H results (YE June) announced on 14 Feb 2017 Upcoming: 2H/FY results to be announced on 10 Aug2017
	Quick Stats
LTM Sales = +60.3% to US$150m LTM EBIT = +94.3% to US$30m GP Margin = 36.3% to 37.9% EBIT Margin = 16.7% to 20.2%		“Value”: EV/EBIT = 11.4x “Quality”: ROE = 16.8% to 29.3% Value-to-Quality (VQ) = 0.39x

Since our initial investment, Sealink Travel has successfully transformed from the initial leading tourism player to become a comprehensive transportation services provider with the successful launch of the innovative high-speed light ferries for Sydney Harbour to transport commuters into the city daily, especially during Sydney’s peak periods. By ferry, it only takes 15 minutes from Watsons Bay to Circular Quay, compared to at least 40 minutes driving through chaotic traffic in busy periods. Sealink also hopes to launch a Manly/ Barangaroo Point ferry to service the 24,000 workers who will work at Barangaroo Point post-completion. A simple estimate is that if Sealink captures 1,000 passengers a day for a return fare of about A$15, it would generate an annual revenue of A$5.5 million. This estimate is set to grow with the government appointing the initial integration partner of the “Opal” cashless ticketing system on 28 March 2017. Currently used on public bus and train services, this enables commuter to pay for ferry services directly by tapping their Opal cards or credit cards. Under the plan, Captain Cook Cruises will continue to administer its own fare prices, structures and definitions. Transport for NSW and Captain Cook Cruises are preparing plans to install the Opal system ready for operation in 2018. A key operational strength of Sealink is its constant investment in IT to protect and grow its earnings. The Australian government was also impressed by the in-house IT capabilities of Sealink.

Not to be seen as a mere asset operator, Sealink is a technology champion utilising dynamic pricing, growing e-commerce sales, and machine learning pricing predictions, using its tech platform to scale up with online and mobile ticketing sales now contributing over 23% of total revenue. The resiliency of Sealink is supported by long government contracts and delivery of critical services to provide essential, stable, and long recurring cash flows – even in bad times. It has monopoly over most of the routes it services, including Kangaroo Island, similar to Jungfraubahn Holding AG’s railway monopoly to Swiss mountains.

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Photo of the Hidden Champions Fund team with Sealink CEO Jeff Ellison

CEO Jeff Ellison and his Sealink team also worked hard with an ecosystem approach in collaborating with locals to spearhead marketing efforts, breathing life into the once-remote agriculture island off Adelaide, and transformed Kangaroo Island into one of South Australia’s most popular tourist attractions. In April 2017,

Investment in Public Markets

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Sealink announced that it will lead feasibility studies with government and environmentalist to build the Southern Hemisphere’s first-of-itskind scuba-diving underwater art museum, located near Townsville, Queensland. This project is hailed a possible “game-changer” for the region’s marine tourism industry as the underwater art museum plans to include installations along Magnetic Island, Palm Island and the outer reefs off Townsville’s coast. With the first underwater art museum in Mexico listed among the Top 25 Wonders of the World and attracting 400,000 visitors annually, this project, like Kangaroo Island, would not only be a win-win for Sealink Queensland, running Magnetic and Palm Island ferry services, but also a boost to the local economy.

Capital from public and private equity have also taken a keen interest in the Australian tourism play. Over in the North, Reef Magic Cruises was sold to ASX-listed Skydive the Beach. Down South, Quadrant Private Equity recently deployed A$300 million into two ferry services and a luxury train company to create Experience Australia Group. Champ Private Equity purchased New Zealand’s Cook Strait ferry service while a mystery suitor pursed hotel operator Mantra Group in a potential takeover with chatter floating around Ardent Leisure Group and Myer Holdings. It would be no surprise if Sealink become a possible candidate attracting strategic investments, or if news breaks out that it would further expand its market share prudently via synergistic earnings-accretive acquisitions. We believe Sealink Travel could rise to a market value of A$750-900 million in the next 12-18 months as it continues to deliver A$50-60 million in operating profits, and trading at an EV/EBIT of 15x, indicating an upside of 70-100%.

Portfolio Activity: Okamoto Inc

When Colgate Palmolive introduced its first product line extension – a blue minty gel – in the early 1980s, few investors would have understood, and even fewer would have cared, about the transformation that was taking place. In the two decades since its first line extension, Colgate’s share price has risen 25-fold, handsomely beating the market. Similarly, after the disruptive and innovative ultra-thin “001” 0.01mm condom launched by Okamoto in April 2015, the company introduced its first line extension products “0.01 L size” and “0.02 Real Fit” in July 2016, based on customer intelligence feedback and demand. Sales of the 001 and first line extensions have been encouragingly strong, propelling a strong record FY17 results announced on 10 May 2017 where operating profits jumped 27.6% to US$93.5 million, as gross margins improved from 25.8% to 28.6%. Okamoto also generated a historical high ROE which improved from 16.7% to 18.3%. This is due to its price premiumisation strategy as condom demand shifts to high-priced, high-quality products and input price volatility has limited impact on profitability. Okamoto trades at an EV/EBIT of around 10x.

As shared in our earlier investment letter, Okamoto has also hit a tipping point in its industrial products business which has leveraged upon its accumulated deep intangible material science and chemistry knowhow to create innovative products from protective film-coated lining for motorcycle seats where it commands market leadership in US as well as automotive interior materials (seat and upholstery materials, instrument panels). While 3-year sales grew 12.7% to US$490 million for the industrial business, operating profit margin for the industrial business expanded from 5.0% in FY14 to 11.8% in FY17, propelling operating profit to increase exponentially by 164% from US$21.9 million to US$57.7 million.

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Okamoto Industries (TSE: 5122) Yoshiyuki Okamoto (CEO)

Initial purchase price : JPY933 Current market cap : US$1.1bil Updates: 4Q/FY results announced on 10 May 2017

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Quick Stats

LTM Sales = -1.3% to US$777m “Value”: EV/EBIT = 9.9x LTM EBIT = +27.6% to US$94m “Quality”: ROE = 16.7% to 18.3% GP Margin = 25.8% to 28.6% Value-to-Quality (VQ) = 0.54x EBIT Margin = 9.3.% to 12.0%

Beyond the automotive products in its industrial products business, Okamoto has also leveraged its deep knowhow in film-forming technology of plastic film to produce polyvinyl chloride resin-based and plastic-based wallpaper which are extremely durable, not easily stained and equipped with additional functions such as being flame retardant, by combining formulation technology and surface processing technology. Okamoto is also able to produce these quality wallpaper according to a customer’s design needs using technologies such as rotary screen printing, gravure printing, and synchronised embossing. The designs range from simple ones to those with vivid colours or complex designs.

In Japan, the number of new, renovated houses have been increasing at an average of 6.4% yearly and the trend is anticipated to continue till 2020, when Japan will host the Tokyo Olympic Games paving the way for the continued increase in demand for wallpaper and building material. Hence, to position itself for the growing customer needs for wallpaper, Okamoto announced that it will be investing US$100 million over the next three years to further expand its wallpaper business to build a new Tsukuba factory in Ushiku, Ibaraki Prefecture, in addition to the current production at Shizuoka factory, which is expected to be fully operational by March 2018. In its industrial products business, Okamoto averaged around ∆EBIT/Capex of 0.63 for the past three years from FY15 to FY17, which means that for each dollar of capital expenditure spend, it generates an incremental operating profit of US$0.63. This suggests that the US$100 million capital expenditure could potentially bring in an additional US$63 million of operating profit once fully operational and in full-utilisation, significantly contributing to the bottom-line earnings.

We continue to have high conviction that Okamoto Industries embodies the best of patient sacrifice and stable capital for longer-term profound investments in business and people, with relentless and eternal pursuit of excellence in perfecting its offering, institutionalising its monozukuri craftsmanship and codifying the knowledge to pass from one generation to another.

Portfolio Activity: Nitori Holdings

We also invested in Nitori Holdings, which has delivered over 40% in returns since our initial investment. Nitori is Japan’s undisputed dominant specialty chain in furniture and home furnishing. Founder Akio Nitori, 72, serves as the holding company’s chairman and his family has a 24.7% stake. Nitori generates an ROE of 21.7% and trades at EV/EBIT 20x.

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Nitori Holdings (TSE: 9843) Akio Nitori (CEO)

Initial purchase price : JPY11,000 Current market cap : US$14.3bil Updates: 4Q/FY results (YE Feb) announced on 28 Mar 2017 Upcoming: 1Q results to be announced on 30 Jun 2017

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Quick Stats

LTM Sales = +11.6% to US$4.6b “Value”: EV/EBIT = 20.0x LTM EBIT = +17.0% to US$759m “Quality”: ROE = 22.1% to 21.7% GP Margin = 53.2% to 54.2% Value-to-Quality (VQ) = 0.92x EBIT Margin = 15.9% to 16.7%

From Wal-Mart to IKEA, companies with a greater sense of purpose and insurgency in making available to the masses products and services that used to only be affordable to the rich, and achieved a “10X price disruption”, are powerful super-compounders delivering superior shareholders’ returns for a long period of time. Motivated by this grand purpose to bring true life affluence to Japanese and global customers following his learning trip to US in 1972, Akio Nitori resolved to cut the middlemen and dedicated his life mission to building a unique integrated manufacturing-logistics-retail business model to offer quality merchandise at affordable prices. Nitori grew from two stores in Sapporo, Hokkaido into a nationwide chain with dominant market leadership, and achieved an astounding 30 consecutive years of growth in sales and profit, converting macroeconomic adversities from consumption tax hike to whether the yen is weak or strong into opportunities for further growth.

Powered by its unique integrated manufacturing-logistics-retail business model, which is perhaps rivalled by only the unlisted giant IKEA, Nitori is able to enjoy a lasting wide-moat competitive advantage that grows stronger over time with the virtuous cycle of returning customers that generate one of the highest ROE and profit margin relative to all its industry peers. We are also particularly impressed by Nitori’s amazingly efficient inventory management with an inventory turnover period of only 31 days, which is the fastest and most efficient in the global furniture and home furnishing industry. All the more impressive given that the business nature of furniture retailing is that furniture is a slower-moving durable good with a lower purchase frequency and distribution efficiency. Nitori’s efficient working capital dynamics has contributed to a consistently high quality of income with a powerful recurring source of operating cashflow to reinvest for the long-term to extend its dominance.

Despite Nitori’s market leadership, it is still operating in a fragmented domestic market with around 10% market share in the home and garden market and has a long runway ahead to extend its market leadership, particularly in the urban markets, and the Kanto and Kinki regions which are 10.9 and 4.5 times the size of Hokkaido’s. Nitori has expanded its market share in the low-end category, but it has also been releasing mid-ranged products that offer additional value in terms of quality and function since 2012, and this has led to the expansion of its customer base. As at May 2017, Nitori currently has a network of 428 stores in Japan and 43 overseas stores (Taiwan 27, USA 5, China 11). Nitori has also achieved a 31-fold increase in e-commerce sales since 2007 to ¥22.6 billion (US$200 million) as its online shopping business grew rapidly in response to the needs of customers who want to research products on websites before purchasing, find it difficult to make the trip to the stores, or make online purchases outside store operating hours.

Nitori is renowned for its tight quality control, in which less than 1% of items sold are found to be defective, and its exceptionally reliable quality helps build trust and loyalty with customers. To achieve this monozukuri craftsmanship quality, Nitori hired former Honda

engineering specialists, many of whom are in their 60s, and gave them an engineer’s paradise. Theses engineers break chairs to see why they splinter, wash pillow covers with acid to see if their colors bleed, left light bulbs on for hours to see how hot they get.

IKEA and Nitori have very similar merchandise line-ups in terms of taste (simple, basic designs) and price range. However, their store management concepts are polar opposites. IKEA aims to create a furniture/HFA “Disney World” of sorts; its stores typically have a floor area of around 30,000m2 and a one-way control system, and they mainly offer DIY furniture, with additional costs for delivery and assembly. Nitori, on the other hand, focuses on convenience. Nitori’s furniture ranges from Western-style to Japanese-style, catering to particular Japanese ways of life. They also cater to the full range of consumer needs from the merchandise angle, including rush cushions and matting for the summer, kotatsu under-heated tables for the winter. In short, IKEA operates massive stores for a shopping excursion, Nitori facilitates quicker, focused buying. We believe their customer bases are different or that, in many cases, customers use IKEA and Nitori for completely different shopping purposes.

IKEA’s ‘flat-pack’ formula where shoppers transport their own purchases and assemble them at home may seem inconvenient to Japanese consumers accustomed to a more thorough level of service. Japan is also an increasingly ageing society. IKEA’s delivery/ assembly/ installation charges are fairly high at around ¥10,00015,000. Nitori, on the other hand, does not charge for these services, apart from certain locations, such as some outlying islands. Nitori provides full service and customer service facilities at its stores, so we think it retains the edge in all-round service, including price. Accordingly, we believe IKEA does not pose a threat to Nitori’s efforts to grow market share.

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L to R: Investment manager Richard Sim Zhipeng at Nitori Shinjuku; the flagship “N Cool” futon fabrics product, part of the new innovative functional products differentiated through the use of highperformance material to draw loyal customers to visit frequently; Nitori Studio Kitchen and Nitori Studio Bed highlighting the excitement of Nitori’s proprietary high-quality products under the OTCM (One-House Total Coordination Merchandising) strategy

Nitori emphasises a hands-on approach out in the field and empowerment in relentless experimentation with ideas. Nitori has also stressed the importance of learning by organising annual learning trips to US for employees and implementing a comprehensive employee education and job rotation program. Nitori spends four to five times as much as the average listed company on staff development per employee. As a result, Nitori achieves about twice the labour productivity in its industry average, which has been a powerful enabler in supporting store expansion to achieve growth in sales and profit for 30 consecutive years.

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We think this is very rare for an Asian company and Nitori deserves a valuation premium for its staying power and genuine potential to be one of the rare Asian company to reach the US$100 billion market cap milestone.

Our Divestments

As mentioned earlier, we have taken the opportunity to make some divestments over the period at a significant net absolute gain and our cash level is around 20% in late April/early May 2017.

These divestments include the tech stocks in our portfolio: e-Guardian Inc (TSE: 6050) +116% from our average investment cost, Vector Inc (TSE: 6058) +38.8%, Rozetta Corp (TSE: 6182) +74.3%. These portfolio stocks are unique with a focus in subscriptionbased business model that provides a strong foundation of recurring cashflow to reinvest into creating new categories of growth in innovative products and services and to expand globally.

Established in 1998 by Yasuhisa Takaya, E-Guardian is also known as the “Guardian or SECOM of the Internet”. It monitors over 20 million items monthly with the purpose of ensuring a safe and secure Internet for their clients. It is the largest and most comprehensive net security company that monitors the web 24 hours a day, all year round in five domestic centres in Japan (Azabu, Tachikawa, Osaka, Miyazaki, Sendai) and three other international affiliation centres (China, Thailand, Philippines).

Amid heightened concerns over cyber security, especially considering the recent frequency of unfortunate incidents relating to the disclosure of personal information, a great importance has been placed on security and credit guarantees in the internet world, paving a long runway for the company. Equipped with its deep learning artificial intelligence software “ROKA SOLUTION”, E-Guardian provides real-time “eyes” to their customers to screen for malicious comments via “E-TRIDENT”, automatic sorting of content, analysing impermissible content such as pornography and detecting images of counterfeit goods. Evidence of wider industry acceptance for their critical services is shown in its increased business opportunities among social media companies, game developers, police agencies, and universities.

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E-Guardian Inc. (TSE: 6050) Yasuhisa Takaya (CEO) Initial purchase price : JPY563 Divestment price : JPY1322 % Gain : 134.8% Current market cap : US$160m

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Quick Stats LTM Sales = +29.5% to US$40m “Value”: EV/EBIT = 22.9x LTM EBIT = +60.1% to US$6m “Quality”: ROE = 31.0% to 36.8% GP Margin = 33.0% to 35.0% Value-to-Quality (VQ) = 0.62x EBIT Margin = 13.0% to 16.1%

Founded in 1993 by Keiji Nishie, Vector Inc. is the “professionals of digital product promotion” mainly engaged in public relations to help their clients communicate effectively with their target audience. It provides an integrated service including developing information and content matching the products and services of customers, the creation and delivery of press releases, the distribution of information for media companies, the result collection and report of shows. Vector has customers from all industries ranging from Fashion and Luxury, Consumer and Entertainment to Retail distribution, providing support to clients in planning and implementing various initiatives both locally in Japan and internationally.

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Vector Inc. (TSE: 6058) Keiji Nishie (CEO) Initial purchase price : JPY817 Divestment price : JPY1055 % Gain : 29.1% Current market cap : US$672m

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Quick Stats LTM Sales = +38.2% to US$119m “Value”: EV/EBIT = 33.2x LTM EBIT = +38.5% to US$19m “Quality”: ROE = 25.1% to 25.3% GP Margin = 60.7% to 59.1% Value-to-Quality (VQ) = 1.31x EBIT Margin = 16.3% to 16.3%

Founded in 2004 by Junichi Goishi, Rozetta offers high-precision, subscriber-based translation SaaS service “GLOVA”, combining deep learning, intelligent language algorithms and next-generation artificial intelligence technology to eliminate ambiguous words with multiple interpretations. The algorithmic logic of their translation software is uniquely coded to improve both accuracy and expand its database over time, meaning it just gets better and better. It also owns a critical platform that brings translators together and does job matching with potential customers to boost demand and usage for its proprietary software. Rozetta has a broad customer base including Government ministries, information and communications, and financials, which demonstrates the current and upcoming demand for sensitive and intelligent translation accuracy. Even the Tokyo Institute of Technology utilises Rozetta’s automatic translation machine to teach classes in English for specialised courses of graduate schools beginning FY2018, giving Rozetta software a big stamp of approval.

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Rozetta Corporation (TSE: 6182) Junichi Gois (CEO) Initial purchase price : JPY1308 Divestment price : JPY2100 % Gain : 60.6% Current market cap : US$154m

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Quick Stats LTM Sales = +15.3% to US$17m “Value”: EV/EBIT = 72.8x LTM EBIT = +5.0% to US$2m “Quality”: ROE = 16.6% to 10.4% GP Margin = 53.1% to 55.2% Value-to-Quality (VQ) = 7.02x EBIT Margin = 13.0% to 11.8%

We divested these tech companies as we believe their valuations had run ahead and we uncovered other opportunities with a superior risk-reward ratio. Interestingly, this led us to identify an attractive investment opportunity of overlooked and neglected listed small- to mid-cap Hidden Tech Champions with (1) healthy ROE & operating cashflow; (2) low gearing or net-cash balance sheet; (3) pricing power with healthy working capital dynamics. A number of small- to midcap Hidden Tech Champions are also trading at private equity-level valuations. There is potential for the targeted listed tech companies to be acquired by giant tech companies, limiting downside risks for investors and offering takeover premium in valuation re-rating.

As shared earlier, the emergent business development opportunity that arose in May 2017, due to the Fund’s stock selection process and high-conviction portfolio methodology may provide us with our first institutional client mandate, reinforcing our goal to expand our unique investment solution in identifying Hidden Champions for investors. We will update more in due time.

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Investment in Public Markets

“ Seek a calling. Even if you don’t know what that means, seek it. If you’re following your calling, the fatigue will be easier to bear, the disappointments will be fuel, the highs will be like nothing you’ve ever felt.”

- Phil Knight, Shoe Dog

“ The cowards never started and the weak died along the way. That leaves us, ladies and gentlemen. Us.”

- Phil Knight, Shoe Dog

“ To be a disciplined investor you have to be willing to stand by and watch other people make money on things that you passed on”

- Howard Marks

Extraordinary returns follow extraordinary discipline. However, this is very difficult because over the decade-plus as fund managers learning from mentors and markets, we grew acutely aware that short-term performance pressures can be frustrating and subtracting to sustainable long-term results. Every investment approach, even if skilfully applied, will run into environments for which it is ill-suited.

Even the great Warren Buffett has lagged the market one out of every three years, in many cases this underperformance was significant. There have been ten separate episodes where Berkshire underperformed the index fund by more than 10% over a oneyear period and many other periods of underperformance that lasted significantly longer. Through these difficult times, Buffett and Berkshire have remained committed to their core philosophy and investment process. This is very important. If you do not have a courage of your convictions and patience and toughness, you can’t be an investor. Because you will constantly be driven to fall in line with the consensus by buying at the top and selling at the bottom. You have to be willing to not participate in everything that goes up, but only the things that fit your approach. As Howard Marks articulated, “to be a disciplined investor you have to be willing to stand by and watch while other people make money that you passed on.”

intensity, conscientiousness, craftsmanship, sacrifice, resilience, care and love. These are the very qualities that we sought in our Hidden Champions – and, more importantly, in ourselves, for you cannot travel the Path until you have become the Path itself…

As we embark on our new Path in managing external client assets beyond the permanent capital provided by our parent 8I Holdings, we invite you to Just Monozukuri It with our Hidden Champions to find investment resilience in this wild world.

We are thankful to have your patience, trust and support in this journey while we work with deep intense focus. Please contact us with any questions, thoughts or comments at: kb@hiddenchampionsfund. com.

Kee Koon Boon

Chief Investment Officer & CEO Hidden Champions Fund 8 Capital Pte Ltd

P.S. Below are our previous investment letters:

(1) Interim Letter FY2017 - The Insurgent Mission of Hidden Champions: Willingness to be Misunderstood and Travel Light to Journey Far;

• (2) Annual Letter FY2016 – Hidden Champions: Our North Star Investment Strategy to Navigate Turbulent & Fragile Markets

• (3) Interim FY2016 – Investing with Conviction to Outperform in Times of Volatility and Uncertainty

P.P.S. Beside is the summer reading list that we like to share with you:

In order to be able to stick with an approach or decision until it proves out, which can be a long time, investors have to be able to weather periods when the results are embarrassing. This can be very difficult.

As the CIO & CEO of the Hidden Champions Fund, cultivating and maintaining a culture that minimises emotional noise and short-term performance pressures has been a top priority, especially when we are concentrating and executing the shots and high-conviction decisions. I am heartened that we have demonstrated the ability and capacity to continuously identify and invest in the outstanding owner-operators of Hidden Champions that contribute positively to our Fund, and are likely to continue to outperform as we believe they have reached a tipping point stage in their corporate lifecycle, including Jeff Ellison of Australia’s Sealink Travel; Yoshiyuki Okamoto of Japan’s Okamoto Industries; Akio Nitori of Nitori Holdings; the husband-wife team Makrand and Rinku Appalwar of Emmbi Industries; the trio Guo Qiuli 郭秋麗, Chen Jianlong 陳建隆 and Lin Mengyi 林孟逸 of Nyquest Technology 九齊科技; Akio Kitamura of Giken; Satoshi Suzuki of Pola Orbis; Gota Morinaga & Toru Arai of Morinaga & Co; Yasuhisa Takaya of E-Guardian Inc; and Dinesh Nandwana of Vakrangee.

Shoe Dog by the mercurial Phil Knight has been inspiring as the Nike founder details the many terrifying risks he encountered along the way, the crushing setbacks, the countless doubters, and how he and his team never wavered from their vision, calling and commitment to craft and provide the best authentic sporting goods to their customers, throughout good and bad times with discipline, focus,

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Book list from TL to BR:

1. The Inspiring Journey of a Hero: Learnings from the Life of O.P. Munjal

2. A Bank for the Buck: The Story of HDFC Bank

3. Godrej: A Hundred Years

4. Business: The Emami Way

5. The Z Factor: My Journey as the Wrong Man at the Right Time

6. Dream with Your Eyes Open: An Entrepreneurial Journey

7. Doing what is right: The CRISIL Story

8. The Unusual Billionaires

9. There’s No Such Thing as a Self Made Man

10. Dare to Dream: The Life of M.S.Oberoi (India S.)

11. Bringing the Rainbow: The Hindware Story

12. Bandhan: The Making of a Bank

13. The TCS Story...and Beyond

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1. NR Narayana Murthy - A Biography

2. Healer: Dr. Prathap Chandra Reddy and the Transformation of India

3. An Unfinished Agenda: My Life in the Pharmaceuticals Industry

4. Havells: The Untold Story of Qimat Rai Gupta

5. The Man Behind the Wheel: How Onkar S. Kanwar Created a Global Giant

6. It Happened in India

7. Bhujia Barons: The Untold Story of How Haldiram Built a 5000 Crore Empire

8. My Journey with Vada Pav

9. Not Just an Accountant: The Diary of the Nations Conscience Keeper

10. At the Helm: A Maruti Memoir

11. The Maruti Story: How a Public Sector Company Put India on Wheel

19 8I Holdings Limited

Investment in Private Markets

Growth Champions

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With hardwork, prudence and grit, we look forward to our fruits of labour.

Low Ming Li

Head of Investment in Private Markets

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Investment in Private Markets

Dear Valuable Partners,

Our Investees

I would like to start off our team’s year-end letter with an update on our portfolio of investees.

Our investees have been hard at work, growing their moat around their castle by building up the fundamentals of their businesses. Our team of investment managers and analysts have also been out in the field supporting our investees in areas where we can add value.

8 MAD Group Sdn Bhd (“8MAD”)

Some of you may wonder why 8MAD named themselves “MAD”. According to their co-founder, Patrick, the acronym M.A.D symbolises their ethos to Make A Difference in people, planet and profit. The adjective MAD also expresses enthusiasm and passion for the team, which encapsulates the energy of the 8MAD team.

It has been a mad (no pun intended) period for 8MAD since our acquisition in September 2016 (we acquired a 51% equity stake in 8MAD for MYR 430,000). In the area of providing integrated branding and marketing consultancy services, they have secured many new contracts that include leading brands, such as F&N Dairies amongst many others. We were extremely delighted when Carousell, a prominent mobile classifieds marketplace, appointed 8MAD as their branding and integrated marketing agency in Malaysia for 2017.

8MAD’s recent accelerated growth is the result of a 12-year track record in delivering high Return of Investments to clients. Riding on this growth, the Company is scaling up its content creation and production aspects, for example: collaboration with experienced producers for high quality digital productions using virtual reality. With the increasing size of their team to support its growth, 8MAD has moved into a brand new space in April 2017. On top of the numerous work projects, it is also known to us that the team even has a new ritual to kick start each working day with an early morning team exercise. We are truly in awe of their energy level!

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8MAD team in their new office space.

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8MAD’s Management Team: Crystal, Patrick & Sue (from left to right)

8MAD is keen to increase the depth of their creative working team in Malaysia and expand their geographical sales coverage via collaboration and/or acquisition. The Private Markets team thus plays a role in working closely with 8MAD to evaluate potential strategic partners to support their growth plans.

CT Hardware Sdn Bhd (“CTH”)

CTH celebrates two milestones of different significance in 2017. This year marks both their 40th year of establishment as a traditional industry enterprise and the beginning of several strategic growth initiatives that will bolster their innovation, well supported by 8I’s capital injection in May 2016 (we acquired a 49.99% equity stake in CTH for MYR 3.8M).

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Opening Day at CTH’s Fulfilment Centre & HQ in Glenmarie, Selangor

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The Seen brothers pictured together in the CTH Fulfilment Centre & HQ with upgraded infrastructure for improved storage and inventory management system.

CTH was started by its first generation founder as a traditional hardware business where sales via retail and corporate customers were transacted through their five brick-and-mortar outlets in Selangor, Malaysia. In 2011, with family members from the second generation driving its strategic direction, CTH ventured into selling goods to customers via online channels through both their own website as well as third party market places.

With the steady growth of online sales, the management saw the opportunity of a new avenue to drive sales via a multi-channel strategy. Furthermore, CTH recognises the necessary adjustments

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Investment in Private Markets

to streamline their processes, particularly over their inventory management system. As such, with the support of 8I’s capital injection, CTH has kick-started their development of their back-end enterprise IT system, and moved into their new fulfilment centre and headquarters earlier this year.

Whilst adapting to the new ways in conducting businesses, CTH also stays true to its founder’s original vision of providing exceptional customer-focused experience.

The management is aware that the implementation of their growth plans and their impact to results will not be immediate. While the management works hard at executing their growth plans, we are heartened that they have not let down their guards in their topline growth. They continue to be active in rolling out initiatives such as road shows to boost sales and to increase awareness of the CTH brand. Looking at the comparable 12-month period since our acquisition in May 2016, CTH has seen a 15% growth in total sales and 9% growth in online sales.

Our team has been busy supporting CTH’s management as follows:

• (a) We keep ourselves updated with various technology developments that impact businesses such as CTH. In recent months, both our team and the management have met up with experts in robotic technology for inventory management and order fulfilment.

• (b) Our investment analysts have dedicated numerous weeks to supporting the management to deep-dive into CTH’s existing key business cycles, and making recommendations to improve manual processes that will potentially enhance CTH’s bottomline. This is also in line with the management’s growth initiatives into streamlining their inventory management system. We believe this exercise is part of getting CTH well-positioned for their longterm growth.

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Digital Marketing team based in CTH HQ.

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Velocity Property Group Limited (“Velocity”)

A major milestone was achieved in February 2017 when Velocity was successfully listed on the Australian Securities Exchange (“ASX”). With proceeds raised from their recent IPO listing on ASX, the management have been active in looking for land acquisitions in Brisbane to add to their pipeline of projects. In May 2017, Velocity announced their acquisition for a riverfront site in Bulimba, its first land acquisition after being listed for three months.

We continue to be impressed and encouraged with the recent beautiful developments that Velocity has launched in Burleigh Heads, Palm Beach and Auchenflower. We are even more thrilled to learn that the development in Burleigh Headland has sold out at a price range of A$1.7M to A$2.9M per apartment, amongst the gloomy Australian property outlook reported in the mainstream media. The sales performance of the Burleigh Headland development did not come as a surprise to us, as we understand that Velocity focuses on high-quality projects designed in mind for affluent owner-occupiers and investors who, value the properties and lifestyle that exclusive communities can bring.

Unlike Singapore property developers where companies will progressively recognise profit of sold units during construction period, the accounting treatment in Australia is such that the developer can only recognise the profit on the sold units upon the settlement date (which is after construction period has ended). Therefore, many Australian property developers’ financial performance will reflect lumpy rises and falls in annual profits depending on the period buyers settle on projects.

Velocity’s development pipeline of five active projects will continue to provide a healthy portfolio of premium projects that will be delivered over the next two to three years. With this healthy pipeline, niche sales strategy, and the past track record, we remain confident of Velocity’s growth.

As one of Velocity’s growth strategies is to engage in strategic joint venture arrangements, we will continue to support them by linking them with potential co-development partners.

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Philip Raff & Brendon Ansell ringing the bell in ASX on Velocity’s listing day

CTH roadshows in various outlets to gain awareness and promote sales on its range of products &

brands.

Investment in Private Markets

Business Segment Review 22

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ONE Burleigh Headland [Sold Out]

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The Hathaway, Auchenflower

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Digimatic Group Ltd (“DMC”)

In March 2017, DMC made the decision to dispose Digimatic Solutions, a subsidiary that is in the space of providing platform solutions. Focusing on their core strengths in performance-basedmarketing powered by Advertising Technology (“AdTech”) and a creative production team, DMC believes that this is in the best interest of the shareholders.

Digimatic Media (“DMM”), the media and marketing arm of DMC, specialises in the provision of solutions via cost per lead or cost per acquisition digital marketing for its clients. Under the brand of Ace Profits Academy, DMM has also been providing wealth creation seminars and personal development workshops. Through Wewe Media, its mobile marketing arm that specialises in performancebased marketing and leads generation of mobile applications and websites, DMC is also focusing on building up its AdTech capabilities to enhance marketing performance through machine learning. This will be the growth driver that is expected to enable the front line marketing team to leverage on and maximise digital technologies in transforming businesses for their clients.

The creative content and production team of DMC, Digimatic Creatives (“DC”), has also been busy winning new contracts to provide virtual reality (“VR”) and augmented reality (“AR”) services to several prominent corporate organisations. In a bid to create awareness of the hidden capabilities of DMC, the team recently participated in Innovfest Unbound 2017 where they showcased their VR/AR offerings.

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Ace Wealth Convention 2016

The DMM team at Ace Wealth Convention 2017

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Intellink: Technology of Wewe Media

ONE Palm Beach

Investment in Private Markets

23 8I Holdings Limited

Investment in Private Markets

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Digimatic Creatives onsite for corporate shoot of Molex.

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Digimatic Creatives participating in InnovFest Nick Tan speaking to Minister for Unbound 2017. Communications and Information, Dr Yaacob Ibrahim, on Digimatic Creatives’ VR / AR technology and applications.

DMC continues to be a disruptive innovator that rides on digital trends to transform digital advertising into a personal experience for consumers, with each of the above profit-making operating segments.

In addition to Clive being a non-executive Chairman on DMC’s Board of Directors, our team continues to support DMC in identifying and connecting suitable business partners that will enhance their current service offerings.

Investment Decisions Driven by Capital Allocation

Based on our capital structure, 8I is akin to a closed fund with limited amount of funds. As such, our role is to deploy our shareholders’ funds to whichever investment that brings the maximum returns. We are constantly faced with the decision of whether to deploy capital to issue dividends, to conduct share buy-backs, to acquire of new businesses and how to best recycle the capital via spin-offs and disposal of businesses.

In this letter, our team will also share the rationale and strategies on the acquisition, spin-off and disposal of businesses.

Acquisition of New Businesses

We have broken down our rationale for acquisitions, at least for now, to invest in a company for the following reasons – (a) its synergistic effect to 8I’s eco-system and; (b) our ability to be an incubator for growth companies.

(a) Synergistic Effect to 8I’s Eco-System

We have been hard at work to acquire or collaborate with partners that have a synergistic impact to the unique eco-system that we built over the years. We believe that the right partner, for example a relevant financial technology provider, will enable 8I to scale our product offerings to a much larger platform.

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Thought-Leadership
Geographical Reach
Corporate Governance
Compliance
Technology
Investment in
Public Markets
Education Hidden Champions Fund
Millionaire Investor Program
REITs Program Investment in
Value Investing Bootcamp Private Markets
Value Investing Options Strategies Velocity Property Group
M-Circle Digimatic Group
CT Hardware
8 MAD Group
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“Unique business model that is driven by a synergistic interaction between education and investment segments”

• (b) Incubator of Growth Companies

Our investment strategy is to provide growth capital to small and medium-sized companies within Asia. The team is neutral towards all industries but due to our circle of competence and knowledge domain, we generally favour companies related to the education industry. Our growth capital is typically used for an investees’ laterstage development and expansion. Under special circumstances, we may also invest in earlier-stage businesses with huge growth potential and especially when there is a synergistic effect to 8I’s ecosystem (please see above “Synergistic Effect to 8I’s Eco-System”).

The lessons learnt from our earlier investments have helped to refine our investment selection criteria with a sensible and sustainable structure on how we plan to make our investment returns.

With the choice of potential investees, aside from the assessment based on the 3R model that we have shared before, there is a deeper appreciation to align on:

(a) how 8I can value-add as the right strategic investor; and

• (b) realistic timeline and structure on when and how 8I is able to generate investment returns.

This can be done through a number of ways, such as a spin-off via IPO (please see below “Spin-off of Businesses”), an annual dividend policy or even a trade sale if it is deemed appropriate for both parties. We are always upfront with our expectations that 8I will need to recycle the capital for subsequent capital allocation.

Although our preference is to take major stakes in our investees’ businesses and be the sole external investor, the team is keen and open to work with different structures. When co-investors are able to value-add to the investee in areas that we are limited, it allows all parties to increase the overall feasibility and margin of safety to the investment. We are also open to acquiring a smaller equity stake in companies when the right opportunity arises.

The team is constantly assessing potential investments and as shared before in our team’s FY17 interim message, the nature of our work takes time. We would rather err on the safe side and be prudent until we find the next best investment, than rushing in to just any available opportunity. There is, however, no waste of resources when we had to give up/lose any potential investments, as we see it as a knowledge accumulation and building up of our emotional quotient “muscle” that will allow us to improve in assessing and winning over the next wonderful investee.

Investment in Private Markets

Business Segment Review 24

With hard work, prudence, and grit, we look forward to our fruits of labour for 8I, and will be pleased to announce any confirmed acquisition accordingly.

Reflect, Refine and Improve

In the past year, 8I has embarked on a corporate exercise to realise our ambitions of scaling up our Company.

Spin-off of Businesses

When an investee has reached a stage where they are able to stand on their own two feet, and ready to tap into the capital market to finance their future growth plans, we believe a spin-off of the investee via IPO accomplishes several benefits such as:

• (i) enabling 8I to partially monetise investment returns to recycle the capital for subsequent capital allocation;

• (ii) allowing a clear segmentation between the various operating units within the Group where the nature of the business and their investment risks are distinct from each other;

• (iii) allowing better alignment of incentives, where team members can be compensated more directly in their operating results.

However, unlike a traditional private equity fund with a restricted lifecycle which typically realises their investment returns through a full exit of their investees, we do not fully exit from our investment even after our investee companies have listed. We typically maintain a shareholding of around 5.0% to 10.0% in our investee companies post listing in order to continue our support as a shareholder and participate in the future growth of our investee companies.

While ambitions remain, it is only realistic to adjust our corporate plans accordingly after gaining a greater clarity of our company’s value proposition through intense due diligence with our professional consultants. We, however, remain driven in our course of work and will continue to work towards gaining further affirmation and strengthen our position as a diversified financial group.

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We would like to end off this letter with a quote from a trailblazer. He had a simple intention of producing affordable cars for the general public, at a time where car ownership was confined to the privileged few. He eventually achieved his goal after numerous failures and perseverance to overcome setbacks. Using the feedback gathered from those failures, he fine-tuned his design ideas and eventually revolutionised the automobile industry.

“Even a mistake may turn out to be the one thing necessary to a worthwhile achievement.” - Henry Ford, founder of Ford Motor Company

Low Ming Li

Head of Investment in Private Markets

On 15 May 2017, we announced the proposed listing of our Education business (8VIC). The spin-off will not only provide funding for 8VIC’s expansion plan, it will also provide a clear distinction from 8IH’s other core businesses, such as investments in public and private markets. The nature of investments is such that financial results can be lumpy where there will be years with varying levels of profits, and even losses, and may also be subjected to regulatory requirement.

Please be assured that our long-term intention is to retain controlling equity interest in 8VIC and we will continue to support them, particularly in potential acquisitions of complementary businesses in various countries. As 8I continues to hold a controlling interest in 8VIC, their financial results will continue to be consolidated and be reflected within the Group.

We are well-aware that there are challenges ahead with the expected investment returns. With the refinement to our investment strategy and strategic steps forward, we believe that 8I is on track in the years to come.

Disposal of Businesses

As much as we believe in all investees and would love to keep our active role and stake in every business that we have acquired, it is more of a win-win situation to adjust and align our strategies from time to time to maintain sustainability.

On 19 May 2017, we announced that the founders of Hemus Pacific Private Limited (“Hemus”) will buy back 51% equity interest via a share swap with 8IH. Upon completion, Hemus will be able to grow at their own pace whereas 8IH will be able to focus on its refined strategy, which we believe will benefit shareholders in the long run.

The experience gained from this is that we have a deeper appreciation on our choice of investees (please see above “Incubator of growth companies”).

25 8I Holdings Limited

Education

Knowledge Champions

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With the amalgamation of 8VIC, we will emerge stronger and better positioned to achieve our vision to be the Number 1 Global Value Investing Education Provider.

Pauline Teo Chief Executive Officer of Education

Education

Business Segment Review 26

Education

Dear Valuable Partners,

Education - Bringing Value Investing Education Beyond Our Borders

Existing Programmes

The Education team continues to deliver extraordinary results, touching nearly 8,000 individual lives through our various programs. This translated to S$10,721,263 in revenue, and S$3,592,048 in profit. As of 31 March 2017, our flagship programmes Millionaire Investor Program (“MIP”) saw a total attendance of 5,424 participants and the Value Investing Bootcamp (“VIB”) was attended by 2,508 participants. The two flagship programmes were conducted in Singapore, Malaysia, Taiwan, Thailand, Myanmar, India, Vietnam, Dubai and China. This was all made possible with the collaboration across our offices in Singapore, Kuala Lumpur, and Shanghai.

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Our existing REITs Program (Real Estate Investment Trusts Program) and M-Circle subscriptions have seen steady increases of participation and subscription rates, with 1,246 REITS Program graduates, and 1,557 M-Circle subscribers, up from 951 graduates and 1,245 subscribers respectively, compared to the year before.

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*Figures include Singapore & Malaysia M-Circle members.

In early 2017, we concluded our 6th annual Value Investing Summit (“VIS”). The two-day signature event, which took place in the Singapore Expo on 14th – 15th January 2017, was attended by over 1,200 attendees from across the Asia-Pacific, including Malaysia, Thailand, Indonesia, Philippines, China, Cambodia, and Australia. The VIS is a platform for serious value investors to network, share, be kept abreast on value investing ideas, and enhance their knowledge on key value investing concepts. It is the biggest gathering of value investors in Singapore, and the first large-scale value investing event in Asia since its inauguration in 2012. The keynote speaker for the 6th annual VIS was Ms Lauren Templeton, the Founder and President of Templeton & Phillips Capital Management, LLC, and the niece of the late Sir John Templeton, a billionaire investment guru and philanthropist. In addition to the insightful presentations and panel discussions with the experts, the VIS also featured the first annual Inter-Varsity Stock Research Challenge. The objective was to promote the study of value investing among tertiary students, and allow them to advance their analytical skills, and gain exposure and recognition in the community of value investors.

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VIS Intervarsity Stock Research Challenge Teams

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VIS Intervarsity Stock Research Challenge Winners

Education

27 8I Holdings Limited

Education

Following the presentation of investment ideas from the final four teams of university undergraduates to a judging panel of professional investors, the Inter-Varsity Stock Research Challenge successfully concluded with the team of three undergraduates from Nanyang Technological University bagging the first prize of S$5,000 cash and a trophy. VIS will continue to promote the study of value investing and its ideologies, fostering research on ‘hidden champions’, empowering youths to cultivate critical thinking and make independent decisions.

As of March 2017, close to 600 tickets have already been sold for VIS 2018 (slated for 27-28 January 2018).

New Programmes

Other than increasing the participation rates of our existing programmes beyond Singapore, we launched new programmes and events over the course of the last financial year.

Successful launch of Inaugural Get Your Dollar Sense Program

In our efforts to extend beyond Singapore, we have successfully launched our inaugural Get Your Dollar Sense (“GYDS”) Program in Kuala Lumpur. This is a two-day educational programme targeted at youths between the age of 16 to 25. To date, we have successfully conducted two sessions of GYDS in September and December 2016.

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Get Your Dollar Sense (GYDS) Program (KL)

Successful launch of 觉悟智慧 in Shanghai

8IH China (Shanghai) Co Ltd successfully conducted 觉悟智慧 , a sharing session on the concept of value investing for participants in China. The three-day sharing session was conducted by well-known financial commentator and Warren Buffett expert, Zhou Guiyin (周 贵银).The team plans to conduct three more runs of 觉悟智慧 in Shanghai. Other sharing sessions offered include 多维智慧, 般若智 慧, and 传承智慧.

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New Initiatives

Release of Money Money Home (全家私房钱), a 13-part series

8I Holdings has also partnered with Astro Malaysia to produce Money Money Home (全家私房钱), a personal finance educational television series on Astro AEC Channel to promote financial management concepts and provide financial management tips to the public. Viewership for the first episode of Money Money Home reached approximately 124,000 viewers, surpassing Astro’s AEC Channel average of 84,000. As of March 2017, six episodes have aired, with an average viewership rating of over 147,000 per episode (first telecast, episodes 1 to 6). This represents a rating of 75% more than Astro AEC Channel’s average.

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Money Money Home 全家私房钱

A New Beginning

Acquisition of Financial Joy Institute Pte Ltd

In June 2016, we acquired a 51% stake in Financial Joy Institute Pte Ltd (“FJI”), which provides financial and investment education through its main brand, Value Investing College (“VIC”). In March 2017, we completed the acquisition of FJI. With this corporate action, we are excited to announce that we have changed our name to 8VIC Global Pte Limited (“8VIC”).

This name change will allow us to present ourselves as a global financial education provider. Along with this, we will be adapting our corporate identity to Value Investing College (“VIC”). VIC has conducted its flagship Value Investing Bootcamp (VIB) in Singapore, Malaysia, Taiwan, Thailand, Myanmar, India, Vietnam and Dubai with plans to further expand to South Africa, Philippines, Australia and Japan.

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The 8VIC team

觉悟智慧 (SH)

Education

Business Segment Review 28

8VIC’s very first collaboration - Investopia - was successfully launched in Kuala Lumpur on 1 April 2017. International speaker and best-selling author, Mary Buffett, lent her experience and expertise in the role of advisor and mentor as our anchor speaker at Investopia. Other speakers included Ken Chee, Executive Chairman of 8I Holdings, and Sean Seah, author and founder of Value Investing College. The inaugural collaborative event reached out to over 1,300 attendees.

Following the success of Investopia in Kuala Lumpur, we plan to launch an Asia tour of Investopia, spanning countries including Singapore, Thailand, and Taiwan.

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Investopia (KL)

I believe with the amalgamation of the 8VIC team, we will emerge stronger and better positioned to achieve our vision to be the Number 1 Global Value Investing Education Provider.

Ms Pauline Teo

Chief Executive Officer of Education

29 8I Holdings Limited

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8I Holdings Limited

(Incorporated in the Republic of Singapore) Company Registration Number: 201414213R ARBN 601 582 129

www.8iholdings.com

Offices

Singapore

Goldbell Towers, 47 Scotts Road, #03-03/04 Singapore 228233

T : +65 6225 8480 F : +65 6235 0332 info@8iholdings.com

Australia

C/- SmallCap Corporate Pty Ltd, Suite 6, 295 Rokeby Road, Subiaco WA, Australia, 6008

T : +61 (8) 6555 2950

F : +61 (8) 6166 0261

Malaysia

17 & 19-6 The Boulevard Office, Mid Valley City, Lingkaran Syed Putra, 59200 Kuala Lumpur, Malaysia

T : +60 3-2201 8089

China

A13, Zun Mu Hui, No.2695 Hutai Road, Bao Shan District, 200436, Shanghai, China

中国上海市宝山区沪太路2695号尊木汇A13

T : +86 21 6278 7618

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