What are Hidden Champions?

Hidden Champions are focused market leaders in sophisticated, hard-to-imitate niche products and valuable critical niche services that are largely invisible to the average consumer, yet are indispensable to our well-being in daily life.

The Hidden Champions create maximum benefits for a target customer group, solving their most burning problems better than any competitor. This innovation strategy requires a deep knowledge of customer needs, which is generated through direct customer contact. Successfully solving this customer problem would then create a “success spiral”. A key source of their wide-moat is their sustained commitment and even obsession to customer needs, which is only possible when there is a Purpose and values system guiding the firm. From a value investing perspective, investing at an earlier stage in the long-term growth trajectory path of these overlooked and mispriced Hidden Champions should prove rewarding.

As an example of our focused application of this investment strategy in Hidden Champions in Asia, one of our portfolio stocks is an Asian innovator who:

  • Commands 50%-60%

    domestic market share leadership in a consumer healthcare product in Japan

  • Is a global No.3 player

  • Is No.2 in China with 22% market share

Under the motto of using science to enrich everyday lives, this company is a quiet innovator in leveraging upon its decades of accumulated deep intangible material science and chemistry know-how to continuously launch innovative new products with long product lifecycle to create new categories of growth, from ultra-thin consumer healthcare product to an innovative pad that helps heal wounds faster by absorbing moisture, a technology that it adapted from its popular food wrapping film household product, to 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). The return on equity for this world-class hidden champion is 14.2% and sales has increased 24% in the past 3-4 years since FY13 and operating profit growth is faster at 168% due to its price premiumisation strategy.

Our portfolio stocks have wide and durable economic moats that generate superior returns on invested capital; unique, scalable business model with indestructible intangible know-how to create new categories of growth; a long runway and addressable market to compound growth; and high-integrity, owner-oriented management teams.

 

That is not an accident. It is by design.

Kee Koon Boon

It requires a willingness to stand in direct opposition to the crowd and the vision to think in years rather than days or months.

Kee Koon Boon
Chief Investment Officer of 8I Holdings

Got a question?

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

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