market folly

We're posting up notes from the 2018 London Value Investor Conference.  Next up is Dawid Krige of Cederberg Capital who pitched longs of Kweichow Moutai (SHA:600519) and Dong-E-E-Jiao (SHE:000423).


Dawid Krige's London Value Investor Conference Presentation

Dawid co-founded Cederberg Capital in 2011. From 2005 to 2011 he was at Mondrian Investment Partners where he was a portfolio manager and China specialist. Cederberg are concentrated, fundamental, bottom-up, quality investors focused on China.

Frauds in China exist but they can be avoided. Fraud is not endemic. The recent China Hustle film presents a misleading and overly negative view of Chinese companies.

China is catching up with the US and will overtake it. In terms of STEM graduates - Science,Technology, Engineering, Mathematics – US 5% Vs China 38%. Global Patent applications: US 19% Vs China 43%. Unicorn unlisted start-ups with a valuation of more that $1bn: US 45% Vs China 43%. Yet China only accounts for 4% of the MSCI world index whilst the US is 50%. Over the next 20 to 30years China is going to become 20% to 30% of the MSCI. It will take share from the US.

Long: Kweichow Moutai (SHA: 600519):  Last year Kweichow Moutai overtook Diageo as the world’s largest spirits company. The company is over 300 years old. It spends very little on marketing. Moutai is a national drink and is offered to visiting politicians and dignitaries. It has 99% brand awareness in China. It’s essentially a monopoly with 70% of the spirits market. Its margins are almost 3x Diageo’s. ROIC: 30%. In the last 10 years it has grown at 30% per annum. At a PE 21x 2019 it trades on a similar PE to Diageo but with much more growth.


Long: Dong-E-E-Jiao (SHE: 000423):  Dong is a traditional Chinese medicine company that makes nutritional supplements. The supplements are over-the-counter products that are made from natural ingredients and therefore don’t face regulation. Cederberg think of the company as a luxury consumer goods company and not a healthcare company. The brand has a history that goes back over 2500 years. It has 70% marketshare and 98% brand awareness. It trades on a PE 14x 2019.

Krige said that whether the product works or not is not that important because of its cultural significance. If your parents and your parent’s parents have used it, you are likely to use it.  The biggest risk is from a change in distribution that could happen due to the challenge from e-commerce.


Be sure to check out the rest of the presentations from the London Value Investor Conference 2018.