10 Investment Ideas From 1 Supermarket Visit

Investment ideas and opportunities are everywhere. And with our greatest stock research tools – our eyes, ears and common sense, even a stroll down the street could potentially yield great dividends for us.

Peter Lynch was one who was proud of the fact that many of his investment ideas were discovered while walking through the grocery stores or chatting casually with friends and family. After all most of the companies in the stock markets are in the business of serving the customer – YOU. Well otherwise who is paying for their stuff?

In other words, if something attracts you as a consumer, it could be an indication for you to put on your investor hat and dig deeper on the Company!

With that in mind, I put this to the test and went right down to the closest supermarket to see what I could find. And I wasn’t disappointed.

Let’s GO!

1. CARLSBERG BEER – CARLSBERG BREWERY MALAYSIA BHD

Let’s start off with a brand which most are all too familiar with – Carlsberg or as their advertisement mentions – Probably the best beer in the world.

51% owned by Carlsberg Breweries A/S, Carlsberg Brewery Malaysia Bhd’s operating assets are primarily in Malaysia and Singapore. Both revenue and profit are approximately split 75% Malaysia and 25% Singapore.

In a way you could say the two listed beer giants in Malaysia – Carlsberg Brewery Malaysia and Guinness Anchor Bhd (Heineken) have sort of a duopoly (investors tend to like this word) in Malaysia’s legal beer trade. To place things in perspective on why the beer business appeals to investors. Even with Excise & Custom Duties equaling 41.1% of FY2015 revenue, Carlsberg FY2015 net profit margin still stood at 13.3%. Not too shabby.

And here are 2 Funfacts from Carlsberg’s website:
1. Contrary to popular belief, a beer belly is NOT caused by beer at all. Food is the culprit.
2. A pint of beer has fewer calories than bread and contains NO FAT.

Now we know 🙂

2. CHANG BEER – THAI BEVERAGE PUBLIC CO LTD

Yet another beer company on this list. No prizes for guessing what’s at the top of our shopping list at the supermarkets.

Many of us might associate Thai Beverage PCL with Chang Beer, but surprisingly beer only contributed 22% of their Revenue for FY2014. What we might not know is that 64% of their FY2014 revenue of 162 billion Baht (US$4.6 bil) came from spirits the likes of Brown Spirits, Brandy, White Spirits and even all the way to Chinese  Herb Spirits!

With only ~10% of their revenue breakdown from non-beverage drinks (the Oishi Green Tea line of products), this might have been a reason why Thai Beverage had been looking to diversify their product offerings. And a significant step in diversifying their operations was their 2012 acquisition of a 28.56% stake in Fraser & Neave Ltd back in 2013. However as F&N is only an Associate, their numbers do not show up in the revenue line but come in after operating profit.

Although Thai Beverage is listed on Singapore’s SGX, 95% of their revenue is from Thailand. Among companies listed on the SGX, Thai Beverage looks like the proxy for the Thailand beverage market.

Also, other than their 28.56% F&N stake, a Thai Beverage investor is also exposed to 2 other companies on the Thailand Stock Exchange:
1) 79.66% stake in Oishi Group PCL – F&B Player (Oishi) with a market capitalization of ~14 billion Baht
2) 64.66% stake in Serm Suk PCL –  Beverage Player (est) with a market capitalization of ~15 billion Baht

3. CHEW’S EGGS – CHEW S GROUP LTD

For those in Singapore, its very likely that you have seen and even ate one of the eggs that came from Chew S Group Ltd. Surprise surprise, they are listed as well!

Bascially, Chew’s is one of the leading producers of fresh eggs in Singapore, specialising in the production and sale of Designer Eggs (think of them as premium eggs). With their farm in Mandai, Chew’s sold over S$30 million worth of designer and generic eggs for FY2015 (89% of FY2015 Rev). In Singapore, there are 3 layer farms producing fresh eggs, Chew’s, Seng Choon Farm Pte Ltd and N&N Agriculture Pte Ltd. Amongst the 3, Chew’s is the only publicly listed company. However, competition in this industry is tough and is not only confined to Singapore. In their IPO back in 2011, Chew’s mentioned that ~77% of chicken eggs consumed by Singapore are imported – with the majority from Malaysia.

Some giants of the Malaysian poultry business include QL Resources Bhd, Huat Lai Resources Bhd (market cap of over RM300 million) and CAB Cakaran Corporation Berhad.

Back in 2011, given the placement price of S$0.25 per share, Chew’s IPO on the Catalist had a total market valuation of over S$21 million. Fast forward 5Y to March 2016, Chew’s had a market cap of ~S$20 million.

4. DUTCH LADY MILK – DUTCH LADY MILK INDUSTRIES BHD

50.96% owned by FrieslandCampina DLMI Malaysia Holdings B.V., Dutch Lady Milk Industries Bhd is a subsidiary of Royal  FrieslandCampina N.V, a Dutch dairy co-operative and also one of the world’s largest dairy companies. If you are wondering, a co-operative is an autonomous association of people united voluntarily to meet their common needs and aspirations through a jointly owned and democratically controlled business. Meaning to say, people with same needs gather together to do business.

Dutch Lady derived its FY2014 revenue of RM1 billion through the sale of pasteurised milk, UHT milk, sterilised milk as well as milk powder and even yoghurt drinks!

Alongside their namesake Dutch Lady brand, other familiar brands under their stable included Dutch Baby, Frisolac, Friso and Dutch Lady Purefarm. With their principal operations in Malaysia, you could see Dutch Lady as a proxy for the Malaysian Dairy sector.

5. GARDENIA BREAD – QAF LTD

So good that you can eat it on its own. Wait what? The company behind Gardenia is listed? Sure they are 🙂

After acquiring Bonjour back in 2001, QAF Ltd cemented their position as the single largest supplier of packaged loaf bread in Singapore. But what may surprise you is that the company behind Gardenia – QAF, is no small local bakery company.

In FY2014, QAF had a revenue of over S$1 billion with 3 core business units:
– Bakery ( 50% FY2014 Rev) – Manufacture and distribution of bread, confectionery and bakery products in Singapore, Malaysia, Philippines, China & even as far as Australia

– Primary Production ( 39% FY2014 Rev) – Production, processing and marketing meat as well as feedmilling and sale of animal feeds. QAF’s subsidiary Rivalea is the largest fully integrated pork production based in Australia accounting for ~20% of Australia’s total meat production. In 2014, Rivalea produced and sold ~60,000 MT of meat!

– Trading & logistics ( 10% FY2014 Rev) – F&B products (familiar brands owned by QAF include Cowhead and Farmland) and provision of warehousing,

But even with all the other operations, when it comes down to operating profit (before unallocated expenses), their Bakery segment still took the cake making up 78% of FY2014 operating profit!

6. S&W TOMATO PASTE – DEL MONTE PACIFIC LTD

We might not be familiar with the S&W Brand of products, however we might be all too familiar with their parent company and their line of products from Del Monte Pacific Ltd.

With their  2014 acquisition of Del Monte Foods, Inc (United States) from KKR & Co (big boys in the PE world) for US$1.675 billion (plus WC), Del Monte Pacific basically quadrupled their revenue to ~US$2 billion. At this point you might be confused with the different Del Monte companies.

To set things straight, this was how it looked like before the acquisition:
Del Monte Pacific: Philippines, India & Myanmar
Del Monte Foods, Inc (the “Mother” Company): USA & South America Operations

You might be wondering how a smaller company has so much cash to take over a larger one. Well basically they didn’t. This was why Del Monte Pacific had to take on a whole load of debt. To place things in perspective, Del Monte Pacific’s current day (Apr 2016) market value is S$0.6 billion with net debt of ~US$1.7 billion (FY2015). Normally such transactions pan out when the increased cash flow from the combined entity is able to pay for the debt employed in years to come. Looks like Del Monte Pacific might have a few years before their debt goes down to a lower level.

However we need to keep in mind that not all of the world’s Del Monte operations belong to Del Monte Pacific, for instance, Del Monte Asia (Asia ex Philippines, India & Myanmar), Del Monte Canada and Fresh Del Monte (EMEA and former Soviet Union) are not associated with the Group and operate as separate entities.

7. NESCAFE COFFEE – NESTLE (MALAYSIA) BHD

Nestle SA is the Swiss food and beverage giant with CHF88.8 billion in revenue (2014) and a market capitalisation of ~US$230 billion (2016). As one of the leading food company in the world, Nestle SA sells products from Powdered and Liquid Beverages, to Nutrition and Health related products and even to Pet care items!

It should be safe to say that most of us know of the parent company. However not many of us might know of the existence of the parent’s 72.6% stake in their listed subsidiary – Nestle (Malaysia) Bhd. And with 2014 revenue of RM4.8 billion (US$1.17 billion) and consistent net margin of > 10% over the past 5 years, Nestle Malaysia definitely held their own. Rather than showing you the numbers, it might be more relata-ble if we were to show you what they sell.

Here’s a list of some of Nestle (Malaysia) products:

Milk: Nan, Omega Plus
Cereal: Corn flakes, Honey Stars, Koko Krunch, Cheerios
Beverage: Basically Milo is all you need to know here.
Coffee: Nescafe, Dolce Gusto
Confectionery: Think Maggi
Chocolate: Have a break, have a Kit-Kat

In terms of geographical awareness, you could say that they are the most well-known instant beverage player in Asia. More on Nestle (Malaysia) Bhd’s peers right HERE!

8. NONGSHIM RAMEN – NONGSHIM CO LTD

If you walk into most Korean joints and order the army stew or as the locals call it – Budae Jjigae, odds are Nongshim’s ramen would be one of their ingredients. In these parts of the world, instant noodles have become a culture and maybe even a form of comfort food for us Asians and it’s no surprise that some of these companies are listed. And Nongshim is one of them.

But what you might not know is how big Nongshim Co Ltd is, especially in Korea. Take note of this number – 61.5%

That is the market share Nongshim has in the Korean instant noodles market. Anyway you look at it, they are the clear market leaders. But with instant noodle operations making up 62.5% of the Group’s total sales of KRW2 trillion (US$1.7+ billion), Nongshim is more than just an instant noodles player. Nongshim’s also has a snack and beverage section with a recent focus on drinking water. However their 2nd largest revenue contributor (16.9%) after instant noodles is their sale of foreign consumer staple products the likes of Kellogg’s, Mentos and Kitkat through strategic partnerships (license agreements)!

With their ventures into areas like United States, China and Japan, Nongshim looks like a company with global ambitions. In celebration of their 50th anniversary, Nongshim announced VISION 2025 with a whooping sales target of KRW7 trillion with overseas business contributing 40% of that.

However, we draw your attention to their earlier Vision 2015 back in 2008 which they aimed for revenue of KRW4 trillion in sales and KRW500 billion in ordinary profits by 2015.

Fast forward to FY2015, Nongshim’s group sales was KRW2.02 trillion with KRW118 billion in operating profit. Looks like they have quite a distance to go for a sales target of KRW7 trillion in 10 years time. Think top line growth of 13% per year. For your reference, Nongshim’s 2008 revenue stood at KRW1.68 trillion. This meant that sales grew at just ~3% per year over the past 7 years. Looks like quite some work has to be done for Nongshim to hit their VISION 2025 target of KRW7 trillion .

9. VITASOY SOYMILK – VITASOY INTERNATIONAL HOLDINGS LTD

Before digging deeper today, I did not know that Vitasoy International Holdings Ltd did more than just soymilk drinks!

Other than their flagship line of soymilk products (comes in original, low sugar, oat and plenty more), they also do Tofu! Did you know the Unicurd comes under them?

And with FY2014 Revenue of HK$5 billion and a GPM of 50%, they definitely made me want to take a deeper look into their Annual Reports.

Over the years, Vitasoy has certainly went beyond Mainland China. However, with close to 80% of Revenue still from Mainland China, HK and Macau, you could still see them as a play on the Chinese Consumer beverage market. The other notable regions are Australia & New Zealand (~10%), North America (~10%) and surprise Singapore (~2%).

10. WANT WANT SNOW CRISPS – WANT WANT CHINA HOLDINGS LTD

Did you know that Want Want was previously listed on SGX? Now you do!

Prior to their HKSE listing, Want Want China Holdings Ltd was listed on the Singapore Exchange with operations spanning from F&B to hospitals, hotels and even other property business. However post-2007, management focused on the F&B business and the rest was history!

Want Want Snow Crisps come under their Rice cracker segment which is surprisingly their 3rd largest revenue contributor for FY2015 making up 24.4% of total Revenue. If you haven’t guessed it, their core segment is their beverage segment (50.2% FY2015 revenue) helmed by the “Hot-Kid” milk which made up close to 90% of their Dairy products and beverages total of US$1.7 billion. And with their Dairy and beverage segment garnering a GPM of over 44%, this was a rather profitable operation.

Even with a slight yoy drop in revenue for FY2015 (same can be said for some of Want Want’s peers), Want Want numbers are still pretty decent.

We let the numbers speak for themselves:

Revenue: US$3.4 billion
Gross Profit Margin: 43.9%
Operating Margin: 21.3%
Net Income Margin: 15.8%

 

I think that just these 10 companies can keep me occupied for quite a few weeks. A week for each company would take me 10 weeks!

Better get started now 🙂 
Respective Product Photos: Respective Company Annual Reports, Presentations and Websites

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We will only provide you with information relevant to value investing. You can unsubscribe at any time. Your contact details will be safeguarded The information provided is for general information purposes only and is not intended to be any investment or financial advice. All views and opinions articulated in the article were expressed in Mun Hong’s personal capacity and do not in any way represent those of his employer and other related entities.

Mun Hong is not a shareholder in any of the above mentioned companies.

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