Your Best Investment Might Be Lying In Your Refrigerator

Imagine this. You are out of shampoo. You head to the nearby supermarket to get a new one. Bam! The entire aisle is stacked with a variety of brands from top to bottom. You see brands like Head & Shoulders, Pantene, Rejoice and Herbal Essences. So many choices. Or is it just an illusion of choices?

What do we mean by that?

For starters, all the four brands mentioned above are brands managed by the consumer giant Proctor and Gamble Co (PG 89.03 -0.37 -0.41%).

Now wait a minute, are we saying that no matter which of the four you pick, they are ultimately under the same company?

You are starting to get the picture now. And by no means this is just limited to shampoo, think bigger, think about the chocolate bar you just picked out, or the soft drink you had earlier in the day and the breakfast cereal you just threw in your shopping basket. To show that we aren’t kidding you, we have for you cool infographics by the guys at Oxfam America, Inc.

From an investor’s point of view, that’s great news. As each company manages many different brands under its portfolio, investors get to gain regardless of what the customer buys. Interestingly, all the above-mentioned companies are companies incorporated beyond Asia.

So, what about such companies in Asia? Won’t you want to find out? We know we would.

When Coca-Cola soft drink, Campbell soup or even Mars chocolate bars comes to mind, it doesn’t take a Sherlock Holmes to crack the mystery of the company behind these products. However, for instance, do you know that SGX-listed BreadTalk Group Limited (SGX:5DA) (5DA 1.54 0.00 0.00%) doesn’t just run its BreadTalk chain of bakeries? In Singapore, the Group also operates the famous “xiao long bao” restaurant chain, Din Tai Fung, Singapore-style coffeehouse Toast Box, the Food Republic chain of food courts and more. Well, now you know.

Here are three more companies behind these three well-known dairy products.

Farmhouse Fresh Milk – Fraser and Neave, Limited (SGX)

Fraser and Neave Brands Farmhouse
Source: Fraser and Neave Limited Our Brands

Most of us in Singapore and Malaysia might be familiar with Fraser and Neave Limited’s (“F&N”) (SGX:F99) (F99 2.35 -0.04 -1.67%) Magnolia line of dairy products.Surprisingly, the Farmhouse brand of fresh milk is also one of F&N’s core dairy offerings! In 2016, F&N’s dairy operations made up 55% of the Group’s revenue.

Founded in 1883 by two Scotsmen, F&N is one of the leading players in the Asia food & beverage scene. Other staple brands under their management include:

  • 100 Plus
  • Seasons
  • Ice Mountain
  • Nutrisoy, and more

A significant milestone in F&N’s recent corporate history was a change in its major shareholder back in 2013. After a highly interesting bidding session, F&N eventually became part of TCC Group. In 2016, TCC Assets Limited together with InterBev Investment Limited owned 87.88% of F&N. Note: Charoen Sirivadhanabhakdi has interests in both these companies. InterBev International Limited is a subsidiary of Thai Beverage Public Company Limited (SGX:Y92) (Y92 0.88 +0.01 +0.57%).

Another interesting about F&N is that in their 1Q2017 announcement, F&N further increased their stake in Vietnam Dairy Products Joint Stock Company, or Vinamilk by 1.1% to a total of 17% of the company. Going forward, F&N might be able to benefit from the growth in Vietnam’s dairy market as well.

Learn more about F&N with our company factsheet right HERE!

Greenfields – Japfa Limited (SGX)

Greenfields brand - Japfa
Source: Greenfields Fresh Milk

Wait a minute, are we telling you that Greenfields, the milk that we see behind the counters in many Starbucks outlets in Singapore, is actually under Singapore-listed Japfa Ltd (SGX:UD2) (UD2 0.64 0.00 0.00%)? Yep, that’s about right.

Japfa has come a long way since their first poultry mill in Indonesia all the way back in 1975. And recently in 2014, Japfa wrote a new chapter in their corporate history with a listing on the Singapore Stock Exchange at S$0.80 per share with a market cap of over S$1 billion. From the company’s Annual Report 2016, its future plan seems to be clear: “Feeding Emerging Asia”.

Japfa is a vertically integrated business across five countries. It concentrated on producing five type of proteins for the public.

Vertically integrated means that a company has the operations all the way from the raw materials (upstream) to when you sell the final products to the consumers (downstream).

Using Japfa’s Poultry operations as an example, this broadly refers to:
  • Upstream: Production of poultry feed to the breeding of poultry
  • Downstream: Processing the poultry and distributing them under Japfa’s brand to consumers
Next up, the five proteins refer to:
  • Poultry (Chicken)
  • Cattle (Beef)
  • Aquaculture (Fish)
  • Swine (Pork)
  • Dairy (Milk)
And by five countries, Japfa’s key operations are in:
  • Indonesia
  • Vietnam
  • China
  • India
  • Myanmar

At the group level, Japfa’s Indonesia operations made up 72% of FY2016 Revenue. And this is managed under their IDX-listed subsidiary – PT Japfa Comfeed Indonesia Tbk (Japfa Ltd owns 51%).

Although a subsidiary will be consolidated fully at the revenue level, there will be a line at the end of the income statement “Profit attributable to owners of the company”, which would only record the earnings contributed to Japfa Ltd.

Equity-holders of Japfa Ltd do not actually own the other 49% of PT Japfa Comfeed Indonesia Tbk, hence they are not entitled to that portion of the earnings. Sidenote: In August 2016, global investment firm KKR invested US$81.9 million in PT Japfa Comfeed Indonesia Tbk (KKR had a total stake of 12%).

In any case, it is clear that PT Japfa Comfeed Indonesia Tbk’s performance has a significant impact on the overall performance of Japfa.

Here are some interesting facts that you might not know on Japfa:
  • One of the two largest poultry producers in Indonesia
  • Partnered with Cargill in consumer food in Indonesia
  • One of Japfa’s JV entity announced in 2017 that they have started supplying chicken products to McDonald’s Indonesia (Chicken McNuggets, McChicken, McSpicy)
  • Its premium raw milk is sold to leading diaries in China like Inner Mongolia Yili Industrial Group Co.(SHA:600887) (600887 20.63 -0.01 -0.05%), China Mengniu Dairy Company Limited (HKG:2319) (2319 15.52 0.00 0.00%) and New Hope Group

Yoyi C (Monmilk) – China Mengniu Dairy Company Limited (HKSE)

Yoyi C brand - Mengniu China
Source: YoyiC Products

Yoyi C is one of the star brands marketed and promoted by Mengniu Danone. We have more on Mengniu Danone later, but now let’s head straight to the company behind all this – China Mengniu Dairy Company Limited (“Mengniu”).

Mengniu manufactures and distributes dairy products and ice cream in the People’s Republic of China (PRC). Founded in 1999 and listed on the Hong Kong Stock Exchange, the company’s sources of revenue are from the sales of its products under the Mengniu brand, which includes liquid milk, ice cream, milk formula and other products. The liquid milk segment includes UHT milk, milk beverages and yogurt.

Mengniu’s mainstay is still its liquid milk segment which made up 89% of its FY2016 revenue of RMB53.8 billion. Ice cream and milk formula made up 4.1% and 5.9% respectively.

Here is Mengniu’s market share for 2016:
  • Liquid Milk: 27.4%
  • UHT Products: 27.9%
  • Chilled Products: 27.6%
  • Chilled Yogurt: 31.4%

One of Mengniu’s plans in their 2016 presentation is to accelerate the milk formula business and in recent years, there are two main developments in China’s milk formula industry that could aid this development:

  • Positive impact on the two-child policy could increase milk formula demand
  • Chinese government continue to tighten regulation on infant milk formula, this could lead to the long-term healthy development of the industry

Mengniu is not only in the downstream business, they are also involved in the upstream business with rearing dairy cows of its own. In early 2017, its purchased additional shares (raising their total stake from 25.4% to 39.9%) in China Modern Dairy Holdings Limited (HKG:1117) (1117 1.53 0.00 0.00%) – the largest dairy farming firm (by herd size) and the largest raw milk producer in China. Following that, Mengniu offered to buy out the rest of the company for US$826 million. Note: Under Hong Kong’s listing rules, the owner of more than 30% of a company will have to make an offer for that company.

Another strength of Mengniu is undoubtedly their strategic cooperation and integration with world class players like:
  • Danone Group: Chilled product business. Danone Group is also Mengniu’s second largest strategic shareholder with a 9.9% stake in Mengniu.
  • Arla Foods: Major overseas R&D partner in ranch management.
  • Yashili International Holdings Limited (HKG:1230) (1230 1.49 +0.01 +0.68%): Milk formula business. In December 2015, Mengniu and Yashili jointly announced the acquisition of Dumex China from Danone Group; the deal was completed in May 2016.

Want to know more about Mengniu? Click right HERE!

The Final Value

We tend to see investing as a complicated and boring activity. However, as long as we are observant of our surroundings, the products and services that we encounter every day could be run by a listed company. And that listed company could be a potential investment for us.

Thus, if you are just starting out in practicing value investing, do not be overwhelmed by the thousands of companies listed on the exchanges. Just look around your world, the best investment for you might be lying inside your refrigerator.

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Founded by three investment professionals, we are bound by our belief in the concept of value investing. We want to share with you the idea of value investing and how it can be applied here in Asia. It has definitely changed our lives over the past decade. We hope it would help you in your journey of becoming financially free as well. Vision To become a key reference website for value investors interested in the Asian Stock Markets. Mission To spread the concept of value investing across Asia.

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