Summary

I decided to pass because near-term demand looks weaker than expected, but capex continues to increase.

While management has a great track record in Thailand, their capital allocation outside Thailand has delivered disappointing returns so far.

About (11 May 2026)

Share price: SGD 0.43

Market capitalisation: SGD 10,681 mn (USD 8,405 mn)

Enterprise value (EV): SGD 21,207 mn (USD 16,688 mn)

Average daily volume (ADV): SGD 8 mn (USD 6 mn)

NTM P/E: 10x

Time spent: ~1 day

My decision

This is a record of my investment decisions, not financial advice. Read the full disclaimer at the end.

Pass

Background

It’s 2016. You’re lying on the beach in Phuket. Hot sweltering heat. Cold refreshing beer. Paradise on earth.

Back in your office, you discovered ThaiBev brews your favourite beer in Thailand. Chang and its rival Singha form a cosy duopoly.

Your heart skipped a beat when you realised ThaiBev is listed in Singapore. Despite its seemingly expensive NTM P/E of 20x, you bought a significant block.

After all, you know the product well. The company has steadily grown its revenue by ~6% p.a. over the past 10 years.

Surely, 20x P/E is not that expensive for such a quality stable stock?

Fast forward 10 years, you’ve suffered a total loss of -20%. What happened?

More importantly, with its NTM P/E at an all-time low of 9x, is ThaiBev finally cheap enough to buy?

Business model

ThaiBev’s financial year ends in Sep. Unless stated otherwise, all time references will follow the company’s financial year. For example, Q2’26 refers to Jan 2026 – Mar 2026.

ThaiBev is the largest beverage company in ASEAN by sales.

The company holds ~90% volume market share in Thailand’s spirits market. Through its beer brands like Chang and Bia Saigon, ThaiBev holds a strong market share of 35% to 40% in Thailand and Vietnam.1

Breakdown of FY2025 revenue (THB 333 bn; -2% YoY):

• 37% Beer (-2% YoY)

• 36% Spirits (-2% YoY)

• 19% Non-alcoholic beverage (-1% YoY)

• 7% Food (-2% YoY)

• 1% Others (-11% YoY)

The Beer segment produces and sells branded beer such as Chang beer, one of Thailand’s most popular beers.

The Spirits segment produces and sells branded spirits such as Hong Thong and Ruang Khao. These are the best-selling brown and white spirits in Thailand, respectively.

The Non-alcoholic beverages segment produces and sells branded water, ready-to-drink coffee, energy drinks, green tea, fruit flavored drinks and dairies product. Brands include Fraser & Neave (F&N) and Oishi.

The Food segment operates restaurants such as KFC Thailand and Oishi Sushi.

In 2025, 65% of revenue comes from Thailand, 15% from Vietnam, 7% each from Malaysia and Myanmar.

Main customers include distributors and retailers. ThaiBev did not disclose any major customers.

Public comparables include Emperador Inc. (EMI PM) and Carabao Group Public Company Limited (CBG TB).

EMI is a Philippines‑based global spirits company that produces brandy and Scotch whisky brands such as Emperador, Fundador, The Dalmore and Jura.

CBG is a Thai beverage company that produces Carabao‑branded energy drinks and related beverages.

My reasons

Demand looks weaker than expected

Declining spirits. In FY2025, the Spirits segment recorded a -2% YoY decline in revenue. Sales volume declined by -3%. This was partially offset by +1% increase in average selling price (ASP).

FY2025 is the third consecutive year of sales volume decline. In fact, Spirits sales volume has never recovered to its peak in FY2020.

Management denied this was a structural issue. They attributed the weak volume to a weak post-COVID economy and high household debt levels resulting in weak consumer purchasing power.2

I am not fully convinced. Since 2020, Thailand’s real annual GDP growth rate has recovered and hovered around low-single-digit.

Near-term demand looks weaker than expected. Consensus forecasts revenue growth will recover from -2% in FY2025 to +3% in FY2026. However, working capital trends suggest near-term demand remains weak.

Average inventory days increased for the second consecutive year and is now above 10-year average.

The increase was concentrated on finished goods. Coupled with the revenue decline, this suggests demand was weaker than expected in FY2025.

At the same time, raw materials were flat. Management likely does not see demand recovering in FY2026.

But capex continues to increase

Capex reached all-time high. In the past 10 years, capex averaged 3% of revenue. It started increasing from FY2023 and reached THB 18 bn in FY2025 (~6% of revenue). ThaiBev allocated 40% of the elevated capex to the non-alcoholic beverage segment and 20% to the beer segment.

I estimate the bulk of the capex for non-alcoholic beverage went into F&N AgriValley, a dairy farm in Malaysia. This is a ~THB 25 bn project that will see up to 20,000 dairy cattle when completed.

But demand is not obvious. The dairy industry is quite mature in Malaysia. Roland Berger, a consultancy, forecasts low growth over the next 10 years.3 Milk consumption per capita is already among the highest in Southeast Asia.4

Management explained, “It’s more that Malaysian actually consume a lot of recombined milk, right, not the fresh milk. So our goal is to provide good access to quality fresh milk for Malaysian people.”

Competition is strong. The market is dominated by incumbents such as Dutch Lady Milk Industries Berhad (DLADY MK) and Farm Fresh Berhad (FFB MK).

DLADY is the market leader with ~28% overall market value share. It has been operating in Malaysia since 1963. FFB started around 2009. It grew quickly by focusing on chilled fresh milk, eventually dominating the segment with ~60% market share.

Mixed record in capital allocation

Great track record in Thailand. The Sirivadhanabhakdi family showed extraordinary management skills. They first launched Chang beer in 1995. Through low price, good timing, and aggressive business practices, Chang has overtaken Singha, the incumbent beer brand.5

Not so great outside Thailand. However, outside of Thailand, their track record is mixed.

In 2007, ThaiBev acquired 54% of Saigon Beer - Alcohol - Beverage Corporation (SAB VN) for USD 6.5 bn.6 SAB is Vietnam’s largest beer brewery.

Today, ThaiBev’s stake is worth only USD 1.2 bn. I estimated ThaiBev collected around USD 0.6 bn of dividends from SAB.

It is difficult to calculate the exact cost per share that ThaiBev paid for Vietnam Dairy Products Joint Stock Company (VNM VN).

However, the fair value of its stake in VNM is only 40% of its carrying value. This suggests ThaiBev likely is incurring a loss on this acquisition too.

Risk of write-down. So far, ThaiBev has not written down the carrying value of its stake in VNM.

I suspect this is because they believe the value in use of VNM remains above the carrying value.

However, if the fair value of VNM remains significantly below the carrying value, I would view this assumption as increasingly optimistic.

Factors that could lead to a re-assessment of my decision

1. Spirits volume recovers better than expected

2. Inflection in working capital trends that suggest near-term demand will be better than expected

3. Better-than-expected returns on capex in Malaysia

4. Turnaround in VNM and SAB

5. Free cash flow to firm (FCFF) yield on enterprise value increases to ~7.2% (5% premium over Thailand 10y government bond yield). Current FCFF yield is ~6.0%.

Disclaimer

This publication is for informational, educational, and entertainment purposes only and does not constitute financial, investment, legal, or tax advice. The content herein is a record of my personal research and investment process, and all analysis, forecasts, and opinions expressed are solely my own.

I make no representation or warranty, express or implied, as to the accuracy, completeness, or timeliness of the information provided. The stock market is highly volatile, and my forecasts, estimates, and assumptions may prove incorrect.

I am not acting as your financial advisor or fiduciary. You should not rely on any information in this publication to make investment decisions. Under no circumstances will I be held liable for any direct, indirect, or consequential losses or damages arising from your reliance on the content of this publication.

At the time of publication, I do not hold any positions in THBEV, either long or short. I may change my views, predictions, or personal portfolio positioning at any time without notice.

References

About (07 May 2026)

Share price: USD 113.61

Market capitalisation: USD 5,293 mn

Enterprise value (EV): USD 4,134 mn

Average daily volume (ADV): USD 293 mn

NTM P/E: 16x

Time spent: 1 day

My decision

Pass

Background

In Apr 2015, Tim Cook launched the Apple Watch.

This looked like a huge threat to Pebble, a smartwatch pioneer.

Eric Migicovsky, the CEO of Pebble, brushed these concerns aside. Migicovsky revealed that Pebble’s sales continued to increase, experiencing a double-digit percentage growth. “Apple Watch had no material impact.”

By Dec 2016, Pebble had shut down.

In Nov 2022, OpenAI released ChatGPT.

The bulls argue generative AI cannot replace the gamified and social experience Duolingo offers. “Look at how DUOL grew its revenue by +41% p.a. since 2022!”

Is Duolingo really AI-resistant?

I am not sure.

In my latest post, I explain why I believe generative AI threatens Duolingo’s business model, but not in the way that most investors think. I also highlight some early warning signs.

Business model

Breakdown of 2025 revenue (USD 1,038 mn; +39% YoY):

• 84% Subscription (+44% YoY)

• 8% Advertising (+45% YoY)

• 4% Duolingo English Test (-8% YoY)

• 4% In-App Purchases (+5% YoY)

DUOL earns subscription revenue mainly through two products: (a) Super Duolingo and (b) Duolingo Max. These products unlock additional features such as Video Call, where subscribers can practice speaking with Lily, an AI persona.

Subscribers pay in advance. DUOL offers monthly or annual subscriptions. DUOL also offers an annual family plan, which includes up to six users on one subscription.

DUOL also earns revenue from in-app purchases (IAP). Users can purchase consumable in-app virtual goods such as ‘energy refills’, which let users continue lessons once they run low on ‘energy’.

DUOL’s main customers are individual language learners. It is especially popular among Gen Z and young millennials. As of 2025, DUOL reported 133 mn monthly active users (MAU), 53 mn daily active users (DAU) and 12 mn paid subscribers.

In 2025, 38% of revenue comes from the United States. This is down from 45% in 2023. The remaining 62% comes from the rest of the world. No other country accounted for more than 10% of revenue.

Public comparables include Chegg, Inc. (CHGG US), Coursera, Inc. (COUR US) and Udemy, Inc. (UDMY US).

DUOL delivers gamified, bite-sized language lessons. COUR and UDMY both focus on professional upskilling. COUR offers formal university credentials while UDMY hosts a crowdsourced marketplace of independent courses.

Finally, CHGG is a student homework-help platform. To survive AI disruption, it is currently pivoting toward career training.

My reasons

Not 100% AI-resistant

Prima facie, DUOL appears AI-resistant. In Nov 2022, OpenAI released ChatGPT. Many EdTech companies suffered.

CHGG’s revenue has declined -21% p.a. since 2022. Its main products were paid homework help and study support. CHGG charged students a subscription fee to see worked solutions, ask questions to human “experts,” and access study materials.

These were suddenly matched or replaced by AI tools that are free, instant, and always available. Students could paste the same questions into ChatGPT and get reasonably good explanations without paying. Even search engines like Google began answering questions directly with AI instead of sending traffic to CHGG.

In contrast, over the same period, DUOL grew its revenue by +41% p.a. It hasn’t suffered the same pain mainly because it offers a gamified and social experience to learning new languages.

One of the most important features is streak. It tracks the number of consecutive days a user has completed at least one lesson. As the streak grows, it transforms into a digital trophy that users are emotionally invested in and afraid to lose.

Streak creates a strong anchor that drives consistent daily engagement. DUOL even offers “Friend Streaks” with up to five people, which increase only when all participating users complete their daily lessons.

Prima facie, there seems to be strong evidence that AI does not impact DUOL.

ChatGPT’s chatbot interface is great for answering homework questions. That’s why CHGG was significantly affected. However, the chatbot interface is not great at replicating DUOL’s gamified and social experience of learning languages.

However, I believe DUOL’s gamified and social experience may only delay the impact of AI. It does not completely remove the AI-disruption threat.

In other words, it seems to me that DUOL is not 100% AI-resistant.

But AI has lowered the barriers to entry. Before generative AI, the language learning app market was dominated by a small set of incumbents that had been around for years. The major players were all well-established:

Source: Perplexity (2026)

There were not many new entrants. Designing lessons was labour intensive and expensive.

It all changed when OpenAI launched ChatGPT in Nov 2022. Large language models (LLMs) suddenly made it possible for startups to build convincing AI tutors at low cost, triggering a wave of new entrants:

Source: Perplexity (2026)

Early signs of weakness

Bookings growth decelerated. On 4 May 2026, DUOL released their Q1’26 earnings. Their share price dropped as much as -10% mainly because management guided a weak bookings growth in Q2’26.

Are we starting to see the negative impact from increased competition enabled by generative AI?

“Nothing to worry about!”, the bulls argue. Management expects bookings growth to recover and accelerate during the second half of 2026.

I am not so sure of recovery. Humans tend to extrapolate the status quo and fail to recognise paradigm shifts.

In Apr 2015, Tim Cook launched the Apple Watch. This looked like a huge threat to Pebble, a smartwatch pioneer.

Eric Migicovsky, then CEO of Pebble, publicly downplayed these concerns, noting that Pebble’s sales were still growing at a double‑digit rate.

According to Betanews, he said the Apple Watch had ‘no material impact’ on the company and attributed this to differences in their target markets.1

“Pebble is dealing with the threat of Apple’s upcoming Apple Watch by making jokes about the enthusiasm Apple employees have shown for the device.” Source: MacRumors (2014)

In just over a year after Apple Watch launched, Pebble shut down.2

Corporate history is filled with victims of technological change. Pebble is just one of them. Others include Sound Blaster developed by Singapore’s Creative Technologies3 and WordPerfect4, the predecessor to Microsoft Word.

DUOL does not sell watches, sound cards or word processors. I highlighted these examples to show that in most cases, people failed to recognize the paradigm shift until it was too late.

User engagement may have declined. In DUOL’s case, I see a few early warning signs.

Revenue from in-app purchases (IAP) declined -11% YoY in Q1’26. IAP revenue comes from users buying consumable virtual goods such as ‘energy refills’.

This decline is inconsistent with the supposedly higher user engagement suggested by the improvement in DAU/MAU ratio.

High short interest. There is increasingly more short selling of DUOL. By 15 Apr 2026, the short interest in DUOL has increased from 3.7% to 20.0%. Such extraordinarily high short interest suggests high conviction on the part of short sellers.

Factors that could lead to a re-assessment of my decision

1. New entrants fail to gain meaningful market share in the next 3 to 5 years.

2. Bookings growth accelerates more than expected.

3. Sustained growth in IAP revenue.

Coming up next

ThaiBev: When will the hangover stop?

It’s 2016. You’re lying on the beach in Phuket. Hot sweltering heat. Cold refreshing beer. Paradise on earth.

Back in your office, you discovered Thai Beverage Public Company Limited (Y92; THBEV SP) is the brewer of your favourite beer in Thailand. Chang and its rival Singha form a duopoly that dominates the beer market.

Your heart skipped a beat when you realised ThaiBev is listed on the Singapore Stock Exchange. Despite its seemingly expensive NTM P/E of 20x, you bought a significant block.

After all, you know the product well. The company has steadily grown its revenue by ~6% p.a. over the past 10 years. Surely, 20x P/E is not that expensive for such a quality stable stock?

Fast forward 10 years, you’ve suffered a total loss of -20%.

What happened?

More importantly, with its NTM P/E at all-time low of 9x, is ThaiBev finally cheap enough to buy?

I’ll discuss this in my next post.

Subscribe for free to be notified immediately when I publish.

Disclaimer

This publication is for informational, educational, and entertainment purposes only and does not constitute financial, investment, legal, or tax advice. The content herein is a record of my personal research and investment process, and all analysis, forecasts, and opinions expressed are solely my own.

I make no representation or warranty, express or implied, as to the accuracy, completeness, or timeliness of the information provided. The stock market is highly volatile, and my forecasts, estimates, and assumptions may prove incorrect.

I am not acting as your financial advisor or fiduciary. You should not rely on any information in this publication to make investment decisions. Under no circumstances will I be held liable for any direct, indirect, or consequential losses or damages arising from your reliance on the content of this publication.

At the time of publication, I do not hold any positions in DUOL, either long or short. I may change my views, predictions, or personal portfolio positioning at any time without notice.

References

About (05 May 2026)

Share price: KRW 46,800

Market capitalisation: KRW 485 bn (USD 328 mn)

Enterprise value (EV): KRW 450 bn (USD 305 mn)

Average daily volume (ADV): KRW 2 bn (USD 1.3 mn)

LTM P/E: 5x

Time spent: ~1 day

My decision

This is a record of my investment decisions, not financial advice. Read the full disclaimer at the end.

Shortlist

Background

“Every year in November, Suneung brings the whole country to a standstill.

Silence descends across the capital Seoul as shops are shut, banks close, even the stock market opens late. Most construction work halts, planes are grounded and military training ceases.

Occasionally the stillness is broken by distant sirens - police motorbikes racing to deliver students running late to their exam.”

That’s how the BBC described CSAT (Suneung).

CSAT is South Korea’s most important exam. A one-day exam will decide your university, your career, your social standing and even who you date.

With such high stakes, many turn to private educators. MegaStudyEdu is one of the top 3 CSAT prep providers in the country.

It boasts a deep bench of star tutors like Stanford-educated Hyun Woo-jin. He reportedly earns up to USD 20 mn a year.1

Yet, MegaStudyEdu’s shares present a puzzling disconnect. Its dividends and share buybacks amount to ~12% of its market capitalisation. It looks likely to sustain its revenue in 2026.

But it trades at only 5x P/E.

Could MegaStudyEdu be an opportunity?

In my latest Substack post, I’ll explain why I shortlisted the company for further investigation.

Business model

MegaStudyEdu is South Korea’s educational ‘Netflix’.

It is one of the country’s largest “online cram school”. Students can watch lectures from famous star teachers, do practice questions, and get data-based advice on their chances of getting into certain universities.

The company was one of the first to focus mainly on online lessons.

It grew by hiring very popular teachers, recording their lectures once, and then selling those videos to many students at a lower price than traditional offline classes.

Today, 67% of its revenue comes from lectures, mostly online. Students pay their fees in advance. MegaStudyEdu recognises revenue over time as it provides access to the lectures.

The remaining 33% comes from selling textbooks, mock exams, study rooms, etc.

Breakdown of 2025 revenue (KRW 885 bn, -6.1% YoY):

• 63% from High school (-4.4% YoY)

• 24% from Early childhood, elementary and middle school (-5.3% YoY)

• 9% from University (-1.2% YoY)

• 4% from Employment (-34.2% YoY)

High school revenue mainly comes from selling lectures to high school students, especially those sitting for the College Scholastic Ability Test (CSAT).

According to MegaStudyEdu, it holds ~ 74% market share, up to 3x higher than the next closest competitor.2

Early childhood, elementary and middle school revenue comes from selling lectures to toddlers, elementary and middle school students.

These students are relatively younger, making it difficult for them to sustain self-directed online learning. Consequently, they tend to prefer offline academy classes where there is relatively more interaction between teachers and students.

The University segment earns revenue from providing lectures to students seeking university transfers.

MegaStudyEdu earns almost 100% of its revenue in South Korea.

The largest expense is instructor fees (21% of revenue), followed by employee salaries (16%).

The closest public comparable is Digital Daesung Co., Ltd. (068930 KS). They operate the Daesung MyMac online learning platform and physical cram schools, competing directly for high school students preparing for the CSAT.

My reasons

Under-recognised growth?

The market appears to be pricing in an indefinite revenue decline. I plotted the 10-year total return of MegaStudyEdu against Digital Daesung. As a baseline, I included EWY, an ETF tracking the MSCI Korea 25/50 Index.

Source: Tikr

MegaStudyEdu and Digital Daesung are generally uncorrelated with EWY.

Both companies rallied in 2021. COVID-19 lockdowns drove higher enrolment in online cram schools. In just one year, MegaStudyEdu more than tripled its earnings per share (EPS) while Digital Daesung grew its EPS by +52%.

The consensus extrapolated the tremendous growth and paid up for MegaStudyEdu and Digital Daesung. In 2021, LTM P/E peaked at 34x and 19x respectively.

The tremendous growth could not be sustained after the lockdowns ended. Revenue growth at MegaStudyEdu decelerated and eventually turned -6.1% in 2025. LTM P/E compressed.

Today, at 5x LTM P/E, MegaStudyEdu is priced like a terminally declining business.

However, there are reasons to be skeptical. First, the headline is overstating the decline. MegaStudyEdu disposed a loss-making subsidiary (Next Study Co., Ltd.) in 2024. If not for this disposal, the revenue decline in 2025 would be -3% instead of the headline -6%.

Second, there are signs that MegaStudyEdu is near the trough in revenue.

In 2025, prepayments from customers (contract liabilities) remained essentially flat, an improvement from -15% in 2024. This suggests revenue will likely remain flat or even grow slightly in 2026.

Capital returns?

Capital return represents ~12% of market capitalisation. In Apr 2025, MegaStudyEdu announced its corporate value-up program. It targets to return 60% of net income via dividends and share buybacks.

For 2025, MegaStudyEdu returned KRW 51 bn of capital to shareholders, representing 65% of net income. This is ~12% yield on market capitalisation.

If earnings remain stable and the company continues this policy, this will imply a recurring 11% yield on market capitalisation. This is an attractive 7% premium over South Korea’s 10-year government bond yield.

Attractive capital returns likely sustainable. I believe there is a very good chance that MegaStudyEdu can maintain such attractive capital returns.

For the reasons I discussed above, revenue looks near a trough.

MegaStudyEdu is cash generative.

The company operates with favourable working capital. It collects fees in advance from students and pays its instructors later.

Besides some physical academies, there are no significant capital expenditure requirements. Most of the lectures are streamed online.

Catalysts

On 4 Feb 2026, Maeil Business reported that the management (and major shareholders) are looking to sell 32% of the company to private equity. The sale price would value the entire company at around KRW 925 bn.3

The company denied this report on 5 Feb 2026.4

On a side note, Perplexity did not catch this company announcement. I guess generative AI still can’t completely replace me rolling up my sleeves and combing through the regulatory filings. Or maybe I should buy a more powerful model?

That said, I believe there is a good chance of an eventual sale.

In 2022, the major shareholders were negotiating a sale to MBK Partners, one of North Asia’s largest private equity (PE) firms. The negotiation eventually broke down. Apparently, they disagreed on price.

The major shareholders (and management) are near retirement age. The company has not publicly identified a clear next-generation successor.

Factors to focus on

Revenue deceleration? Is post-lockdown normalisation the complete explanation behind the recent years of revenue deceleration?

In 2025, management also attributed the -4% decline in High School revenue to ‘the trend of top-tier students preferring self-study for retaking the college entrance exam persists’.

Digital Daesung, its direct competitor, also experienced similar deceleration. However, in recent quarters, it managed to maintain low positive revenue growth while MegaStudyEdu experienced low single-digit decline. Why?

Substitution risks? The Ministry of Education (MOE) provides free online CSAT lectures via Educational Broadcasting System internet (EBSi). The purpose is to help curb private education costs.

The MOE explicitly targets a ~50% linkage rate between EBSi materials and the actual CSAT exams. As a result, MegaStudyEdu faces substitution risks.

However, EBSi acts as a price and share ceiling at the low end of the market but has not displaced premium private CSAT prep providers like MegaStudyEdu. The company continues to differentiate on content quality, teacher reputation, and data-driven services.

EBSi has been free since it launched in 2004. In contrast, a MegaPass costs around KRW 600,000 (~ USD 400) per season. A MegaPass is the company’s all-access online subscription service providing unlimited access to lectures.

Despite the price difference, I estimate MegaStudyEdu grew its revenue by 4.4% p.a. since 2004.

A cursory browse through DC Insider, the Reddit-equivalent in South Korea, reveals students still perceive the company’s star lecturers as superior.

AI disruption? I believe this risk is low.

The lecturers on MegaStudyEdu are not just lecturers. They are celebrities.

According to Korea JoongAng Daily, “The relationship between students and star lecturers is similar to the one between fans and K-pop stars. Students even buy merchandise that includes bags, mugs and stickers.”5

The lecturers not only teach, but they motivate, entertain, console and even admonish.

Upcoming events

Fri 15 May 2026: Q1’26 earnings release (expected)

Coming up next

Is Duolingo AI-resistant?

OpenAI released ChatGPT in Nov 2022.

Chegg, Inc. (CHGG US), a popular edutech company, has been on the decline ever since. Revenue first declined -1% in 2022, then -7% in 2023 before collapsing -39% in 2025. The share price is down almost -95%.

In contrast, Duolingo, Inc. (DUOL US) is going from strength to strength. Revenue continued growing. +47% in 2022, +44% in 2023 and +39% in 2025.

Why?

I will explore this in my next post.

Subscribe for free to be notified immediately when I publish.

Disclaimer

This publication is for informational, educational, and entertainment purposes only and does not constitute financial, investment, legal, or tax advice. The content herein is a record of my personal research and investment process, and all analysis, forecasts, and opinions expressed are solely my own.

I make no representation or warranty, express or implied, as to the accuracy, completeness, or timeliness of the information provided. The stock market is highly volatile, and my forecasts, estimates, and assumptions may prove incorrect.

I am not acting as your financial advisor or fiduciary. You should not rely on any information in this publication to make investment decisions. Under no circumstances will I be held liable for any direct, indirect, or consequential losses or damages arising from your reliance on the content of this publication.

At the time of publication, I do not hold any positions in 215200, either long or short. I may change my views, predictions, or personal portfolio positioning at any time without notice.

References

About (30 April 2026)

Share price: SGD 3.34

Market capitalisation: SGD 464 mn (USD 365 mn)

Enterprise value (EV): SGD 442 mn (USD 347 mn)

Average daily volume (ADV): SGD 1.5 mn (USD 1.2 mn)

LTM P/E: 34x; LTM P/B: 9x

My decision

This is a record of my investment decisions, not financial advice. Read the full disclaimer at the end.

I decided to continue holding my shares (previous: buy).

At SGD 3.34, 5DD shares now look fairly valued.

My investment has grown to a large portion of my portfolio. As a matter of prudent portfolio management, I plan to hold my shares while looking to redeploy the capital into new opportunities.

Background

What are my key takeaways from Micro-Mechanics’ earnings call on Wed 29 Apr 2026?

The cycle has turned. Revenue growth continued to accelerate. Operating profit margins continued to expand, finally recovering to the levels reached during the previous upcycle.

Near-term demand remains healthy. Management reported their lead time continued to increase. The risks of irrational capacity expansion remain low.

That said, there are indicators that we are no longer in the early stages of the upcycle.

Inventory growth finally increased faster than revenue. My framework suggests the current semiconductor shortage may end around calendar Q1’27.

I discuss these in detail in this post.

Business model

5DD’s financial year ends in Jun. Unless stated otherwise, all time references will follow 5DD’s financial year. For example, Q3’26 refers to Jan 2026 – Mar 2026.

If Micro-Mechanics (Holdings) Ltd. (5DD; MMH SP) is new to you, check out their business model here: Micro-Mechanics: After a +97% rally, is it too late to buy?

My reasons

Cyclical inflection

No longer in the early stage of upcycle. In Q3’26, inventory increased +23% YoY. This is the second consecutive quarter of YoY increase.

Management explained the increase was mainly due to higher material costs and 5DD building up inventory to support the fulfillment of confirmed backlog orders.

That the inventory (+23% YoY) increased faster than revenue (+16%) suggests we are no longer in the early stage of the current upcycle.

Risk looks low in the near-term. Management reported their lead time continued to increase. Demand still looks strong over the next year. The risks of irrational capacity expansion appear low.

Coupled with the positive industry read-throughs and healthy channel dynamics discussed in my thesis, near-term risks appear low.

Potential downcycle from ~ Q3’27 (calendar Q1’27). For the reasons I discussed in my previous post, Where are we in the semiconductor cycle?, I believe the next semiconductor downcycle could start ~ Q3’27 (calendar Q1’27).

I will not repeat the explanation here. Instead, I will apply the framework to 5DD and show you the resulting chart.

Source: Angsana Anderson’s estimates; Tikr; Investing.com

5DD typically experiences revenue growth during memory chip shortage (when ASP flatlines or increases). These are also the periods when its share price rallies.

At the early stages of the current shortage, 5DD’s revenue growth was weaker than expected.

I suspect significant downstream inventories delayed customer orders. Inventory days at major OSATs like Amkor Technology, Inc. remained elevated during 2023 and early 2024.

When the memory chip industry flips to oversupply, ASP collapses towards cost. During these periods, 5DD’s revenue growth and share price typically decline.

In my previous post, I estimate that the current shortage will end around calendar Q1’27. If this is accurate, this means 5DD’s revenue growth could enter a downcycle from ~ Q3’27 (calendar Q1’27).

I am not betting on the exact timing. Of course, I expect my prediction to be off by one or two quarters, maybe even three.

Why, then, do I try to understand where we are in the cycle and forecast the next downturn?

It’s about positioning rather than perfect prediction.

After a huge rally, there is a natural bias to hold onto cyclical winners regardless of valuation. Recognizing that we are in the late stages of a shortage helps me overcome this bias.

It reminds me that current earnings are not sustainable, preventing me from extrapolating peak earnings.

Furthermore, this upcycle has caused semiconductor companies to grow into a disproportionately large part of my portfolio. Recognizing that a downturn is approaching pushes me to begin diversifying.

Prudent portfolio management. This is why I am looking to redeploy a portion of my capital from 5DD.

It is not because I have lost confidence in the company. On the contrary, 5DD’s management has navigated past downturns and capitalised on the current upcycle so well that the position has grown too large.

I believe 5DD has set a benchmark that many other public companies in Singapore would do well to follow.

Management continues to demonstrate strong alignment with minority shareholders. They maintain a high standard of disclosure, consistently providing important and candid insights into their business.

“A crucial test of management is whether they explain things clearly, honestly and transparently. Companies that succeed in this tend to be better run, in my experience.”

- Charlie Huggins, a former fund manager (20 lessons from 20 years of investing)

Other matters

Capex likely to increase. Since FY2022, capex has been running below depreciation. Management guided SGD 2.8 mn capex for FY2026. This will likely fall below depreciation (~ SGD 6 mn). Property, plant and equipment is now ~ 77% depreciated.

I asked whether they foresee the need to raise capex significantly above depreciation in the future.

Management explained they had been focusing on preventive maintenance. Going forward, they expect higher capex.

No loss of major customer. During the same period last year, 5DD reported 1 major customer that contributed more than 10% of revenue. 5DD did not report any major customer in this period.

Management explained there was no loss of business with this customer. The contribution from this customer fell below 10% because revenue from other customers increased.

Advance from customers not a meaningful leading indicator. Even though the amount is immaterial (~0.2% of revenue), I asked management to explain the nature of advances from customers. Does the company usually require customers to pay in advance?

5DD typically sells on credit. Sometimes, to manage credit risks in certain geographies, the company may require certain customers to pay in advance.

I believe this is why advances from customers does not show any meaningful correlation to revenue growth.

Factors that could lead me to increase investment in 5DD

1. Evidence that the current upcycle will be much stronger than historical cycles (e.g. current capex has not reached peak levels, the spread between ASP and unit cost of memory chip can continue to widen).

2. Share price falls > 30% without significant deterioration in business fundamentals.

Factors that could lead me to decrease investment in 5DD

1. Strong evidence that we are approaching the peak of the semiconductor cycle, and other investors are extrapolating peak earnings and overpaying for 5DD shares.

Upcoming events

Thu 27 Aug 2026: Q4’26 and FY2026 earnings release (expected)

Fri 28 Aug 2026: Q4’26 and FY2026 earnings call (expected)

Coming up next

Is there an opportunity in South Korea’s largest private education platform?

In Apr 2025, the company announced its corporate value-up program.

It planned to grow revenue by +9% p.a. and operating income by 19% p.a. through 2027.

The company also planned to increase capital returns to shareholders, targeting to return 60% of net income through dividends and share buybacks.

This implies 11% yield on enterprise value, an attractive 7.4% premium over South Korea’s 10-year government bond yield.

Finally, a catalyst is on the horizon. In Feb 2026, the media reported that management is looking to sell 32% of the company to private equity. The sale price would value the entire company at around KRW 925 bn.

Yet, the company is trading at only KRW 456 bn enterprise value and 5x NTM P/E.

What’s the catch?

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Disclaimer

This publication is for informational, educational, and entertainment purposes only and does not constitute financial, investment, legal, or tax advice. The content herein is a record of my personal research and investment process, and all analysis, forecasts, and opinions expressed are solely my own.

I make no representation or warranty, express or implied, as to the accuracy, completeness, or timeliness of the information provided. The stock market is highly volatile, and my forecasts, estimates, and assumptions may prove incorrect.

I am not acting as your financial advisor or fiduciary. You should not rely on any information in this publication to make investment decisions. Under no circumstances will I be held liable for any direct, indirect, or consequential losses or damages arising from your reliance on the content of this publication.

At the time of publication, I hold shares in 5DD. I may change my views, predictions, or personal portfolio positioning at any time without notice.

You also promised to explain your framework for forecasting the cycle.

Let’s hear it.

Before I begin, I must make two confessions.

First, I did not discover this framework myself.

I learned the key foundations from Jim Handy of Objective Analysis, and then built on them through my work and experience.

I absolve you. What’s your second confession?

Although I said I will explain the semiconductor cycle, in reality, I will explain the memory chip cycle.

With few exceptions, overall semiconductor growth follows memory growth.

Memory chips make up 25% to 30% of the overall semiconductor market by revenue.1 That’s why the memory cycle is a useful proxy for the broader semiconductor cycle.

If we know the memory cycle, we will have a good understanding of the overall semiconductor cycle.

Sounds good. Let’s get into the memory cycle.

First, the most important memory chips are DRAM and NAND.

They store data. DRAM stores short-term data while NAND stores long-term data. You need both in a computer, smartphone, etc.

That’s all the technical detail you need to know.

What most people don’t fully appreciate is that DRAM and NAND are commodities.

How can such high-tech chips be commodities?

The key characteristic of a commodity is that it is fungible. When something is fungible, it means it is identical and interchangeable.

DRAM and NAND fit this definition. It doesn’t matter whether you use DRAM from Samsung or Micron . They all work the same in your laptop.

Ok. Identical and interchangeable = commodity.

That’s right.

Because memory chips are commodities, it doesn’t matter which supplier you buy from. You just want the cheapest price.

Therefore, suppliers compete mainly on price.

In the chart below, I plot the average selling price (ASP) and cost per GB (unit cost) of DRAM and NAND.

Source: Angsana Anderson’s estimates based on Samsung Electronics, Micron and SK hynix

Explain your chart.

Unit cost declines over time because of technological advancements (Moore’s Law).

As unit cost declines, price competition among suppliers pushes ASP to follow cost. ASP follows cost until we reach a shortage.

During a shortage, ASP flattens or even increases while unit cost continues to decline.

Memory chip makers start raking in outsized profits. They invest these profits into new fabs.

Generally, it takes around 2 years to build new fabs.

When these fabs are completed, they flood the market with memory chips.

The market flips from shortage to oversupply. ASP collapses towards cost. Profits disappear.

Because of lower profits or even losses, memory chip makers start cutting capital expenditures (capex). Supply stops growing.

At the same time, demand continues to grow. ASP recovers and follows cost.

The cycle repeats.

Can you summarise this?

The memory cycle has 3 stages:

1. ASP follows cost: recovery from oversupply

2. ASP flattens or increases: shortage

3. ASP collapses towards cost: oversupply

Which stage are we in now?

I estimate we are now already 9 quarters into the current shortage.

Historically, shortages last only 7 to 9 quarters. If history repeats, we could be near the end of the current shortage.

This method is not quite scientific, isn’t it? It feels borderline astrology?

Shortages end when new fabs are completed.

In the chart below, I plotted historical capex growth against memory ASP and unit cost.

It shows ASP usually collapsed 2 to 4 quarters after capex growth peaked.

The peak signals the heaviest investments have been made, meaning new supply is just quarters away from hitting the market.

Source: Angsana Anderson’s estimates based on Samsung Electronics, Micron and SK hynix

Capex growth seems to be forming a peak in Q4’25. This suggests the memory market may flip into oversupply within the next 2 to 4 quarters.

What are the implications for investors?

Let me plot the QoQ % change in SOXX against memory ASP and unit cost. refers to the iShares Semiconductor ETF, one of the most popular semiconductor ETFs.

Source: Angsana Anderson’s estimates based on Samsung Electronics, Micron, SK hynix, SOXX

The last shortage ran from 2020 to 2021. Memory chip makers raked in massive profits, catching investors’ attention and fuelling a +160% rally in SOXX.

By early 2022, after two years of extraordinary gains, investors grew euphoric. “This time is different!” They extrapolated the recent growth indefinitely.

Imagine their shock when ASP collapsed around early 2022. The new fabs opened and flipped the market into oversupply. Profits disappeared.

SOXX crashed as investors raced to dump anything related to semiconductors. “No more lousy cyclicals!” Just like in the late stages of the shortage, they extrapolated the oversupply indefinitely.

Chip makers start cutting capex to stem supply growth. When demand, boosted by generative AI, eventually caught up around early 2024, the current shortage began.

The cycle repeats.

Can you be more straightforward?

I don’t provide financial advice or recommendations. But like any other private investor, I can always share my forecasts and how I am positioning my personal portfolio.

I estimate the shortage will end around Q1’27. Capex growth peaked around Q4’25. Historically, ASP starts to collapse 2 to 4 quarters after the peak in capex growth.

Because of forward guidance, investors will start reacting one or maybe two quarters before Q1’27. This means the rally in SOXX will probably end around Q4’26.

Could you be wrong?

There is a chance the shortage ends in Q1’28, a year later than I expect.

Here’s the same chart, but with consensus forecasts of capex growth.

Source: Angsana Anderson’s estimates based on Samsung Electronics, Micron, SK hynix; Tikr

The consensus is forecasting that after a brief pause in Q1’26, capex growth will accelerate and peak only around Q1’27.

If this happens, the shortage will probably end around Q1’28, a year later than I expect. Accordingly, SOXX will likely only start declining in Q4’27.

However, I am skeptical.

For reasons I will discuss later, during shortages, consensus tends to overestimate future capex growth. Time and again, these estimates are revised downward when the shortage begins to ease.

Furthermore, the target production date of new fabs cluster around early 2027. I asked Perplexity to compile data on major memory fabs under construction and their expected production date:

Finally, if the shortage will end only in Q1’28, this would make the current shortage the longest since 2011. At 17 quarters long, this shortage would be twice the duration of the past 3 shortages.

I am confident the current shortage will eventually end. I expect this to happen around Q1’27. If the shortage persists beyond 2027 and into 2028, I would be very surprised.

Why can’t semiconductor companies forecast their demand accurately and avoid oversupply?

I believe there are 2 big reasons.

These 2 reasons also explain why I believe the semiconductor industry will remain cyclical, despite the tremendous growth recently.

First reason: true demand unknown

When a shortage begins, customers start worrying over inventory. So, like any prudent people, they start hoarding inventories.

When distributors order laptops from HP , they will order extra to create buffer inventory.

HP receives the order. It is bigger than expected. At the same time, HP also sees the shortage starting.

What does HP do? It plays safe and orders its own buffer inventory!

The same thing happens when laptop manufacturers like Quanta order chips from SK hynix.

By the time SK hynix receives the order, everyone’s buffer inventory will have significantly inflated the true demand.

Isn’t this called the bullwhip effect?

Yes.

A small flick of the wrist creates a massive movement at the end of a whip.

A small change in end-demand causes large fluctuations as orders move up the supply chain.

What’s the second reason?

Inelastic supply.

Suppose SK hynix’s order book consists of 50% true demand and 50% panic-driven buffer inventory. Perceived demand has effectively doubled.

Reacting to this massive signal, SK hynix aggressively scales up its capex, doubling the size of its planned fab and ordering twice as much equipment.

In the meantime, the shortage begins easing. Customers start reducing their buffer inventory and true demand becomes clearer.

By then, it is too late. The shell is built, the equipment is installed and calibrated. Wafers are rolling off the line.

Because semiconductor equipment represents such a massive sunk cost, SK hynix has every incentive to keep pumping out volume to recoup its investments, producing as long as marginal revenue exceeds marginal cost.

What is completely rational for an individual chipmaker is disastrous for the industry.

As every player maxes out their utilization rates to cover fixed costs, the market plunges into a full-blown oversupply.

There is no quick fix. Chipmakers just have to live with it until demand catches up eventually.

Some don’t even live through the oversupply. See Elpida Memory, once the world’s third-largest DRAM maker. It went bankrupt in 2012.2

Coming up next

Micro-Mechanics (Holdings) Ltd. (5DD; MMH SP) released their earnings on Tue 28 Apr 2026 and held their earnings call on Wed 29 Apr 2026.

Is the earnings release good or bad? Is my thesis still on track?

Let me update you in my next post.

After that, I want to highlight a potential opportunity: “Why is South Korea’s largest private education platform trading at only 5x NTM P/E?”

Subscribe for free to be notified immediately when I publish.

Disclaimer

This publication is for informational, educational, and entertainment purposes only and does not constitute financial, investment, legal, or tax advice. The content herein is a record of my personal research and investment process, and all analysis, forecasts, and opinions expressed are solely my own.

I make no representation or warranty, express or implied, as to the accuracy, completeness, or timeliness of the information provided. The semiconductor industry and financial markets are highly volatile, and my forecasts, estimates, and assumptions may prove incorrect. I may change my views, predictions, or personal portfolio positioning at any time without notice.

I am not acting as your financial advisor or fiduciary. You should not rely on any information in this publication to make investment decisions. Always conduct your own independent research and consult with a qualified financial professional before making any investment. Under no circumstances will I be held liable for any direct, indirect, or consequential losses or damages arising from your reliance on the content of this publication.

References

On 28 Jan 2026, I bought 5DD shares and wrote the first version of this thesis.

I have reproduced the thesis here, with corrections and edits for brevity and clarity. The core thesis is unchanged.

Under the ‘Subsequent events’ section, I added updates from the most recent earnings, as well as my latest assessment and decision.

About (28 Jan 2026)

Share price: SGD 1.61

Market capitalisation: SGD 224 mn (USD 177 mn)

Enterprise value (EV): SGD 198 mn (USD 156 mn)

Average daily volume (ADV): SGD 0.2 mn (USD 0.2 mn)

LTM P/E: 17x; LTM P/B: 4.2x

My decision (28 Jan 2026)

I bought my shares at SGD 1.62. Within 3 to 5 years, I expected to sell my shares for at least SGD 3.20.

Over 3 years, I expected to earn ~29% p.a. (26% capital gains; 3% dividend yield). Over 5 years, I expected to earn ~18% p.a. (15% capital gains; 3% dividend yield).

Background

Micro-Mechanics: After a +97% rally, is it too late to buy?

At the start of the year, Micro-Mechanics was an unloved orphan. The consensus? “A lousy cyclical business with no liquidity.”

Today, the narrative has flipped. After surging +97% year-to-date, there is palpable excitement surrounding the shares.

In this post, I’ll break down why I bought shares in 5DD on 28 Jan 2026. I will also try to make sense of the sudden rally that even surprised me.

Finally, I will tackle the most important question: Is it too late to buy?

Business model

5DD’s financial year ends in Jun every year. Unless stated otherwise, all time references will follow 5DD’s financial year. For example, Q2’26 refers to Oct 2025 – Dec 2025.

Breakdown of FY2025 revenue (SGD 65 mn, +13% YoY):

• 77% consumable tools (+6% YoY)

• 23% wafer fabrication equipment (WFE) parts (+46% YoY)

The consumable tools segment focuses on the design and manufacturing of miniature consumable tools used in the assembly and testing of semiconductors.

The main consumable tools are die attach tools, wire-bonding tools and encapsulation tools. These tools are used to package bare (‘naked’) chips into finished products. Elastomer (rubber) products represent ~30% of group revenue.1 For details, please see Micro-Mechanics’ product catalog.

The WFE parts segment focuses on making metal components and precision parts such as wafer‑handling parts and precision mounts for semiconductor wafer fabrication equipment. It is largely carried out by its US subsidiary (MMUS).

5DD has > 600 customers worldwide. Historically, major customers include leading outsourced assembly and testing (OSAT) companies like Amkor. In FY2025, 1 customer of the wafer fabrication equipment parts segment represented 10% of group revenue.

31% of revenue comes from China, 22% from USA, 18% from Malaysia and the remaining 29% from the rest of the world.

The largest expense is cost of sales (51% of revenue). This mainly consists of cost of inventories sold.

5DD operates in a niche, fragmented industry. 5DD is much larger than most consumable tooling competitors, but smaller than its WFE parts competitors.

In its consumable tooling segment, its direct competitors are mostly private. These include SPT Roth Ltd (SPT) and Micro Point Pro Ltd (MPP).

SPT seems like the largest competitor. It has 6 locations around the world. LinkedIn shows 156 employees. 5DD’s LinkedIn shows 144 employees and 5 locations.

5DD’s competitors in its WFE parts segment include Frencken Group Limited (E28; FRKN SP) and UMS Integration Limited (558; UMSH1 SP). That said, these competitors are not directly comparable because they have other segments like contract assembly and contract manufacturing.

Founder Christopher Borch and his family control over 43% of 5DD. Former COO Low Ming Wah owns another 5%. Yeo Seng Chong, the founder of Yeoman Capital, owns 0.5% in his personal capacity.

Institutions remain a small presence. No private equity or activists on the shareholder registry.

For a more in-depth introduction to 5DD’s business, check out:

· MONEY FM 89.3’s Chua Tian Tian interviews Micro-Mechanics CEO Kyle Borch

· NUS Professor Mak Yuen Teen’s case study on Micro-Mechanics (page 54). It is one of the few companies that has made the mark on Prof. Mak’s books.

· The Fifth Person interviews CEO Borch

My reasons

Cyclical inflection

Customers report higher demand. The semiconductor industry is notoriously cyclical.

A quick scan of the earnings call of major semiconductor companies suggests an inflection point is near. In their latest earnings call, direct customers such as Amkor Technology, Inc. and ASE Technology Holding Co., Ltd. (3711 TT) provided positive outlooks.

On 28 Jan 2026, Texas Instruments , a leading analog chipmaker and probably an important customer of 5DD, reported better-than-expected outlook. This prompted a +10% share price jump in just one day.

Customers’ inventory is low. The higher demand reported by customers will likely flow quickly to 5DD because customers’ inventory is low.

Although inventory days remain above average across analog names like TXN, analog integrated device manufacturers (IDMs) like TXN are only a part of 5DD’s customer base.

Inventory days at major OSATs (5DD’s other major customer group) like Amkor, ASE, JCET have largely trended below average and are near all-time low.

5DD reaching an inflection point. After 2 consecutive years of revenue decline, revenue finally grew +13% in FY2025.

Inventory days are near all-time low ~38 days in Q2’26. The 10-year average is ~53 days.

Good business, temporary headwinds

5DD is a high-quality business. Since 2006, 5DD’s return on asset (ROA) averaged ~14%. Such high ROA is rare in the industry and signals a high-quality business.

I believe 5DD achieves high ROA because its products are low-ticket, yet mission critical, thereby creating high switching costs for its customers.

5DD’s largest product category is probably its rubber tips. After cutting (‘dicing’) completed silicon wafers into individual chips (‘dies’), semiconductor manufacturers use these rubber tips to pick up the dies and package them.

These rubber tips are mission critical. If the tips are poor quality or worn out, they will contaminate the dies. The dies may need to be discarded.

Despite their importance, these rubber tips are low-ticket. A rubber tip can retail for less than USD 1.00 per unit.2 Wholesale prices should be lower.

In contrast, a completed silicon wafer costs from USD 3,000 for a mature node to USD 30,000 for the most advanced nodes.3

If 5DD’s rubber tips work, why switch to an unproven new supplier and risk spoiling expensive wafers just to save a few cents?

But the market has not fully recognised 5DD’s quality. Between Oct 2025 and Dec 2025, 5DD’s share price sold off after it faced headwinds. 5DD reported +3% YoY quarterly revenue growth, down from +12% in the previous quarter.

The headwinds are likely temporary. The headline +3% is masking the business quality and its true growth potential.

Revenue at consumable tools segment actually grew +8% YoY. WFE parts revenue fell -15% YoY because of delays in materials and shortages.

However, order book increased +20% QoQ. Revenue growth will likely accelerate in future quarters as 5DD resolves the materials shortage.

Indeed, by mid-Nov 2025, the CEO said the material shortage in the WFE parts segment had been resolved.4

Reading between the lines, this implies pushing of revenue from Q1’26 (Jul 2025 to Sep 2025) to Q2’26.

Valuation

At the share price of SGD 1.61 on 28 Jan 2026, 5DD offered 9% free cash flow yield on EV. This yield is likely sustainable because I believed 5DD is at the bottom of the semiconductor cycle.

9% is an attractive 6.8 percentage points (ppt) premium over Singapore’s 10-year government bond yield of 2.2%.

I estimated intrinsic value at SGD 3.20 per share based on a discounted cash flow valuation.

This implies ~50% margin of safety and ~98% upside. This looked very attractive to me.

Catalysts

Capital return when the cycle turns. The semiconductor cycle will eventually turn. When it inflects, 5DD has always returned the excess profits to shareholders. Dividend payout ratio averaged 85% in the past 10 years.

Singapore EQDP. Singapore has injected SGD 4 bn into the local stock market, with plans to inject another SGD 1 bn in 2026.

The total SGD 5 bn will be placed with fund managers to invest in Singapore equities, especially small and mid-caps.

This has driven price discovery among Singapore mid-caps, but not yet for small-caps like 5DD.

As the fund managers build up their research capabilities, small-caps like 5DD will likely appear on their radar.

Risks

What if the semiconductor cycle fails to turn?

In an unexpected downturn, 5DD’s downside is protected by 2 factors: (a) recurring revenue from low-ticket, mission critical consumable tools and (b) no debt (cash > 10% of market cap.).

Previously, we discussed how 5DD’s high-quality business stems from selling low-ticket, mission critical tools.

The other advantage that we have not talked about is that these tools create recurring revenue because they are consumables. These tools will wear out, some need to be replaced within hours.

Replacement cannot be delayed. Otherwise, the production line will stop. In any case, it does not make sense for customers to delay buying replacements from 5DD. These are low-ticket items.

That’s why, during downturns, 5DD is more resilient.

In the most recent downturn during FY2023, 5DD’s revenue declined only -19% compared to -27% for SK hynix Inc. (000660 KS) and -50% for Micron Technology, Inc. .

Factors that could lead me to increase investment in 5DD

1. Evidence that the current upcycle will be much stronger than historical cycles.

2. Share price falls > 30% without significant deterioration in business fundamentals.

Factors that could lead me to decrease investment in 5DD

1. Strong evidence that we are approaching the peak of the semiconductor cycle, and other investors are extrapolating the peak earnings and overpaying for 5DD shares.

Subsequent events

Q2’26 earnings

On 29 Jan 2026, 5DD released their earnings, followed by an earnings call the next day.

My thesis seems to be playing out.

Good business, temporary headwinds

Headwinds temporary. As I expected, revenue growth accelerated to +15% YoY in Q2’26, up from +3% YoY in Q1’26.

WFE parts segment recovered from material delays and shortage. Revenue increased +6% YoY in Q2’26, up from -15% YoY in Q1’26.

Revenue growth from consumable tools accelerated to +17% YoY in Q2’26, up from +8% YoY in Q1’26.

Cyclical inflection

Customers placing more rush orders. Demand is strong and improving.

CEO Kyle Borch reported WFE parts customers placing more advance orders.

Consumable tools customers are placing more rush orders and are increasingly concerned whether they can get their consumable tools fast enough to support their own customers.

Working capital trends signal cyclical inflection. Although 5DD does not provide guidance, working capital trends suggest the cycle has likely bottomed out and outlook is better than expected.

After multiple quarters of destocking, inventory finally increased slightly by +2% YoY in Q2’26. Coupled with the acceleration of revenue growth to +15% YoY in Q2’26, this suggests 5DD likely sees strong demand and is stocking up to meet that demand.

VP Finance Wendy Tan explained that the inventory increase in Q2’26 was concentrated on raw materials.

This supports my hypothesis. Demand likely grew stronger than expected because 5DD is finally restocking inventory after multiple quarters of destocking.

Low risk of irrational capacity expansion over the next year. I asked, “What are the risks of your competitors irrationally expanding capacity?”

CEO Kyle Borch believes this risk is low over the next year or so. “There is certainly a lot of demand… real demand…”

Catalysts

Singapore EQDP. Besides engaging the funds that received the SGD 5 bn EQDP allocation, CEO Kyle Borch did not offer more details on how they plan to benefit from Singapore’s EQDP. Reading between the lines, it seems like this is not their priority.

On the positive side, they noted multiple new faces during this earnings call, including myself.

Besides boutique fund managers and sell-side, I noticed analysts from at least 2 funds that received SGD 5 bn EQDP allocation.

In my thesis, when commenting on catalysts, I said ‘As the fund managers build up their research capabilities, small-caps like 5DD will likely appear on their radar.’ The participation of these analysts supports this.

5DD will likely increase capital returns only after multiple quarters of good performance. The negative point is that 5DD kept interim dividend unchanged at 3 cents.

In FY2024, 5DD cut their interim dividend in half. I believe management wants to see multiple quarters of good performance before increasing dividends again.

My decision (24 Apr 2026)

This is a record of my investment decisions, not financial advice. Read the full disclaimer at the end.

In less than 3 months, 5DD’s share price has climbed to SGD 3.24. I do not expect every stock I buy to perform like this. Furthermore, performance should be assessed across the entire portfolio, not based on a single winning call.

I have made my share of mistakes, including Haw Par Corporation Limited (H02; HPAR SP).

I will certainly make more. What’s important is that, over a full market cycle, my portfolio outperforms.

I have been in this business long enough to know that skill matters, but luck and emotional discipline matter just as much, if not more.

Peter Lim, a Singaporean billionaire investor reportedly said: “When you are holding stocks, if it goes up, don’t be too happy; when it goes down, don’t be too sad. Otherwise, how? Your life will also be fluctuating, and you’ll die of a heart attack.”5

I decided to hold. I believe 5DD is not overvalued, despite the near +100% rally this year. At the current share price of SGD 3.24, I believe it is only trading around its intrinsic value.

Looking to redeploy. That said, I am leaning towards redeploying a portion of the capital to other more attractive opportunities when they arise.

Upside not obviously greater than downside. My leading indicators signal that we could be approaching the peak of the memory cycle.

Even though I estimate 5DD has more exposure to analog chips than memory chips, the memory cycle is important because it leads the analog cycle.

Margins on memory chips at unprecedented highs. The gap between the average selling price of memory chips (ASP) and unit cost is the widest it has ever been since 2011.

Is it possible that the margins continue to exceed expectations and widen further? Yes.

Is it probable? I believe not.

But capex growth peaking. Capex growth at major memory chip makers like SK Hynix has peaked around Jun 2025.

Historical precedents show that ASP typically collapses within a few quarters of capex growth peak. The opening of new fabs floods the market with more memory chips. This pushes down ASP.

In summary, I am maintaining my position in 5DD for now. However, with the risk/reward profile becoming less attractive, I am actively looking to rotate this capital once a more compelling opportunity presents itself.

Risk looks low in the near-term. My decision to hold through the near term is driven by a low probability of a major disappointment in the upcoming earnings call on Tue 28 Apr 2026.

Positive industry read-throughs. On 22 Apr 2026, TXN reported a better-than-expected outlook, prompting a nearly +20% share price jump in just one day.

Healthy channel dynamics. Average inventory days for major OSATs ticked up slightly in calendar Q4’25 but remain comfortably below historical averages.

Upcoming events

Tue 28 Apr 2026: Q3’26 earnings release

Wed 29 Apr 2026: Q3’26 earnings call

Valuation model

Subscribers may request a free copy of my valuation model by emailing me at angsana.anderson@gmail.com.

I will send out my model by the end of Sun 26 Apr 2026.

Coming up next

Where are we in the semiconductor cycle?

When I was a junior semiconductor analyst, I hung onto every word of the CEOs of major semiconductor companies.

After multiple quarters of “seeing the bottom pushed out”, I realised that even industry leaders have limited visibility into the cycle’s timing, or their public guidance is inherently constrained by corporate policies.

I was lost in the wilderness. That is, until I found this framework:

Source: Samsung Electronics Co., Ltd. (005930 KS); Angsana Anderson

In my next post, I will explain why the semiconductor industry is so notoriously cyclical, and why, despite the recent tremendous growth, it will likely remain cyclical.

I will also demonstrate this framework.

How do I use it to understand where we are in the cycle, and what likely lies ahead of us now?

Subscribe for free to get my next analysis when I publish it.

Disclaimer

This is a record of my investment decisions, not financial advice. I may change my decisions without notice. Use this only for education and entertainment. All analysis and opinions expressed are solely my own, and 5DD has not reviewed or endorsed this post. Do not rely on this for your investment decisions. I hold shares in 5DD.

References

About (22 Apr 2026)

Share price: USD 10.60

Market capitalisation: USD 1,969 mn

Enterprise value (EV): USD 1,046 mn

Average daily volume (ADV): USD 5 mn

NTM P/E: 7x

My Decision

Pass (previous: pass)

Background

Chagee: Profits attract competition, competition destroys profits

At only 7x NTM P/E, Chagee looks attractive.

However, I decided to pass.

Chagee’s latest earnings show an industry that remains too competitive. Company-owned stores nearly doubled from a year ago. However, this is likely the result of Chagee taking over unprofitable stores from franchisees.

Does Chagee’s opportunity lie overseas? Unlikely.

In Q4’25, overseas same-store sales growth continued to deteriorate. I found out why after visiting Chagee’s flagship store in Singapore.

Consumer tastes are rapidly changing, yet Chagee became slow to respond.

In this Substack post, I will discuss these concerns in detail.

Business model

Breakdown of 2025 revenue (RMB 12.9 bn, +4% YoY):

• 88% from franchised stores (−2% YoY)

• 12% from company-owned stores (+93% YoY)

CHA earns revenue from franchised stores by selling products and services to franchisees.

Out of the 88% revenue from franchised stores, 75 ppt is earned from sale of raw materials, 7 ppt from store equipment and other supplies and the remaining 6 ppt is earned from franchising and other services.

Revenue from company-owned stores is generated from the sale of freshly made tea drinks directly to customers.

As of 2025, CHA has 7,453 stores. 7,108 stores are in mainland China and HK. The remaining 345 stores are located overseas, mainly in Malaysia (217 stores).

6,838 stores are franchised while the remaining 615 stores are directly owned by CHA.

Relevant public comparables include Nayuki Holdings Limited (2150 HK), Auntea Jenny (Shanghai) Industrial Co., Ltd. (2589 HK), and Sichuan Baicha Baidao Industrial Co., Ltd. (2555 HK).

My reasons

Industry is oversaturated and too competitive

Franchisees quitting. At first glance, CHA seems to be doing well. Overall same-store gross merchandise value (GMV) growth improved from -28% in Q3’25 to -26% in Q4’25. CHA even increased its store count by 115 in Q4’25.

However, a closer examination reveals the market remains oversaturated, business is getting worse and likely to continue deteriorating.

The increase in store count is mainly driven by company-owned stores in China. In Q4’25, company-owned stores increased by 168. At the same time, CHA closed 136 franchises stores in China.

“So what? Maybe Chagee wants to operate more stores themselves for quality control.”

I interpret this differently. I believe the oversaturation in the market is pushing many franchisees into losses.

According to 曹阳 (Cao Yang), a franchisee from the Beijing-Tianjin-Hebei region, CHA currently offers 2 solutions for underperforming franchised stores: optimisation or closure.1

Optimisation allows franchisees to find stores with lower rents and relocate, while closure means CHA directly acquires the stores and converts the franchised store into a company-owned store.

The fact that company-owned stores increased significantly just when franchised stores started closing en masse suggests that many franchisees are exiting because of significant losses. This could also explain why CHA slipped into operating losses in Q4’25.

It also suggests a bleak outlook. Put yourself in the shoes of a franchisee. If there are any signs that business will improve very soon, you would likely have held on and continued operating.

Working capital trends support this view. Contract liabilities, which primarily comprise upfront fees and advance payments from franchisees, declined 8% in 2025. This is the first drop since the company began disclosing this metric.

Second-hand equipment piling up. According to Mr. Liu, a dealer of second-hand equipment in China, “At this time last year, you had to fight to get a set of Chagee equipment.

Now? I have more than a dozen sets piled up in my warehouse.

Many franchisees have been listing their equipment for half a year but haven’t been able to sell it. In the end, they can only sell it as second-hand equipment at scrap metal prices.”2

He added that many franchisees who have listed their equipment still have very new store decorations.

“Some have been open for less than a year.”

Low barriers to entry

The grass is greener on the other side? The bulls argue that international markets will come to CHA’s rescue. After all, overseas store count increased +32% QoQ in Q4’25. Chagee will be the Starbucks of tea!

I am less optimistic.

Overseas same-store GMV growth deteriorated from -23% in Q3’25 to -26% in Q4’25. I believe it will deteriorate further, and the consensus is likely too optimistic.

During a Saturday in Apr 2026, I visited Orchard, Singapore’s busiest shopping district.

Orchard is where Chagee opened its Singapore flagship store in Aug 2024. It is also where Molly Tea, a rival, opened its flagship store in Mar 2026.

Let’s look at the newcomer first.

Source: Angsana Anderson

I was immediately struck by how busy it was. This was the scene at around 9pm on a Saturday. Look at how packed the counter is. Everyone is busy.

Look at the far-right corner: the mountain of cups stacked together. Each cup represents an unfulfilled order.

Here’s a close-up:

Source: Angsana Anderson

Besides the mountain of teacups, I want to highlight the automated tea-making machine.

Part of the bull case for CHA is its automated tea-making machines. CHA wrote in its prospectus: “we have developed automated tea-making machines that significantly enhance the efficiency of store staff, reduce consumer wait times, and elevate the overall consumer experience.”

CHA continues: “By incorporating our self-developed tea drinks recipe parameters into these machines, we enable our store staff to craft each cup of tea drinks [sic] in consistent high quality at approximately 8 seconds, eliminating the need for memorizing intricate operational protocols.”3

Sadly, a competitive advantage is not much of an advantage if competitors can easily copy it. Automated tea-making machines are now even available through third-party suppliers.4

At Molly Tea, I watched a staff prepare tea using an automated tea-making machine. The machine functions like the one in CHA’s stores. Based on the crowd, I reckon the taste is just as good or better than CHA’s.

Let’s move on to CHA’s flagship store in Orchard. It’s less than 5 minutes’ walk.

Source: Angsana Anderson

This is the best photo I could take without attracting attention, so I will have to lean more on my written observations. I have two observations.

First, CHA’s store looks much less busy than Molly Tea.

Second, I saw at least two staff idling. Excess staff suggests demand is weaker than expected. Store managers prepare staffing roster based on their expectation of demand.

Rapidly shifting consumer tastes.

Active customers likely declined. One of my favourite techniques is to compare the latest earnings release with the prior one.

Management usually drafts the new release by rolling forward the previous quarter’s document. If I notice a subtle shift from positive to more neutral language, it often points to a weaker outlook. Most importantly, I pay close attention to any KPIs that are redefined, deprioritised, or quietly removed.

In Q4’25, CHA removed ‘active members’ from its key operating data disclosure table.

CHA explained that it had expanded its definition of active members to include “traceable member activity across other third-party online delivery and social networking platforms.”5 As a result, its active members finally broke its declining trend:

Source: CHA

CHA did not provide a like‑for‑like active member number under the previous definition. If it had not expanded its definition, I believe active members would likely have shown a significant decline.

What is driving the declining trend?

“You’re hot and you’re cold” I believe the answer lies in the rapid change in consumer tastes, and CHA’s failure to respond quickly.

According to Cao Yang, “Boya Juexian used to account for more than 50% of the store’s sales, making it a solid pillar of sales. But in the past two years, Boya Juexian has become increasingly difficult to sell…”6 Boya Juexian is Chagee’s bestselling drink, a jasmine milk tea.

The franchisee added: “New tea drinks lack the addictive qualities of coffee products, making it easy for consumers to experience taste fatigue. On social media platforms, many consumers are saying they’re tired of Boya Juexian and don’t want to drink it again after a few tries…”

CHA is struggling to keep up with the rapid shift in consumer tastes.

From Jan to early Dec 2025, CHA launched just 8 new products, and only 4 after Jun, 2 of which were iterations of Boya Juexian. Between 2022 and 2024, rivals launched many more new products than CHA.

Source: 蓝鲸新闻 (2026)

CHA seems to have recognized this problem. During the Q4’25 earnings call, CEO Zhang admitted: “Honestly, we took some detours in new product launch rhythm and marketing execution, and we did not fully keep pace with how fast the market was moving.”

Factors that could lead to a re-assessment of my decision

1. Strong evidence that the industry is not as saturated and competitive as I believed (e.g. sustained recovery in same-store GMV growth).

2. New entrants stop entering, existing competitors start exiting.

3. CHA demonstrates consistent ability to follow consumer tastes.

   1. According to CEO Zhang, CHA’s new “Signature Pu-Erh Tea” launched in Dec 2025 drove a 16% week-over-week GMV uplift, significantly exceeding the historical average for all new products.

   2. If CHA’s new “Signature Pu-Erh Tea” and future new products continue to perform well, this will warrant a re-assessment.

Coming up next

Micro-Mechanics: After a +90% rally, is it still cheap?

At the start of the year, Micro-Mechanics was an unloved orphan. The consensus? "A lousy cyclical business with no liquidity."

Today, the narrative has flipped. After surging +90% year-to-date, there is palpable excitement surrounding Micro-Mechanics (Holdings) Ltd. (5DD; MMH SP).

In my next post, I’ll break down why I bought shares in 5DD on 28 Jan 2026. I will also try to make sense of the sudden rally that even surprised me.

Finally, I will tackle the most important question: Is it still cheap?

Subscribers get my analysis first. Free to join.

Disclaimer

This is a record of my investment decisions, not financial advice. I may change my decisions without notice. Use this only for education and entertainment. All analysis and opinions expressed are solely my own, and CHA has not reviewed or endorsed this post. Do not rely on this for your investment decisions. I do not hold any positions, long or short, in CHA.

References

About (18 Apr 2026)

Share price: THB 10.40

Market capitalisation: THB 9,776 mn (USD 307 mn)

Enterprise value (EV): THB 8,257 mn (USD 259 mn)

Average daily volume (ADV): THB 43 mn (USD 1.4 mn)

NTM P/E: 11x

My Decision

I decided to become a shareholder of SISB.

I plan to buy my shares at around THB 10.40. Within 3 to 5 years, I expect to sell my shares for at least THB 20.00.

Over 3 years, I expect to earn ~29% p.a. (24% capital gains; 5% dividend yield). Over 5 years, I expect to earn ~19% p.a. (14% capital gains; 5% dividend yield).

Background

In 1992, a young Singaporean engineer moved to Thailand for work. He later took over the management of a fledgling school. By 2018, that school IPO’d on the Thai stock market. Within six years, the stock was up almost 10x.

The school is the Singapore International School of Bangkok (SISB), and that Singaporean is Kelvin Koh.

Today, it’s almost as if all that progress never happened. The stock is down more than 70% from its peak.

What happened? More importantly, is this an opportunity or a trap?

In this Substack post, I discuss why I see an opportunity in SISB now.

I will also argue why I believe the consensus has not fully recognised SISB’s growth prospects and the potential for higher capital returns.

Business model

SISB operates 6 international schools in Thailand. In 2025, it earned ~ THB 2,582 mn in revenue (+8% YoY). SISB earns most of its revenue from tuition fees in Thailand. Curriculum offered ranges from nursery/kindergarten to Grade 12.

Most customers are students aged between 2 and 18 years from high-income families. In Q4’25, there are 4,594 students enrolled in SISB (-1% YoY). 71% of students are local. Of the 29% of students that are foreigners, 72% are Chinese.

The largest expense is cost of education (35% of revenue). This consists mainly of remuneration for teaching staff.

SISB is the largest operator of international schools in Thailand. In Q4’25, SISB holds ~5.5% market share by number of students. The second player is Nord Anglia with 5.3% market share. It operates 3 premium British-style schools in Thailand. The third and fourth players are Shrewsbury (2.7%) and ISP (2.4%).

Most direct competitors like Nord Anglia and Shrewsbury are private. There are few public comparables of similar size. The relevant public comparables of similar size include China Education Group Holdings Limited (839 HK) and MegaStudyEdu Co. Ltd (215200 KS).

International school enrolments in Thailand are rising because more Thai and expatriate families want English‑medium, globally recognised curricula and university pathways. Average revenue per student (ARPS) outpaces inflation. International schools tend to enjoy strong pricing power, supported by high switching costs and the perception of superior educational quality.

SISB is controlled by its Singapore‑Thai co‑founders, CEO Kelvin Koh and deputy CEO Wilawan Kaewkanokvijit. Together, they hold more than 50% of SISB.

Institutions remain a small presence and the general public holds most of the free float.

My reasons

Under-recognised growth.

Share price driven by expectations over student numbers. SISB's share price today is roughly where it was five years ago, as though the intervening rally and collapse never occurred.

The rally started around Mar 2022 after SISB forecasted huge growth in student numbers. The rally continued through mid-2024 as student numbers exceeded expectations and SISB upgraded its forecasts.

Source: SISB

From mid-2024, the rally fizzled and collapsed. Even though SISB maintained its forecasts for 2025 and even upgraded its 2026 forecasts, this was not enough in the face of sky-high expectations.

The collapse intensified around Q1’25 as SISB disclosed actual student numbers in 2024 barely met forecasts. SISB’s share price continued sliding as actual student numbers in 2025 missed forecasts and SISB started downgrading forecasts for 2026.

At its peak, SISB was trading at 49x NTM P/E. Today, it is trading at only 11x, near an all-time low.

SISB currently trades at an FCFF yield of ~10% on enterprise value (EV), implying an attractive premium of ~8 ppt over Thailand 10y government bond yield.

The consensus seems to be expecting flat or declining student numbers. Student enrolment declined by -1% in 2025. The consensus seems to be extrapolating this decline and is expecting another decline, or at best, flat student numbers in 2026. After all, Thailand’s fertility rate is declining and the population has been shrinking since 2021.

Is the consensus’ expectation appropriate?

I believe the answer is no.

Fewer children, more spending. Declining fertility rate is actually good for SISB. Thai parents have less children, but they are spending more on education per child. This reflects the trends seen in other Asian countries like South Korea.1

In the past 10 years, private school student numbers (excluding international school) declined -1% p.a.2 I estimate public school student numbers likely declined low-single-digit p.a. over the same period too. In contrast, student numbers in international schools grew +6% p.a. YoY.

SISB’s student numbers reflect this tailwind. Despite the economic headwinds, the total primary and secondary student numbers grew +3% YoY in 2025. The headline student number declined -1% because nursery and kindergarten enrolment declined -10%.

As the graph below shows, this segment is more sensitive to economic fluctuations because it is non-compulsory early childhood education.

Source: ttb wealth securities (2026)

By focusing on the short-term deceleration in headline student numbers, the consensus is likely underestimating SISB’s growth potential.

International school is growing in Thailand, but it remains underpenetrated. Rising income and desire for better education doubled the penetration rate of international schools from ~0.4% in 2014 to ~0.8% by 2025.

Despite strong growth, Thailand’s penetration rate of 0.8% is still far below Malaysia at ~2.0%. I estimate the penetration rate of international schools in Malaysia increased from ~1.0% ten years ago to ~2.0% today.

It is reasonable to expect Thailand to follow Malaysia’s path because the markets are similar. Both are driven by local demand for higher quality and international education. Locals make up ~67% of students in Malaysia’s international schools. In Thailand, this is ~50%.

To capture more growth, SISB is expanding. SISB will open its 7^th campus at Rangsit in Aug 2027. SISB is targeting an initial enrollment of 200 to 250 students for the campus’s first academic year, which aligns with the school’s breakeven point. This is projected to double to 400 students by the 2028 academic year.

The growth from SISB’s new Rangsit campus carries higher certainty because it is embedded in a residential development by Supalai, one of Thailand’s largest residential developers. This allows SISB to tap into the roughly 600 families that will live there, rather than relying on a standalone greenfield location.

ARPS uplift as student base matures. Besides volume growth, I also see higher average revenue per student (ARPS) contributing to revenue growth.

Most SISB students are currently in primary school (especially Primary 1–4), where annual tuition is about THB 500k–600k. In contrast, secondary school fees range from roughly THB 700k to THB 900k per year.

As SISB anticipates most of these primary students will continue into its secondary school, ARPS should rise even without any explicit price increases, simply from the cohort mix shifting into higher‑fee grades.

Capital returns

SISB will likely increase capital returns as capex declines. Historically, capital returns were constrained because SISB was building out multiple new campuses within a short time. Cash capex peaked at THB 698 mn in 2023.

In 2025, cash capex has fallen to ~ THB 335 mn. SISB’s campus development plan suggests the rapid and intense build-up phase is likely over. Reflecting this, dividends nearly doubled in 2024, with the payout ratio rising from 23% in 2023 to 33% in 2024.

SISB increased its dividends again in 2025. Dividends rose by +36%, corresponding to a higher dividend payout ratio of 41%.

With lower capex needs ahead, there is a strong likelihood that SISB will return more capital to shareholders.

Favourable working capital structure supports higher dividend payout ratio. SISB targets an annual dividend payout ratio of at least 40%. I believe SISB can increase this payout ratio because of its negative working capital.

In 2025, SISB enjoyed a cash inflow of THB 84 mn (~10% of free cash flow to firm). Students pay their tuition fee in advance, usually one or two months before each school term. They also pay a deposit when they enrol.

Cash pile. SISB can return more capital to shareholders. As of 31 Dec 2025, it holds cash and cash equivalents that are ~ 81% of revenue.

Without more capital returns, the cash will continue to pile up. This will be an area I will focus on when I meet investor relations.

Valuation

I estimate intrinsic value at THB 20.00 per share based on a discounted cash flow valuation.

The current share price of THB 10.40 implies 48% margin of safety and 93% upside. This looks very attractive to me.

On a near‑term earnings basis, SISB trades at 11x NTM P/E on consensus forecasts and 9x on my estimates.

At my intrinsic value estimate, SISB would trade at 18x NTM P/E.

Since its IPO, SISB has traded at an average NTM P/E of 35x. Given the higher penetration of international schools in Thailand now, and the weaker investor sentiment, I do not believe SISB can trade at such elevated levels again.

That said, I believe SISB should trade above 15x, the average P/E ratio in Thailand, because of its under-recognised growth, potential for higher returns and high free cash flow conversion.

That’s why I see 18x NTM P/E as reasonable.

Catalysts

1. Student numbers return to growth in the next 3 to 5 years, driven by

   1. Increasing penetration rate of international schools in Thailand

   2. The opening of SISB’s new Rangsit campus in Aug 2027

2. Higher capital returns

Risks

What if student number continues to fall?

This risk seems low. My analysis of working capital trends suggest short-term demand looks stable and better than consensus’ expectation.

Advance tuition fee collected for term 2 increased +1% in 2025. Term 2 runs from Jan 2026 to Apr 2026.

As of 31 Dec 2025, SISB collected 10% more deposits from students. Deposits are collected when SISB offers a place to a new student.

Exposure to foreign Chinese students?

In my shortlist of SISB, I explained there is a perception that SISB is overly reliant on foreign Chinese students3, particularly those who enrolled mainly to leave China rather than out of a strong preference for the school. This creates a risk that many could withdraw if their families leave Thailand.

However, this risk currently appears limited.

Foreign Chinese students make up only ~21% of all students in 2025. For the past 3 years, this percentage has been stable at around low-20%. In Q4’25, the number of foreign Chinese students increased +1.2% QoQ.

What if the government removes tax exemption for private schools?

SISB pays almost no corporate tax because Thai law grants a corporate tax exemption on profits from operating licensed private schools-

While Thailand could amend or revoke the tax exemption relatively easily, this would represent a clear reversal of long-standing policy to promote private education through tax incentives. It would directly raise costs for a visible sector, likely triggering pushbacks from concerned parents and operators.

When SISB IPO’d in 2018, various politicians including the-then Minister for Education proposed that SISB should no longer enjoy the tax exemption.4

However, the proposal failed to get enough support among important players like the Ministry of Finance, Securities and Exchange Commission (SEC) and the Stock Exchange of Thailand (SET).5 The controversy has since died down.

Poor reputation among employees?

SISB attracted numerous negative online reviews, apparently by former and current employees.

For example, this Reddit post urges teachers to avoid SISB.6 The poster expressed serious dissatisfaction with management styles and workload.

However, there are also positive reviews. This post by a current SISB teacher expresses surprise over the school’s bad reputation online because their own experience has been very positive.7

In the comments, many users speculate online reviews skew negative because unhappy teachers are more likely to post, and experiences can vary widely by campus, immediate leadership, timing, and a teacher’s previous school.

Employee turnover at SISB declined from 12% in 2023 to 10% in 2025. 10% looks healthy and contrary to the negative reviews online. The average turnover rate in the industry seems to be between 10% to 20%.8

Factors that could lead me to increase investment in SISB

1. Evidence that revenue growth can be sustained above high-single digit for the foreseeable future (e.g. demand for SISB’s new campus at Rangsit is higher than expected)

2. Share price falls > 20% without significant deterioration in business fundamentals

Factors that could lead me to decrease investment in SISB

1. Student numbers decline materially versus expectations without a credible explanation

2. Adverse regulation against private schools in Thailand

Upcoming events

Wed 13 May 2026: Q1’26 earnings release (expected)

Valuation model

Subscribers may request a free copy of my valuation model by emailing me at angsana.anderson@gmail.com.

Coming up next

In Q4’25, Chagee slipped into operating losses.

My next post digs into what changed since my first-take on Chagee and what the latest numbers are really telling us.

I will highlight the warning signs brewing behind the headlines.

I will also spill the tea on the insights I gathered from visiting the Chagee store in Orchard, Singapore’s busiest shopping district.

Subscribers get it first. Free to join.

Disclaimer

This is a record of my investment decisions, not financial advice. I may change my decisions without notice. Use this only for education and entertainment. All analysis and opinions expressed are solely my own, and SISB has not reviewed or endorsed this post. Do not rely on this for your investment decisions. I plan to buy shares in SISB.

References

About (13 Apr 2026)

Share price: SEK 605 (USD 65.87)

Market capitalisation: SEK 121 bn (USD 13 bn)

Enterprise value (EV): SEK 113 bn (USD 12 bn)

Average daily volume (ADV): SEK 430 mn (USD 47 mn)

NTM P/E: 10x

Time spent: 2 days

My Decision

Pass

Background

Evolution AB: After falling -65%, how much lower can it go?

Since 2021, EVO grew its earnings per share by +92%. Yet, its share price has fallen -65%.

Investors point to this and declare: “I am all-in! The fundamentals are sound. How much more can this fall!”

They are likely underestimating the downside risks.

In this post, I will discuss:

1. Why I believe the regulatory risks are higher than expected

2. Why Evolution looks likely to miss 2026 consensus estimates

Business model

Breakdown of 2025 revenue by players’ geographical region (EUR 2,067 mn; 0% YoY):

• 38% Asia (-1% YoY)

• 35% Europe (-6% YoY)

• 14% North America (+15% YoY)

• 8% Latin America (+8% YoY)

• 5% Others (+14% YoY)

EVO mainly earns commission from licensing its live casino content to customers like online casino operators. Commission is calculated as a percentage of the operators’ winnings generated via EVO’s live casino content.

In live casino, a game presenter runs the game from a casino table that is followed in real time via a video stream. The players (end users) make betting decisions on their devices like smartphones or computers.

According to EVO’s annual report, 54% of its revenue was derived from unregulated markets in 2025.

EVO’s customers include online casino operators like Flutter Entertainment plc (FLUT US) and DraftKings Inc. (DKNG US).

In 2025, its top customer accounts for 12% of its revenue. Together, the top 5 customers account for 39% of EVO’s revenue.

The closest public comparable is Playtech plc (PTEC LN), although its revenue mix is more heavily weighted toward regulated markets.

My reasons

Most of Asia’s revenue seems to be unregulated.

Asia is EVO’s most important market. It contributes ~38% of revenue in 2025. I believe most revenue from Asia is unregulated (i.e., operating in jurisdictions where online gambling is prohibited or has no legal framework).

There are only about 6 countries in Asia where online gambling is legal. These include the Philippines and Sri Lanka. They are shaded green in the map below.

This handful of countries are not major economies. Together, they only account for ~3% of Asia’s gross domestic product (GDP).

Green: Regulated; Red: Prohibited; Grey: Unclear.

Source: Legal Pilot (2025)

Europe, where online gambling is mostly legal, contributes 35% of EVO’s revenue. Asia, where online gambling is mostly illegal, contributes 38% to 2025 revenue.

Green: Regulated; Red: Prohibited; Grey: Unclear.

Source: Legal Pilot (2025)

Taken together, these facts suggest most of EVO’s revenue in Asia is coming from countries where online gambling is illegal (red) or unregulated (grey).

The second reason why I believe most revenue from Asia is unregulated: EVO’s Asia growth surged after competitor PTEC started scaling down its Asian operations in 2018, following regulatory crackdowns.1

PTEC’s Asia revenue peaked at ~ EUR 283 mn in 2017, then fell -40% in 2018 and had shrunk so much by 2022 that it was no longer disclosed separately. By contrast, EVO’s Asia revenue was too small to break out in 2018, but by 2025, Asia accounted for 38% of total revenue.

Taken together, this evidence suggests that the majority of EVO’s Asia revenue likely originates from illegal markets.

Asia’s regulators are closing in.

EVO is facing severe headwinds in Asia. Revenue from Asia declined -1% in 2025. For a ‘growth’ company, this is a disaster.

EVO attributes this mainly to cybercriminals illegally streaming or copying its gaming content in the Asian market. However, I can’t help but question this.

Why is Playtech plc (PTEC), EVO’s main listed competitor, not reporting the same issue? Why are the cyberattacks so prevalent in Asia but not other regions?

I suspect regulatory crackdown is a bigger contributing factor.

EVO’s Asia revenue growth decelerated from +41% in 2023 to +19% in 2024, before collapsing to -1% in 2025. This coincides with the timing of regulatory crackdowns in Asia.

In 2024, Indonesia created a new task force and vowed to crack down on ‘blood sucking’ online gambling.2 In Jun 2025, Japan updated its law to prohibit the operation and promotion of online casino sites targeting Japanese users, including those hosted overseas.3 In Aug 2025, India’s parliament banned the online gambling industry.4

Regulation is tightening even in the Philippines, where online gambling is legal. After banning offshore gaming operators (POGO) in 2024, the Philippines ordered payment service providers to suspend in-app access to online gambling. Online gambling transactions declined by as much as -50% following the order.5

The bulls will argue that EVO has reduced unregulated revenue from 69% of revenue in 2018 to 54% in 2025. However, there is a risk that this % is understated.

According to InPractise, a research provider, a reporting change in 2018 led to significant changes in how EVO reports unregulated revenue. The true exposure remains unclear.6

The bulls may also argue that the regulatory risks are limited because EVO merely supplies the infrastructure for an online casino. It is the online casino operators’ responsibility to comply with the regulation, not EVO.

However, regulators like the UK Gambling Commission (UKGC) have stated that their strategy on combatting illegal gambling is to cause as much up-stream disruption as they can.7

To that end, in Nov 2024, the UKGC launched a review of EVO’s licence in the UK, as the regulator has found EVO is supplying unlicensed operators in the country.8 The investigation is still ongoing.

Consensus still too optimistic.

With regulatory crackdown accelerating in Asia, EVO’s most important market, the outlook for EVO looks bleak.

Yet, the consensus is forecasting revenue growth to recover from 0% in 2025 to +3% in 2026.9 This seems too optimistic.

Demand in 2026 looks set to be weaker than 2025. In 2025, contract liabilities declined -17%. Accounts payable declined -32%. Accounts receivable increased +11%, faster than revenue (0%). Days receivable increased +19% and reached 80 days, near an all-time high. Taken together, these working capital trends suggest near-term demand is weak. Some revenue may even have been pulled forward.

Earnout liability decreased in 2024 and 2025. Because it is based on the expected future performance of the acquirees, a decrease suggests future performance is weaker than initially expected.

Other matters: EVO scrapped dividends for 2025

For 2024, EVO paid EUR 572 mn dividends and spent EUR 500 mn on share buybacks. The total EUR 1,072 mn represents slightly more than 100% of net profit after tax in 2024. The most recent share buyback was done in Dec 2025.

On 18 Mar 2026, EVO scrapped its 2025 dividend, breaking from its long‑standing 50% payout policy. The company said it will update investors once 2026 capital allocation decisions are finalised.

There are 5 possible reasons why EVO paused its dividends:

1. Reinvest to revive its struggling business

2. Reserve for its litigation against PTEC

3. Share buybacks

4. Privatisation

5. Mergers & acquisitions (M&A)

Points (1) and (2) seem unlikely. EVO already has a lot of cash. In 2025, its cash and bonds are ~45% of revenue.

Some suggested the major shareholder, Kenneth Dart, may prefer share buybacks over dividends for tax reasons.10 Share buybacks could also make it easier for him to privatise EVO. If this were the main motivation, EVO would likely have announced a share buyback together with the suspension of dividends.

This leaves us with the final reason: M&A. I believe this is the most likely explanation. With organic growth stalling, it can make sense to rely more on inorganic growth.

There is a precedent. In Feb 2025, Joint Stock Company Kaspi.kz (KSPI US) paused its dividends around the same time it acquired Hepsiburada.

PTEC looks like a natural M&A target for EVO. While 92% of PTEC’s revenue comes from regulated markets, the figure for EVO is just 46%. Buying PTEC would instantly tilt EVO’s mix toward regulated markets and de‑risk its revenue base.

If EVO acquires PTEC, it could also eliminate the costly, distracting litigation between them. In Apr 2026, EVO sued PTEC, claiming that a 2021 report PTEC commissioned was defamatory and intended to damage EVO’s business.11

In Apr 2025, PTEC sold Snaitech, its Italian B2C casino operator. With this sale, it became primarily a B2B business, making it more aligned with EVO’s B2B model.

From PTEC’s perspective, a sale to EVO could therefore be attractive: it would end the ongoing litigation and give shareholders a clean exit.

Back in Feb 2022, Aristocrat Leisure Limited (ALL AU) nearly acquired PTEC for GBP 2.7 bn, but the deal collapsed after activist shareholders rejected the price.12

Since then, those activists no longer appear to be substantial shareholders.

If PTEC is acquired at a 40% premium today, shareholders would receive at least GBP 3.0 bn, including the special dividend of GBP 1.6 bn already paid in 2025. This is slightly more than the GBP 2.7 bn offered by ALL in 2022 and arguably reasonable given the bleaker outlook for the industry today.

For a good introduction to PTEC, I recommend Something’s Off’s analysis of the company.

Factors that could lead to a change in my decision

1. Revenue from legal and regulated markets increases to > 90% of total revenue

2. Strong evidence that overall revenue has stabilised

Coming up next

Thailand has one of the most underpenetrated international school markets in Asia. One listed operator is growing revenue every year.

This operator looks set to grow revenue at high-single-digit over the next few years. Yet, it trades at just 11x NTM P/E.

My next post covers whether it is worth buying for my personal portfolio.

Subscribers get it first. Free to join.

Disclaimer: This is a record of my investment decisions and not financial advice. I may change my decisions at any time without notice. Use this only for educational and entertainment purposes. All analysis and opinions are my own and based solely on public information. EVO has not reviewed or endorsed this post. Do not rely on this for your investment decisions. I do not hold any positions, long or short, in EVO.

References

Disclaimer: This is a record of my investment decisions and not financial advice. I may change my decisions at any time without notice. Use this only for educational and entertainment purposes. All analysis and opinions are my own and based solely on public information. CROX has not reviewed or endorsed this post. Do not rely on this for your investment decisions. I do not hold any positions, long or short, in CROX.

About

Share price: USD 101.95

Market capitalisation: USD 4,877 mn

Enterprise value (EV): USD 6,360 mn

Average daily volume (ADV): USD 132 mn

NTM P/E: 7x

My Decision

Pass

Background

Crocs: Ugly shoes, beautiful stocks?

“You can buy the stocks, but not the shoes”

That’s what my girlfriend said when I told her I am interested in Crocs. At 7x NTM P/E and 10% FCFF yield, Crocs looks very attractive.

Much to her chagrin, I will probably buy the shoes, but not the stocks.

In this Substack post, I discuss the 3 key reasons I passed on the shares: (a) High fashion risk; (b) Make China Crocs Again? and (c) Peak margins?

In the final analysis, Crocs, Inc. (CROX US) is highly dependent on fashion trends. I am as good at forecasting fashion trends as I am at calling coin flips.

High frequency data like Google Trends are already showing weakness. If its clogs continue falling out of fashion, like in 2013, Crocs may unexpectedly slip into losses.

Business model

Breakdown of 2025 revenue (USD 4,041 mn; -1% YoY):

• 82% Crocs Brand (+1% YoY)

• 18% HEYDUDE Brand (-13% YoY)

Crocs Brand is CROX’s original line of colourful foam clogs, sandals, and related casual shoes, plus Jibbitz charms for personalisation.

HEYDUDE Brand is a casual footwear line, founded in Italy and acquired by CROX in 2022. It offers lightweight slip‑on shoes and loafers with relaxed styling.

In 2025, earns ~48% of its revenue from wholesale channels. These include domestic and international multi-brand retailers, mono-branded partner stores, e-tailers, and distributors.

Direct-to-consumer (DTC) accounts for ~52% of its revenue. These include company-operated e-commerce sites, third-party marketplaces, company-operated full-price retail stores, outlet stores, and kiosks/store-in-store locations.

In the past 3 years, no single customer contributed 10% or more of consolidated revenue.

In 2025, CROX’s top 2 suppliers accounted for 73% of its production. These 2 suppliers operate mainly in Vietnam and China.

The closest public comparables are Deckers Outdoor Corporation (DECK US), Birkenstock Holding plc (BIRK US) and Steven Madden, Ltd. (SHOO US).

For a detailed look at CROX’s business model, check out Leeder Capital’s post. Although we arrived at different conclusions, on Substack, his post contains the best description of CROX’s business and its recent issues.

My reasons

High fashion risk. Moody’s, a credit rating agency, rates CROX’s debt as junk.1 Why?

Moody’s cited a key factor being CROX’s high fashion risk as a result of its significant exposure to the clog style. This represents an estimated over 50% of revenue and is key to its brand identity.

CROX launched its clogs in 2002, and it rapidly became a global fad by the mid‑2000s. Its popularity peaked in 2007 before stabilising around 2012.

Between 2013 and 2017, CROX became less fashionable. This shows up in the gradual decline of Google Search interest. CROX struggled.

Source: Google Trends

The unexpected decline in demand left CROX with excess inventory and underperforming retail stores. Margins were squeezed by the heavy discounts to clear inventory and the high fixed costs of running many full-price retail stores.

Operating profits never recovered to the highs achieved in 2012 until 2020, when COVID-19 lockdowns brought Crocs back into fashion again.

Today, it seems like CROX is yet again on the wrong side of the fashion trend. Google Trends shows interest in Crocs has peaked in 2024. CROX may now be entering another period of declining popularity.

That said, there seems to be some stabilisation. Interest in Jan 2026 is slightly higher YoY.

After significant provision for doubtful receivables in 2023 and 2024, CROX finally recovered some doubtful receivables in 2025.

The decline in purchase commitments for materials and supplies decelerated, suggesting management still sees demand declining in 2026, but slower than before.

Inventory donations held steady in 2025, and inventory days reached close to a record low in the fourth quarter. These trends indicate healthier inventory levels, which may reduce margin pressure in 2026.

Will Crocs’ popularity stabilise? Or will the next few years be a repeat of 2013 to 2017? At least for me, I find it challenging to forecast long-term fashion trends.

Management seems to believe the same. To mitigate its high fashion risk, previous CEOs had been trying to diversify from clogs.

In 2010, then-CEO John McCarvel tried to diversify CROX by introducing new lines such as high heels, dress shoes and golf shoes. The idea was to turn CROX into a broad lifestyle brand rather than just a clogs-maker.

By 2014, it was clear this diversification attempt had failed, leaving Crocs with high overhead and excess inventories. CEO McCarvel got the boot.

The current CEO Andrew Rees was tasked to turnaround CROX. CEO Rees began closing underperforming stores and cutting back many of these lines to refocus on clogs. By 2017, CROX finally returned to positive operating profits.

But I suppose the high fashion risk resulting from over-reliance on clogs never left CEO Rees’ mind. If it is difficult to diversify organically, why not try getting it done with a big acquisition?

In 2022, CEO Rees led CROX’s acquisition of HEYDUDE, a casual footwear brand that sells lightweight, slip‑on shoes. CROX bought HEYDUDE for about USD 2.5 bn. This was roughly one‑third of CROX’s market capitalisation.

CROX framed the acquisition as moving from a single‑brand company to a multi‑brand portfolio, diversifying beyond clogs and into relaxed slip‑on/loafer silhouettes.

The acquisition was a disappointment. CROX admitted as much when it wrote down USD 738 mn of HEYDUDE’s goodwill and other intangibles in 2025. This was 83% of the year’s operating profit.

On a side note, I worry the write-down may not be sufficient. Some of the key assumptions and forecasts used to estimate the write-down seem optimistic: annual revenue growth rates averaging ~ 8% and projected EBITDA averaging ~20%.2

HEYDUDE’s revenue declined -14% in 2025 and is expected to decline another -8% in 2026. In 2025, its EBITDA margin was only ~10%.

On the other hand, CROX used 15% discount rate, which seems on the high side. CROX did not provide further details.

This is the main reason I decided to pass on CROX. The company’s reliance on a single product line exposes it to high fashion risk. Historical precedents such as 2013 to 2017 demonstrates that when fashion trends shift away from CROX, the company will likely experience substantial challenges.

CROX’s recent performance and Google Search interest suggest that another shift away from Crocs may be underway. But I lack the data to confidently predict long-term fashion trends.

Make China Crocs Again? With revenue from North America declining -9% in 2025, the bulls point to China as CROX’s growth opportunity.

Revenue from China grew +64% in 2024 and another +30% in 2025. China is now CROX’s second largest market, accounting for ~ 8% of revenue.

However, I am not so certain about the growth opportunity in China. Fashion trends in China are also difficult to predict.

In 2014 Q3, CROX saw a sharp drop in wholesale volume and double-digit declines in retail sales at comparable stores in China, while US same store sales increased by 10%.3

Despite entering the Chinese market in 2006, CROX only managed to get 8% of its revenue from China by 2025. This is only slightly up from 6% in 2016, the earliest data I can find.

Unless there is strong evidence that the demand from China is durable, I would be cautious about extrapolating the currently strong demand in China.

Peak margins? Since COVID-19, Crocs Brand’s gross profit margin (GPM) has hit record levels, prompting concerns about its long-term sustainability.

It appears unlikely that such a high gross profit margin can be maintained long term, especially since demand seems to be falling. However, you could argue that it is sustainable because direct-to-consumer (DTC) now plays a bigger role in consolidated revenue.

In 2025, DTC contributed 52% to group revenue, up from 47% in 2016. At first glance, DTC should carry significantly higher margins than wholesale because CROX captures the retail margin.

I am not so sure about this. In 2025, 61% of Crocs Brand and 100% of HEYDUDE company-operated retail stores are outlet stores.4 In 2016, only 42% of company-operated stores are outlet stores.5

Outlet stores are targeted at value shoppers. They mainly sell discontinued and overstocked merchandise directly to consumers at discounted prices.

The margin gains from higher DTC contribution may be offset by a shift toward outlet stores.

For this first take, it is not cost‑effective to quantify these effects.

However, recent results seems to justify concerns over the sustainability of such high margins. In 2025, operating profit margin declined at both Crocs Brand (36% to 33%) and HEYDUDE Brand (17% to 10%).

The bulls would argue that CROX’s pricing power can mitigate margin weakness.

The average selling prices (ASP) for Crocs Brand and HEYDUDE Brand are only USD 25 and USD 32 respectively. Compared to Skechers (~USD 50 to 70) and Birkenstock (~USD 130 to 140), there seems to be a lot of room for CROX to raise prices.

However, the ASP that CROX reported is a blend of wholesale and DTC, including discounted outlet prices. The ASPs for Skechers and Birkenstock are retail prices. The retail prices of Crocs Brand and HEYDUDE Brand are closer to USD 50 and USD 70 instead.

I could not find any historical evidence of pricing power. In the past 10 years, ASP of Crocs Brand increased at 3.2% p.a., barely outpacing 3.0% p.a. inflation.

In Aug 2025, CEO Rees reported “They’re [customers] not even going to the stores and we see traffic down,” he said, adding the current conditions are preventing the company from raising prices to compensate for the impact of tariffs on countries where Crocs produces footwear.6

Factors that could lead to a change in my decision

1. Strong evidence that CROX’s fashion risk is lower than I expected (e.g. core customers view Crocs as a utility footwear rather than a fashion statement)

2. Convincing evidence that current margins are sustainable (e.g. management provides detailed breakdown of unit economics)

3. Management is making better than expected progress in turning around HEYDUDE (e.g. return to positive revenue growth and margin expansion)

4. Significant decline in valuation without deterioration in business fundamentals

Coming up next

Next week, I plan to publish my analysis of Evolution AB (publ) (EVO SS).

The bull case revolves around EVO as a cash-gushing, market‑dominating “Netflix of live casino” that’s still priced like a risky niche player despite its towering margins, fortress balance sheet, and long global growth runway.

How true is this story? Will I shortlist EVO for my personal portfolio?

I also plan to update you on SISB Public Company Limited (SISB TB), the largest operator of international schools in Thailand. Revenue is expected to grow high-single digit, yet SISB trades at only 11x NTM P/E.

Subscribers get priority on updates. Click on the button below to subscribe for free today.

References

Disclaimer: This is a record of my investment decisions and not financial advice. I may change my decisions at any time without notice. Use this only for educational and entertainment purposes. All analysis and opinions are my own and based solely on public information. H02 has not reviewed or endorsed this post. Do not rely on this for your investment decisions. As of the date of publication, I do not hold any positions, long or short, in H02.

About (07 Apr 2026)

Share price: SGD 16.90

Market capitalisation: SGD 3,741 mn (USD 2,918 mn)

Enterprise value (EV): SGD 2,994 mn (USD 2,335 mn)

Average daily volume (ADV): SGD 7.8 mn (USD 6.1 mn)

NTM P/E: 21x; LTM P/B: 0.9x

My Decision

By 25 Mar 2026, I had sold all my shares at an average price of SGD 16.62.

I started buying shares in H02 from Feb 2021. My average cost was around SGD 11.29. I expected to sell my shares for at least SGD 17.00 within 3 to 5 years.

My internal rate of return (IRR) is ~14% p.a. This is slightly higher than the 12% p.a. I expected over 5 years.

Background

Haw Par: Right for the wrong reasons.

I started buying shares in H02 from Feb 2021. It was one of my earliest investments. I explained my thesis here: Haw Par: Crouching tiger, hidden value?

More than 5 years later, H02 still has not made any significant acquisitions. There is no convincing evidence it will do so any time soon. Why is H02 so hesitant?

The hidden assets I saw in H02 remain hidden. I now believe these hidden assets will unlikely ever be unlocked and returned to shareholders. Furthermore, I believe the outlook for Tiger Balm is bleaker than the market expects. Why?

In this Substack post, I answer these questions and walk through why I sold all my shares recently.

Business model

Breakdown of 2025 profit before tax (SGD 283 mn, +14% YoY):

• 73% Investments (+16% YoY)

• 24% Healthcare products (+7% YoY)

• 3% Others (+4% YoY)

The Investments segment mainly engages in long-term investments of companies listed in Singapore. Profit before tax (PBT) is mainly derived from dividends.

H02 owns 4.5% of United Overseas Bank Limited (UOB), one of the largest banks in ASEAN. H02 also owns 8.5% of UOL Group Limited (UOL), a property and hospitality group.

The Healthcare segment manufactures and distributes topical analgesic products under the ‘Tiger Balm’ and ‘Kwan Loong’ brand.

The Others segment includes property and leisure divisions.

Revenue consists mainly of sales of Healthcare products. The Investments segment does not earn any revenue.

H02 earns 13% of its revenue from Singapore, 31% from other ASEAN countries, 27% from other Asian countries and 29% from other regions like Europe and Americas.

Revenue of approximately SGD 125 mn (54% of 2025 group revenue) was contributed from three external customers. These revenues are attributable to the sale of Healthcare products to distributors belonging to the same group of companies.

The largest expense is cost of sales (44% of revenue). This mainly consists of cost of inventories sold.

Investments: Relevant public comparables include Oversea-Chinese Banking Corporation Limited (O39; OCBC SP) and DBS Group Holdings Ltd (D05; DBS SP).

Healthcare: Relevant public comparables include Hisamitsu Pharmaceutical Co., Inc. (4530 JP), Pak Fah Yeow International Limited (239 HK) and Amrutanjan Health Care Limited (590006; ARJN IN).

H02’s shareholder register is dominated by the Wee family (~35%), which founded UOB.

Major institutional shareholders include First Eagle Investment Management (~9%), a US global value investor. Kayne Anderson Rudnick, a US wealth management firm focusing on high-quality businesses, ceased to be a substantial shareholder in Feb 2025.

No prominent activist or private equity investors are on the shareholder register.

My reasons

H02 appears to be fairly valued at the current share price. My thesis on under-recognised growth and hidden assets did not materialise after 5 years.

Under-recognised growth failed to materialise. I initially believed the market was underestimating H02’s potential to grow through mergers and acquisitions (M&A).

Through reading management interviews and analysing its hiring activity on LinkedIn, I believed H02 was about to make a major acquisition. This could increase its net profits by almost 50%.

More than 5 years have passed but H02 has not make any significant acquisitions. There are no signs this will change anytime soon.

Since 2021, H02 has invested a total of ~ SGD 100 mn. H02 does not disclose details of these investments. My analysis of its financial statements suggests that these are mainly in shares listed in Hong Kong.

SGD 100 mn is only ~18% of its cash balance at the start of 2021. If there are no suitable opportunities, H02 should return the excess cash to shareholders.

To their credit, management paid a special dividend in 2025.1 This has reduced the cash pile by SGD 221 mn.

However, H02’s cash pile remains high. Cash and cash equivalents reached SGD 834 mn in 2025. This is 362% of revenue and 24% of market capitalization.

I suspect H02’s reluctance stems from its close call with Hua Han.

In June 2005, H02 spent ~ SGD 35 mn to acquire a 21% stake in Hua Han Bio-Pharmaceutical Holdings Limited (Hua Han).

Hua Han is listed on the Hong Kong Stock Exchange (HKSE). The company produces pharmaceuticals for women and seniors in mainland China.

By 2014, H02 invested a total of ~ SGD 47 mn in Hua Han. After dividends, the total investment was ~ SGD 26 mn.2 This stake was worth SGD 230 mn, an annual return of about +28% since 2005! Impressive.

All that glitters is not gold.

In Dec 2019, the Hong Kong High Court ordered that Hua Han be liquidated.3

What happened?

In Aug and Sep 2016, short sellers like Emerson Analytics and Zhongkui Research alleged Hua Han had inflated its revenue and overstated its assets to conceal the fake profits.45

On 27 Sep 2016, trading in Hua Han’s shares was suspended. Trading has not resumed since.

Just 3 days later, Ernst & Young (EY) suspended their audit because the auditor found irregularities.

By 31 Oct 2016, Hua Han had defaulted on its convertible notes issued just 4 months earlier.

Fortunately, H02 had caught wind of the problems earlier. As early as 2015, Hua Han’s executive directors pursued fundraising without consulting H02 or addressing its concerns.6

By the end of 2015, H02 had sold enough shares in Hua Han to recover its investment of SGD 26 mn. The remaining shares were worth ~ SGD 154 mn. H02 later wrote these down to 0.

After this roller-coaster ride with Hua Han, I believe management is now cautious, maybe too cautious.

Hidden assets remained hidden. I initially believed the market had not fully recognized the hidden assets in H02.

The true economic return on asset (ROA) on its equities investment is 7%. But because of its accounting policy, H02 reports a 3% ROA instead.

I also believed the quality of the Healthcare segment is obscured because it is consolidated with the larger Investments segment.

The quality and value hidden in the Healthcare segment could be unlocked through a spin-off.

In 2024, a shareholder proposed this. Management declined because they believe it will not be beneficial. They cited Tiger Balm’s past experience as a separate listed company before privatization by H02 in 2003.

In any case, the outlook for the Healthcare segment seems bleaker than what the market is expecting.

Revenue declined -6% in 2025. At first glance, this looks mild. But the half-yearly results paint a drastic picture.

Compared to 2024, the first half saw a +7% increase, but revenue in the second half dropped by an incredible -18%.

Management attributed this to weaker consumer sentiment in export-oriented economies and weaker demand in tourism-reliant markets.

Tiger Balm is a popular travel souvenir. During COVID-19 lockdowns in 2020, revenue declined -55%.

However, there were no travel restrictions in 2025 H2. Number of commercial flights even showed a decent growth during this period.7

Since most of H02’s Healthcare products are inexpensive pain relievers, weaker consumer sentiment also seems like a weak explanation.

I suspect the missing explanation is intensifying competition.

To find out more, I visited a Fairprice supermarket. Fairprice is the largest supermarket chain in Singapore. Yes, for this research, I really visited the supermarket. This is not another of my April Fools’ Day joke.

I collected data on all mosquito repellent patches sold there. I chose mosquito repellent patches because this product range seems to be one of the most popular at H02.

Source: Angsana Anderson89

Two important observations.

First, there are many new entrants like Borsch Med.

Second, these new entrants are undercutting the incumbents. Borsch Med offers a unit price that is over 40% cheaper than Tiger Balm.

Of course, this analysis has limitations. I collected data on only one product range at one supermarket on one day. Extrapolating data like this can be very misleading.

I am normally wary of drawing conclusions from such limited data. That said, when taken together with my working capital analysis, the outlook looks bleaker than expected. More on this soon.

In 2024, H02 launched a new product range of essential oils called Tiger Balm Sensorial Therapy.10 It seems like H02’s strategy is to diversify into less competitive product ranges.

However, the demand for the new products looks weak. I observed a significant layer of dust on Tiger Balm Sensorial Therapy in a Guardian store. The adjacent products had little dust. This suggests turnover is very low. True enough, most of the essential oils were manufactured in 2024, some as early as Aug 2024.

A significant layer of dust on Tiger Balm Sensorial Therapy

Source: Angsana Anderson

In a follow-up visit to the same Guardian store, I noticed a newer batch of Tiger Balm Sensorial Therapy on the lower shelves. These were manufactured in 2025.

The store was also offering a 20% discount off the original retail price of SGD 16.90. Heavy discounting is usually done in response to weak demand and overstocking.

With intensifying competition and faltering new products, H02’s outlook looks bleaker than expected. This is reinforced by the trend in its inventory.

In 2025, revenue declined -6% but finished goods increased +11%. This suggests end demand is weak, causing distributors to postpone orders and finished goods to pile up.

Raw materials decreased in line with revenue. Typically, when a company expects strong demand, it increases raw materials to prepare for it.

Work in progress declined -23%, faster than the decline in revenue. This is consistent with a slowdown in production in response to weaker demand.

Valuation

I estimate intrinsic value at SGD 16.50 per share, based on a sum-of-the-parts valuation. At the share price on 7 Apr 2026 (SGD 16.90), H02 shares seem to be fairly valued.

Even though I believe the market has not fully recognized the bleaker outlook for the Healthcare segment, this is not as material as H02’s equities investment and conglomerate discount

A conglomerate discount is required mainly because of capital inefficiency. H02 does not fully pass through its dividend income.

In 2026, I expect H02 will only pass through ~63% of its dividend income to H02 shareholders. The remaining dividends go into its cash hoard that earns only ~2% interest income.

Shareholders would be better off holding shares in UOB and UOL directly.

Over the past 10 years, on average, H02 traded at a -24% discount to its net asset value. Pre-discount equity value is 1.2x net asset value. Therefore, I applied a -28% discount (-24% * 1.2).

Reflections

I started buying shares in H02 from Feb 2021. I believed the market had not fully recognized its inorganic growth potential and its ‘hidden’ assets.

Fast forward 5 years, the inorganic growth failed to materialise. H02 has only deployed ~ SGD 100 mn in equities investments. This is barely 20% of its cash hoard at the start of 2021. There is very little evidence that this will change anytime soon.

The ‘hidden’ assets remain hidden. The Wee family is unlikely to unlock the value in H02’s holdings of UOB because these are crucial for the family to maintain control over UOB. Finally, the outlook for the Healthcare segment became bleaker than expected.

In the graph below, I plotted in green the total return from my investment in H02. The purple line shows ES3, a Straits Times Index ETF. This represents the Singapore stock market.

In Feb 2025, H02 declared a significant special dividend. I somewhat expected this. In my thesis, I said “As the cash pile continues to grow, the probability of more capital returns increases.”

What I did not expect was, in that same month, Singapore launched the Equity Market Development Programme (EQDP), a government programme to boost investment in Singapore-listed shares. H02 rallied together with the Singapore stock market. I got lucky.

The rally broke around the end of Feb 2026 because of the Iran war. However, H02’s share price resumed its rally from mid-Mar 2026 and neared an all-time high by end-Mar. This rally seems to be driven by H02’s addition to the iEdge Next 50, an index that tracks the 50 big Singapore stocks that come after the top 30 blue chips.11

Around the same time, Macquarie, an Australian bank, initiated coverage of H02.12

With these two factors driving strong short-term demand for H02 shares which I believe are valued fairly, I decided this was a good time to sell and move on to investigate other opportunities like SISB Public Company Limited (SISB TB).

If I had invested in ES3, a Straits Times Index ETF, I could have achieved a slightly better result. Nonetheless, I enjoyed learning about business and investing through H02. This was one of my earliest investments.

My experience with H02 also improved my investment philosophy and strategy. It taught me to focus on cash. Investing is laying out cash now for more cash in the future. If my thesis is about hidden assets, then I need to have a reasonable probability of receiving the value from the assets. This is the key lesson.

Factors that can lead to a change in my decision

1. Clear indication that H02 will use excess cash effectively, either through value accretive acquisitions or returning it to shareholders.

2. Strong evidence that H02 will unlock the value in its equities investments. (in my opinion, very unlikely).

3. Discount on net asset rises significantly above average. Current discount is -13% vs -24% 10y average.

4. Strong evidence that the outlook for the Healthcare segment is much brighter than my expectation.

Coming up next

This week, I plan to publish my analysis of Crocs, Inc. (CROX US).

The bull case revolves around CROX as a high-margin, cash‑generative global footwear franchise. The market, however, values like a no‑growth cyclical rather than a durable brand platform.

How true is this? Will I shortlist CROX for my personal portfolio?

Subscribers get to know first. Click on the button below to subscribe for free today.

References

Disclaimer: This is a record of my investment decisions and not financial advice. I may change my decisions at any time without notice. Use this only for educational and entertainment purposes. All analysis and opinions are my own and based solely on public information. H02 has not reviewed or endorsed this post. Do not rely on this for your investment decisions. As of the date of publication, I do not hold any positions, long or short, in H02.

About (15 Jan 2023)

Share price: SGD 9.50

Market capitalisation: SGD 2,103 mn (USD 1,600 mn)

Enterprise value (EV): SGD 1,500 mn (USD 1,140 mn)

Average daily volume (ADV): SGD 1 mn (USD 0.8 mn)

NTM P/E: 11x; LTM P/B: 0.7x

My Decision

I first bought H02 shares in Feb 2021. On 15 Jan 2023, I wrote the first version of this thesis. I have reproduced the thesis here, with corrections and edits for brevity and clarity. The core thesis is unchanged.

Starting Feb 2021, I bought shares in H02 at an average cost of SGD 11.29.

Within 3 to 5 years, I expect to sell my shares for at least SGD 17.00.

Over 3 years, I expect to earn ~18% p.a. (15% capital gains; 3% dividend yield). Over 5 years, I expect to earn ~12% p.a. (9% capital gains; 3% dividend yield).

As of 25 Mar 2026, I have sold all my shares at an average price of SGD 16.62.

My internal rate of return (IRR) is ~14% p.a., including dividends.

Background

Haw Par: Crouching tiger, hidden value?

Haw Par is the maker of Tiger Balm, the popular herbal remedy. It smells awful, but it works.

I first invested in Haw Par Corporation Limited (H02; HPAR SP) in Feb 2021. It was one of my earliest investments.

I was attracted to its inorganic growth potential, which I believed the market had not fully recognized.

Through reading management interviews and analysing its hiring activity, I believed Haw Par was about to make a major acquisition. This could increase its profits by almost 50%.

I also believed the market had not fully recognized the ‘hidden’ assets within H02. Its accounting policies have artificially depressed its return on asset (ROA), making it look like a low-return business.

Finally, Haw Par’s investment properties are actually worth 4x more than the value reported on its balance sheet.

In this Substack post, I will walk through these reasons in detail and explain why I bought Haw Par back in Feb 2021.

Business model

Breakdown of 2021 profit before tax (SGD 118 mn, -6.5% YoY):

• 75% Investments (-13% YoY)

• 18% Healthcare products (+32% YoY)

• 7% Others (-3% YoY)

Investments segment mainly engages in long-term investments of companies listed in Singapore. Profit before tax (PBT) in this segment is mainly derived from dividends.

H02 owns 4.5% of United Overseas Bank Limited (UOB), one of the largest banks in ASEAN. H02 also owns 9% of UOL Group Limited (UOL), a property and hospitality group.

Healthcare products segment manufactures and distributes topical analgesic products under the ‘Tiger Balm’ and ‘Kwan Loong’ brand.

Other segments include property and leisure divisions.

Revenue consists mainly of sales of Healthcare products. Investments segment does not earn any revenue.

H02 earns 13% of its revenue from Singapore, 11% from other ASEAN countries, 36% from other Asian countries and 40% from other regions like Europe and Americas.

Revenue of approximately SGD 46 mn (33% of 2021 group revenue) was contributed by two external customers. These revenues are attributable to the sale of Healthcare products to distributors belonging to the same group of companies.

The largest expense is cost of sales (48% of revenue). This mainly consists of cost of inventories sold.

Investments: Relevant public comparables include Oversea-Chinese Banking Corporation Limited (O39; OCBC SP) and DBS Group Holdings Ltd (D05; DBS SP).

Healthcare products: Relevant public comparables include Hisamitsu Pharmaceutical Co., Inc. (4530 JP) and Pak Fah Yeow International Limited (239 HK).

H02’s shareholder register is dominated by the Wee family (~36%), the family that founded UOB.

Major institutional shareholders include First Eagle Investment Management (~10%), a US global value investor and Kayne Anderson Rudnick (~6%), a US wealth management firm focusing on high-quality businesses.

No prominent activist or private equity investors are on the shareholder register.

My reasons

At current valuation, I believe the market is underestimating H02’s growth potential and asset value.

Under-recognised growth. H02 is often seen as a cash hoarder. Cash had reached ~30% of market cap. However, this will likely soon change. There were strong indications that H02 was looking to grow through M&A.

In Jan 2021, LinkedIn shows H02 hired a new group general manager. He was the former head of M&A at SMBC Nikko.

In Feb 2021, CEO Wee said “…with the economic downturn due to COVID-19, there may be more opportunities for acquisitions, and we may succeed.” He added, “We’re keeping our powder dry so that we can strike when we need to - I have some years to go, and I want to build at least another leg for Haw Par for the next generation.”1

In Jul 2022, H02 hired an associate director from EY-Parthenon to work on corporate development. The new hire will look at deals in the consumer healthcare, branded FMCG, and leisure sectors.

Finally, in 2022 H1, H02 spent ~SGD 47 mn buying shares of a listed company. This is the first purchase in many years.

Hidden assets. H02 is often seen as a poor-quality business because of its low return on asset (ROA) and return on equity (ROE). However, H02 is actually a high-quality business. Its accounting is obscuring this.

H02 accounts for its stake in UOB, UOL, etc at fair value through other comprehensive income (FVOCI). This means H02 recognises their market value (SGD 2.8bn) on its balance sheet.

However, the accounting standards only allow H02 to recognize its dividend income (SGD 85 mn) rather than its share of UOB, UOL and other holdings’ profits (SGD 211 mn). As a result, H02 reports ROA of 3% on its investments rather than the true economic ROA of 7%.

In 2021, H02 owns investment properties valued at SGD 215 mn. However, this value is ‘hidden’ because of H02’s accounting policy.

H02 accounts for its investment properties at cost less accumulated depreciation and impairment instead of fair value. This means these investment properties are reported on H02’s balance sheet at SGD 53 mn, rather than their fair value of SGD 215 mn.

Finally, headline ROA obscures the quality of H02’s healthcare segment. Because the healthcare segment is consolidated with the investment business, H02 reported group ROA (PBT / total assets) of 4% in 2021. In fact, H02’s healthcare segment earned an above-average ROA of 12% in 2021.

H02’s competitive advantage lies in its brand name. Tiger Balm is a very established and trusted brand that customers see as safe and reliable. Because of this trust, it can charge higher prices than rivals and customers still stick with it.

Valuation

I estimate intrinsic value at SGD 17.00 per share based on a sum-of-the-parts valuation.

At the share price on 15 Jan 2023 (SGD 9.50), I have ~44% margin of safety and ~80% upside.

Catalysts

Growth from M&A. Let’s say H02 uses its SGD 513 million excess cash to make a sensible acquisition and achieves a 10% p.a. return on the acquisition. H02’s net profit after tax (NPAT) will increase by SGD 51 million. This is equivalent to a 46% increase from 2021 group NPAT.

Capital return. H02 periodically reduces its cash pile via special dividends. In 2019, H02 paid out ~36% of its cash as special dividends. As the cash pile continues to grow, the probability of more capital returns increases.

Risks

Poor acquisitions. In 2005, H02 acquired 21% of Hua Han Bio-Pharmaceutical Holdings Limited, a pharmaceutical company listed in Hong Kong.

Hua Han reported strong business performance initially. In 2016, Emerson Analytics, a short seller, alleged Hua Han inflated its revenue, among many other misdeeds.2

Fortunately, H02 had caught wind of the problems earlier. By 2015, H02 had already recovered its initial investment.

This risk is now mitigated by H02’s hiring of professional corporate finance talent. H02’s general manager is the former head of M&A at SMBC Nikko. He is supported by a former associate director from EY-Parthenon.

No acquisitions, continue hoarding cash. There is a risk that H02 continues hoarding cash instead of making accretive M&A.

If this happens, a 20% holding company discount will be required. This will reduce my estimated equity value to SGD 13.60, reducing my margin of safety from 44% to 30% and my upside from 80% to 43%.

Even in the worst-case scenario, a 44% holding company discount will be required to eliminate our upside. This is highly unlikely because (a) for the reasons we discussed earlier, growth will be likely higher than expected and (b) H02 periodically reduces its cash pile through special dividends.

Coming up next

Next week, I’ll follow up with a full post-mortem on my investment: what went right, what went wrong, and why I ultimately sold all my shares recently.

I like to describe my investment as ‘right for the wrong reason’.

Subscribe now to receive the post-mortem in your inbox next week.

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References

Background

I visited the world’s first AI-paper plant.

My senior analyst Becky Madon and I made the 8-hour flight to Anglo-Jungle Corporation’s paper plant.

Here in the outskirts of Shangri-La is where Anglo-Jungle crafts the world’s first AI-paper. After our thorough due diligence, we walked away with a conviction higher than anything we’ve experienced before and will ever experience.

This is a game changer.

How does the AI-paper work?

Who is behind this innovative best-in-class AI-paper?

I answer these questions in my latest Substack post.

How we found Anglo-Jungle Corporation

Generative AI has been with us for almost 4 years, and it has provided a lot of benefits to humanity (and returns to investors).

But building out the infrastructure to support generative AI has become increasingly capital-intensive. The Wall Street Journal reported on this as early as Sep 20251.[1] As a result, development has decelerated significantly.

What is the next paradigm shift?

Imagine our surprise and delight when an initiation report came across our desks. In Shangri-La, a dropout from Standford University has defied all odds to invent the world’s first AI-paper.

The paper plant has entered mass production. Every day, Anglo-Jungle races against time to ship 67 billion pieces. Yet, demand is insatiable.

The company is looking to double production capacity. To that end, it is pursuing an IPO next quarter and is looking for cornerstone investors.

That’s where our fund, Extra Long Term Capital Management (ELTCM) comes in. Together with my senior Becky Madon, we visited Anglo-Jungle to conduct thorough due diligence.

Visiting the plant

Anglo-Jungle’s head of investor relations Mr. Lau FZ greeted us at the entrance of the paper plant. After donning our safety PPE, we started the tour.

Mr. Lau FZ, head of investor relations at Anglo-Jungle

We requested to see all 20 production lines. However, Mr Lau FZ showed us only 2. The rest have shut down for maintenance.

I was surprised by the tremendous amount of steam and water inside this paper plant. Wouldn’t the steam condensate on the ceilings and drip down to the paper below?

I saw some parts of the first production line covered with flimsy plastic sheeting. A desperate attempt to keep water out. Pointing at the plastic sheeting, Becky Madon instructed me to take a photograph with these captions:

“Anglo-Jungle adopts highly innovative techniques to overcome the challenges of producing the world’s first AI-paper. Its resourcefulness is unmatched”

I was puzzled, but I trust my senior analyst. She has been in this business for 10 years.

As I walked along the second production line, I believed I saw the drive gears at the input end of the production line were not connected by any belts. If this is correct, then it would mean that no pulp was actually running into the machine. Rather, the machine was merely looping the finished product.

Becky gestured. Without missing a beat, I snapped photos of the disconnected drive gears and the paper whizzing past us. I knew what was going on. I don’t need to be told twice.

“Put that down as ‘Anglo-Jungle adopts the infinite production technique. This is the secret sauce behind their best-in-class efficiency.’” What? Becky must have seen the confusion streaking through my face. “Just do as I say!”

Meeting CEO Eliza Holm

Our plant tour ended. Mr Lau FZ ushered us to a conference room. There, we were shown a video demonstration of Anglo-Jungle’s AI paper.

CEO Eliza Holm pricked her finger with a safety pin. She dripped just one drop of her blood onto the AI paper. The paper absorbed her blood, and magically, words started forming on the paper out of her blood: “Hello world. This is Anglo-Jungle AI. How can I help you today?”

That was so impressive.

Seconds before the video demonstration ended, I noticed something. Is that an extra finger on CEO Eliza Holm’s right hand? I asked to replay the video, but Mr Lau FZ quickly admonished us to move on to the next room, where the CEO awaits.

After shaking her hand, I am glad to confirm that she has only five fingers.

De-briefing

Back at the hotel, we refreshed ourselves and settled in the lounge. There, we discussed our key findings and our valuation model.

I wasn’t sure what weighted average cost of capital (WACC) would be sufficient for a frontier market like Shangri-La. I estimated 15%. I asked Becky, is this correct?

Just pencil in 0.67%. That’ll give us a nice big fat margin of safety.

The correct WACC is the WACC that supports our portfolio manager (PM)’s decision.

Our PM already bought the shares?

He had already subscribed to the IPO last month.

Then why are we here?

Because it looks good. The fund investors like it when we visit companies. It makes us look competent. Plus, I get to expense this cognac.

She slowly lifted her cup. With her eyes staring at me, she took a sip, licked her lips and clicked her tongue. Satisfied, she put her cup down. The ice gently clinks against her cup.

Regardless of the valuation, I decided to recommend selling the shares in Anglo-Jungle. The plastic sheets, disconnected drive gears and extra finger are all big red flags.

Does this AI paper actually work? Anglo-Jungle has never shown us a real-life product demonstration. Why are 18 out of 20 production lines all down for maintenance, during a supposedly peak period?

I pressed my case.

Why can’t you learn to be adaptable? If you want to keep your head in this industry, you must be adaptable.

I’ll let you in on a trade secret. During bull markets, our job is to buy shares in companies that are in vogue, that our fund investors will like. They like compounders, whatever that means.

Valuation is just a justification. Red flags do not matter.

Come on, it’s a bull market! Make some money!

But what happens when the bear market comes and the risks crystalise?

Then we blame it on the macro, on wars, on inflation. Whatever, it doesn’t matter because we already got our performance fees.

In any case, everyone else will be down. This is when we become long-term investors. We tell clients that we invest for the long-term, and that they should invest in us for the long-term too.

That’s why we are Extra Long Term Capital Management.

Conclusion

Back in my office, I am still perplexed. My confusion stretches beyond the AI-paper industry and my own industry.

Why does Mr. Lau FZ remind me so much of my favourite childhood cartoon?

Why was CEO Eliza Holm wearing such a thick turtleneck in that sweltering heat?

Why does our fund share such as similar name with a hedge fund that blew up in 1998?

While the odds of definitive answers are slim, I promise to draw on my wide network and cutting-edge AI-papers to figure this out, and I will do my best to give my readers a smart, logical, and clear explanation by 1 April next year.

Disclaimer: This is a work of fiction. Names, companies, and scenarios are invented or used in a fictitious manner and are not intended to depict any actual person, firm, or event. Nothing in this piece constitutes investment advice or a recommendation to buy or sell any security. It is for entertainment and educational purposes only.

Coming up next

This Saturday, I will publish why I bought Haw Par Corporation Limited (H02; HPAR SP) in 2021. H02 is the maker of Tiger Balm, the ubiquitous herbal remedy.

Next week, I will publish my post-mortem and explain why I just sold all my shares.

Subscribe now to receive the analysis in your inbox on Saturday.

References

Disclaimer: This is a record of my investment decisions and not financial advice. I may change my decisions at any time without notice. Use this only for educational and entertainment purposes. All analysis and opinions are my own and based solely on public information. KSPI has not reviewed or endorsed this post. Do not rely on this for your investment decisions. I do not hold any positions, long or short, in KSPI.

About

Share price: USD 72.89

Market capitalisation: USD 13,738 mn

Enterprise value (EV): USD 12,828 mn

Average daily volume (ADV): USD 39 mn

NTM P/E: 6x

My Decision

Pass

Background

Kaspi: Pennies in front a steamroller?

Nov 2021. You’re in a stock pitch conference.

After almost two years of COVID-19 lockdowns, you are glad to be back.

After a few pitches, your excitement gradually fades into boredom.

A new speaker takes the stage. “Buy this high-quality, cash-generative compounder! EPS grew +60% but it only trades at 22x NTM P/E!”

You snap to attention. Before the pitch is even over, you have booked the first flight to Kazakhstan. You need to see Kaspi for yourself.

After enduring a PCR test and some interrogation by customs officials, you were finally released into the bustling streets of Almaty.

Kaspi is everywhere. You watch people paying with Kaspi QR codes, then you buy an apple with Kaspi Pay yourself. It feels seamless.

The apple tastes heavenly. In this apple city, have you just found the forbidden fruit: high growth at a low multiple?

Back at the hotel, your conviction is sky‑high. You recall the Buffett disciples saying, “When it rains gold, put out the bucket, not the thimble!”

You call your broker: “I’m all-in!”

Today, you are down -50%. is trading at an unbelievable NTM P/E of only 6x, despite EPS growing 26% p.a. since 2021. What happened?

In this Substack post, I discuss:

• Why 22x NTM P/E was never cheap, and that even at 6x, KSPI is not obviously attractive

• Why I think the market is still under-pricing key regulatory risks

• Why the chairman’s personal purchase of another bank creates a serious conflict of interest

Business model

Breakdown of 2025 revenue (KZT 4,043 bn, +59% YoY):

• 16% Payments (+12% YoY revenue)

• 47% Marketplace (+164% YoY revenue)

• 37% Fintech (+20% YoY revenue)

Payments revenue includes payments fee revenue (12% of group revenue) and interest revenue (4%).

Payments fee revenue includes transaction revenue and membership revenue.

KSPI earns transaction revenue when it processes payments for purchases both online and in-store and transactions by SMEs and corporate customers.

KSPI recognises membership revenue, which includes annual fees paid by individual customers, SMEs and corporate customers for the use of KSPI’s products and services.

Marketplace revenue includes marketplace fee revenue (24% of group revenue), retail revenue (21%) and others (3%).

Marketplace fee revenue includes seller fees paid by merchants from KSPI’s 3P marketplace business, Kaspi Travel, advertising and delivery transactions.

Retail revenue includes revenue from e-Grocery transactions and related delivery fees. Since 2023, retail revenue also includes revenue from KSPI’s car e-commerce transactions and since 2025 it also includes revenue from 1P business of Hepsiburada in Türkiye.

Fintech revenue includes interest revenue (33% of group revenue) and fintech fee revenue (4%).

KSPI earns interest revenue mainly by lending to customers. It charges interest when customers borrow money directly through KSPI’s app or use credit to buy items on KSPI’s marketplace and other websites.

In 2025, buy-now-pay-later (BNPL) loans make up 41% of the total value of loans issued. 36% of loans are issued for general purposes and 18% of loans are issued for merchant and micro business finance.

Fintech fee revenue mainly includes banking service fees and commissions, which are paid by customers monthly.

KSPI did not provide loans which individually exceeded 10% of the Group’s equity.

The closest public comparable is Halyk Bank of Kazakhstan JSC (HSBK KZ).

My reasons

High interest rates. The bull case: KSPI is a high-growth, cash generative super-app dominant in Kazakhstan. Yet, it trades at only 6x NTM P/E and 7% NTM dividend yield.

However, I believe the consensus is overestimating the attractiveness of KSPI’s valuation.

6x NTM P/E means 17% earnings yield. With Kazakhstan 10y government bond yield at 15%, KSPI now looks expensive.

Why invest in KSPI and earn 17% when you can just invest in Kazakhstan 10y government bond and earn 15%? You are only compensated an extra 2 percentage points for taking on significantly higher risk.

I want to reinforce my point that if government bond yield is high, NTM P/E will naturally be lower. In the graph below, I plotted the median NTM P/E of major economies against their 10y government bond yield.

Source: Aswath Damodaran (2026); World Government Bonds (2026)

With a few exceptions, companies operating in economies with high bond yield will trade at lower levels of NTM P/E. This makes sense. If an investor can get 15% just from government bonds, to attract her to invest in companies, earnings yield will need to be much higher. That means a much lower NTM P/E.

So, in KSPI’s situation, its NTM P/E of 6x is actually not low because Kazakhstan 10y government bond yield is currently 15%.

The bulls will counter-argue that NTM P/E of 6x is attractive because of KSPI’s tremendous growth potential. This brings me to my next point: regulatory risks to growth.

Regulatory risks. The bulls argue that KSPI dominates the payment system in Kazakhstan, handling ~70% of consumer non‑cash payment transactions nationwide. The closest competitor, HSBK KZ processes only ~8%. KSPI’s monopoly supposedly gives it unrivalled data, customer engagement, and pricing power that competitors struggle to match.

I believe the market underestimates the regulatory risks that are threatening KSPI’s growth. KSPI’s monopoly has become its Achilles’ heel.

In Apr 2024, Bloomberg reported that The National Bank of Kazakhstan (NBK), Kazakhstan’s central bank, is looking to break KSPI’s monopoly over payments. Without calling out KSPI specifically, the NBK governor said “That project may lead to less earnings for some banks”1.

By Sep 2025, the NBK has launched a unified QR code system that allows customers to pay with a single QR, regardless of which bank or app they use2.

As of Mar 2026, 15 banks have signed participation agreements, although only 6 have completed technical integration with the system. KSPI has signed the agreement but has not integrated with the system3.

The delay seems to have drawn the ire of the President of Kazakhstan: “The requirement for all banks to connect to this infrastructure is enshrined in law, but the largest banks are delaying compliance”

By law, the remaining banks like KSPI must connect to the unified system by 18 July 2026.

Separately, in 2025, the National Bank of Kazakhstan (NBK) raised reserve requirements on liabilities denominated in KZT to 3.5% (from 0%–2% previously), and on foreign currency liabilities to 10% (from 1%–3%).

As a result, KSPI must hold more reserve assets with the NBK. The NBK does not pay interest on these reserve assets. I estimate this change reduced KSPI’s interest income by ~ KZT 46 bn in 2025.

Separately, the Kazakhstani government introduced a 10% tax on revenue from government securities, leading to an additional KZT 14 bn in tax expenses.

Taken together, shareholders have lost ~ KZT 60 bn from unfavourable regulation and taxation.

Although KZT 60 bn is only ~6% of 2025 net profit after tax, this highlights the underappreciated risk of investing in frontier markets like Kazakhstan. The governments are more inclined to see banks as piggy banks.

What’s more, from Apr 2026 the NBK is set to raise reserve requirements further. By Sep 2026, reserve requirements are expected to reach up to 5.0% (from 3.5% currently) for liabilities denominated in KZT and up to 15.0% (from 10.0% currently) for liabilities denominated in foreign currency.

I suspect this is why, despite having so much cash, KSPI chose to finance its acquisition of Hepsiburada through a combination of debt and dividend cuts.

Conflict of interest. In Jul 2025, Chairman Kim acquired Alatau City Bank in his personal capacity4. Alatau City Bank, formerly Jusan Bank, is the sixth largest bank by assets in Kazakhstan.

Chairman Kim announced he plans to transform the bank into a “fundamentally new financial institution” in Kazakhstan, with a focus on the introduction of the state-of-the-art IT solutions5.

According to people familiar with the matter, Alatau City Bank’s strategy will be tailored to limit competition with Kaspi.kz in the future by concentrating on extending loans to businesses and collateralized lending to individuals, such as mortgages, instead of retail banking6.

I did not find any formal contracts to mitigate this conflict of interest. In any case, even if there are contracts, I am not confident of their enforceability. If foreign shareholders are fleeced, there is little recourse. The US and Kazakhstan have no extradition treaty nor any deal to enforce each other’s civil or commercial court judgments.

Factors that could lead to a change in my decision

1. Significant decline in Kazakhstan 10y government bond yield or decline in KSPI’s valuation without significant deterioration of business fundamentals

2. Evidence that the regulatory environment has become more friendly to shareholders

3. Enforceable formal contracts that reduce conflicts of interest

References

Disclaimer: This is a record of my investment decisions, not financial advice. I may change my decisions without notice. Use this only for education and entertainment. Do not rely on this for your investment decisions.

About

Share price: AUD 4.61

Market capitalisation: AUD 1,200 mn (USD 837 mn)

Enterprise value (EV): AUD 1,293 mn (USD 901 mn)

Average daily volume (ADV): AUD 3 mn (USD 2 mn)

NTM P/E: 15x

Time spent: ~8 hours

My Decision

Pass

Background

Tasmea: Steady compounder or roll-up of cyclicals?

Since its IPO, Tasmea Limited (TEA AU) has delivered 84% p.a. total return to its shareholders.

The bull case is that TEA is a resilient high-growth compounder but it trades at only 15x NTM P/E.

I am, however, more pessimistic. I believe the consensus is underestimating the cyclicality of TEA’s businesses and the risk posed by its highly concentrated customer base. There are also signs that the quality of its receivables is deteriorating. Finally, the major shareholders and directors face conflicts of interest from their ownership of TEA’s key M&A advisor.

In this Substack post, I discuss these in detail.

Business model

Breakdown of FY25 revenue (AUD 548 mn, +37% YoY):

• 39% electrical (+64% YoY)

• 26% mechanical (+2% YoY)

• 19% civil (+92% YoY)

• 16% water and fluid (+18% YoY)

The Group derives its primary revenue from the provision of maintenance and sustainability services to infrastructure assets, industrial facilities, and fixed plant across a broad range of essential sectors, including mining, resources, defence, energy, utilities, and infrastructure. This includes ongoing asset maintenance, shutdowns, programmed works, emergency breakdown response, brownfield upgrades, and contract mining services.

TEA describes its operating segments as follows.

Electrical: Remote area specialist services in industrial and commercial electrical and instrumentation services, maintenance and compliance of electrical assets, and indigenous trade services.

Mechanical: Remote area specialist services in industrial and commercial refurbishment & repairs, shutdown and mechanical maintenance.

Civil: Remote area specialists in commercial earthworks, waste management and civil maintenance.

Water & fluid: Remote area specialist services in industrial and commercial Geomembrane Solutions, Lubrication Solutions & Maintenance, Drainage Solutions.

Relevant public comparables for Tasmea Limited (TEA; TEA AU) include Mader Group Limited (MAD; MAD AU), Monadelphous Group Limited (MND; MND AU), and SRG Global Limited (SRG; SRG AU).

My reasons

Cyclical. I believe TEA is more cyclical than the consensus believes. I have 4 reasons: (1) revenue declined during the previous downturn; (2) margin is at risk of compression during downturns; (3) demand is difficult to forecast and (4) TEA acquired WorkPac, a recruitment agency.

(1) The bull case is that TEA’s revenue is resilient because it focuses on the maintenance of existing plants. If commodity prices drop, customers will work their existing plants harder to generate more volume. The result would be higher demand for TEA’s maintenance and repair services.

Strangely, this was not the case when commodity prices started dropping from Jan 2015. TEA reported “The market conditions for breakdown repair and maintenance services offered by Heavymech continued to remain soft during the first half [of FY16]”

It is a similar situation at QMM, which supplies spare parts, repairs and onsite maintenance. “QMM has been impacted by the reduction in commodity prices for quarrying, mining and material handling products.”

Unfortunately, we will never know how Heavymech and QMM performed during the downturn in FY15 and FY16. Revenue at the Maintenance Engineering & Plant Construction segment, of which Heavymech and QMM are part of, grew +127% and +34% in those two years. I believe this was in large part due to TEA’s acquisition of Tasman Power in Oct 2014.

It is standard for companies to disclose the revenue and profit contribution from a new acquisition. TEA did not disclose these for Tasman Power. ‘The directors believe the disclosure would likely result in unreasonable prejudice to the Group and to the previous owners of Tasman Power’.

(2) During the next downturn, there is a significant risk that TEA’s margins will compress.

In Jan 2016, TEA reported “Whilst revenue [at Tasman Power] was up during the first half [of FY16], margins have been impacted as our clients have insisted that we undertake maintenance work at reduced hourly rates.”

Besides highlighting the downside risk to margins, this also casts serious doubts on the bull’s argument of high switching costs.

(3) Demand is difficult to forecast. In Aug 2014, TEA said “current work on hand and business activity suggest FY15 revenue comparable to FY14”. In Nov 2014, TEA reaffirmed this.

Revenue actually declined 16% during the year ended 30 Jun 2015. The decline was not limited to construction-related work. Revenue at Fabtech and Blucher declined -40% too. Fabtech and AusPress (fka Blucher) are now part of the Water & Fluid segment in today’s TEA.

(4) In Nov 2025, Tasmea acquired WorkPac. It is a recruitment agency that finds and supplies mainly blue-collar workers to mining, construction and similar industries.

Recruitment agencies tend to be cyclical. Their revenue growth depends on the tightness of the labour market. This in turn depends largely on the macroeconomic cycle.

During a downturn, recruitment agencies can be hit hard. Look at Adecco Group AG (ADEN; ADEN SW). Its share price is now down -56% from its peak in 2023. I suspect this is why the sellers of WorkPac did not demand more than 3.4x EBIT.

If you want to learn more about the recruitment industry, check out my thesis on HRnetGroup Limited (CHZ; HRNET SP). I explain why I became a shareholder in CHZ, Singapore’s largest recruitment agency.

Customer concentration. In FY23, TEA’s top 5 customers contributed 41% of revenue and its top 10 contributed 63%. In FY25, TEA’s single largest customer accounted for approximately 23% of revenue.

According to Quiet Compounder, this is Rio Tinto Group (RIO; RIO LN). This concentration risk is mitigated by the fact that the revenue is spread over 7+ subsidiaries, 8+ contracts, and 20+ sites. These contracts are independent of each other.

Nonetheless, this mitigation is only partial. If anything happens to RIO, TEA will be very badly impacted.

Deteriorating receivables? On 30 June 2025, over 50% of the Group’s trade receivables were covered by letters of credit and credit insurance. This was significantly lower than the prior year (>80%).

Letters of credit and credit insurance are important, especially so when TEA has a concentrated customer base. When Arrium entered bankruptcy in Mar 2016, trade credit insurance substantially reduced the financial damage to TEA.

Potential conflict of interest. Equity & Advisory (E&A) advises companies on mergers and acquisitions, capital raisings, and strategic or restructuring matters. Its clients include the Australian Government, BAE Systems and TEA. E&A has been a key adviser to TEA on many of its past M&A deals.

TEA Directors Stephen Young and Mark Vartuli, and Company Secretary Simone Thompson, are directors of E&A. SY & MV Pty Ltd, an entity associated with Messrs Young and Vartuli, holds 47.48% of E&A.

What happens if a company hires E&A to sell its business, and TEA later becomes interested in bidding for it?

If E&A stands to earn a big success fee on a TEA deal, how can shareholders tell whether the acquisition is driven by strategy or by the adviser’s incentives?

Factors that could lead to a change in my decision

1. Strong evidence that TEA’s revenues and margins can hold up in a downturn.

2. Material reduction in revenue concentration from the top customer.

3. Reversion of the proportion of trade receivables covered by letters of credit and credit insurance back toward prior levels (>80%), or a convincing explanation for why lower coverage is acceptable.

4. Structural changes that reduce potential for conflicts of interest.

Disclaimer: This is a record of my investment decisions, not financial advice. I may change my decisions without notice. Use this only for education and entertainment. All analysis and opinions expressed are solely my own, and SPG has not reviewed or endorsed this post. Do not rely on this for your investment decisions. I own shares in SPG.

About

Share price: EUR 19.00

Market capitalisation: EUR 3,779 mn (USD 4,378 mn)

Enterprise value (EV): EUR 5,021 mn (USD 5,817 mn)

Average daily volume (ADV): EUR 1.1 mn (USD 1.3 mn)

NTM P/E: 12x

My Decision

I decided to become a shareholder of SPG.

I bought my shares at EUR 15.20. Within 3 to 5 years, I expect to sell my shares for at least EUR 24.00.

Over 3 years, I expect to earn ~21% p.a. (16% capital gains; 5% dividend yield). Over 5 years, I expect to earn ~15% p.a. (10% capital gains; 5% dividend yield).

Background

Nature is to science what Hermès is to fashion.

Shares in Springer Nature AG & Co. KGaA (SPG; SPG GR) dropped as much as -24% amid the ‘SaaSpocalypse’. However, the market is probably wrong.

SPG is not software. SPG is a brand. It owns Nature, one of the most prestigious journals in the world. Together with its other portfolio of journals, SPG is the second largest publisher of journals in the world.

I decided to become a shareholder because of (a) under-recognised growth and (b) attractive capital returns.

In this Substack post, I walk through these reasons in detail. I also explain why I am watching out for “tomatoes roaming the fields”.

Business model

Breakdown of 2025 revenue (EUR 1,926 mn, +4.3% YoY):

• 79% from Research (+7.5% YoY)

• 10% from Health (+1.5% YoY)

• 11% from Education (-7.1% YoY)

Research revenue mainly comes from long‑term institutional subscriptions and transformative agreements for journals and eBooks, complemented by open‑access publishing fees. The main customers are academic research libraries.

The Health segment earns revenue from clinical publishing, pharma marketing services, and medical education for healthcare professionals.

Education earns revenue mostly from selling school and language-learning materials while Professional earns revenue from specialist publications, digital tools and industry events for European professionals.

SPG earns ~39% of its revenue from Europe, Middle East and Africa (EMEA), 32% of its revenue from Americas and the remaining 29% from Asia Pacific. Asia Pacific is the fastest growing region.

Most of its revenue is under contract like subscriptions and transformative agreements (52%). The remaining 48% revenue is transactional.

SPG is diversified, with no single customer dominant. In the Research segment, the top 50 customers account for only about 56% of subscription revenue, and overall revenue is spread across thousands of institutions worldwide.

The largest expense is personnel costs (36% of revenue). This mainly consists of wages and salaries for its 9,200 employees across editorial, technology/product, sales and marketing, and corporate/operations roles.

According to Scilit, an online index of research publications, SPG remains the second largest publisher in the world so far in 2026. Its market share has increased to ~12%, up from 9% in 2025.

SPG has even supplanted Elsevier as the largest publisher of open access articles.

Source: Scilit Rankings (2026)

Relevant public comparables include John Wiley & Sons, Inc. (WLY; WLY US), RELX PLC (REL; REL LN), Informa plc (INF; INF LN) and Wolters Kluwer N.V. (WKL; WKL NA).

Source: Tikr (13 Mar 2026)

REL owns Elsevier, WLY owns Wiley, INF owns Taylor & Francis while WKL owns Wolters Kluwer Health.

WLY is the closest comparable to SPG because it focuses on publishing. Other publishers like REL have significant non-publishing activities.

Holtzbrinck Publishing Group owns just over 50% of Springer Nature and effectively controls the company. It is a long‑established German family media group that focuses on high‑profile publishing brands and has a reputation for being astute business owners.

BC Partners, a European private equity firm, owns ~35%.

The free float is largely owned by a mix of mainstream institutional investors and long‑only funds, with no single holder standing out as dominant.

No prominent activist or other alternative‑asset investors are on the shareholder register.

My reasons

Under-recognised growth. The market seems to be trading SPG like it is a software company.

I plot the % change in the price of SPG (green/red) against the price of IGV (purple). IGV is one of the largest ETFs tracking North American software stocks. I also provided SPY, an ETF tracking the S&P 500 index, as a baseline (grey).

SPG and IGV are generally correlated. Since Jan 2026, “SaaSpocalypse” sparked a sharp sell-off of software stocks. SPG sold off sharply too.

SPG delivers ~88% of its research digitally and 52% of its revenue is derived from contracts like subscriptions. However, this is where the similarities with software companies end.

SPG is not a software company. SPG is a brand.

Customers (such as academic libraries) choose SPG because of the quality and prestige of its journals. SPG’s flagship journal is Nature, which publishes many important breakthroughs and has featured work by more than half of Nobel laureates in medicine, physics, and chemistry. It is also among the most cited journals worldwide.

According to a customer at a university, if she faced budget cuts, she would prioritise publishers that she knows are heavily used and that would be missed if they are gone. SPG’s journals will be on that priority list because of their prestige and importance to students and faculty members.

For this reason, researchers choose SPG. For them to be fully recognised as experts in their fields, publication in many of SPG’s journals is often seen as a prerequisite. At some universities, having articles in SPG journals is considered almost essential for achieving tenure over the long run.

Some industry insiders likened SPG to a patent agency. The point of a patent is to register the fact that a researcher reached this discovery first. That’s fundamentally what academic publishing is. It’s about the scientific record. That’s how researchers get employment opportunities and tenure.

I believe the risk from generative artificial intelligence (gen. AI) is low.

Gen. AI helps researchers produce better research. However, I doubt it can completely replace researchers in analysing new data and drawing new conclusions from it. Gen. AI is trained on historical data.

No matter how gen. AI evolves, it won’t change the fact that SPG’s value lies in its branding and reputation, not software capabilities.

Some analysts raised the disintermediation risk. What if academics start reading journals through the likes of ChatGPT, thereby diminishing the brand value of SPG’s journals?

The truth is that people have already been accessing SPG’s journals through intermediaries. In the US, most academic libraries use the same integrated library system called Alma. SPG has integrated its content into that system so that it regularly pulls all new journal articles and loads them directly into the system.

In fact, gen. AI presents opportunities for SPG. WLY has been licensing its content to AI model makers like OpenEvidence and Perplexity. Though still in early stages, WLY forecasts this licensing revenue will contribute ~3% to group revenue in FY2026.

Yet the market is not fully recognising SPG’s ability to sustain or even accelerate its growth. The market seems to be pricing SPG like a software company facing existential threat from gen. AI.

SPG currently trades at 11.5x NTM consensus EPS. On my estimate of sustainable free cash flow to firm, SPG is trading at 8% yield on enterprise value. This is an attractive 5% premium over Germany 10y government bond yield.

Capital returns. In my shortlist of SPG on 13 Mar 2026, I explained why I believed there is a very good chance that SPG will increase dividends.

Indeed, on 17 Mar 2026, SPG raised its dividends from EUR 26 mn to EUR 165 mn. This is a 6.3x increase and just 6% below Fitch’s forecast1. On a per share basis, the dividends increased from EUR 0.13 to EUR 0.83.

When I was shortlisting SPG, the share price was EUR 15.06. This meant dividend yield of ~5.5%. After SPG announced the dividend increase, its share price has since rallied to EUR 19.00. This compressed the dividend yield to 4.4%. 4.4% is still attractive, but not as much as before.

Valuation

I estimate intrinsic value at EUR 24.00 per share based on a discounted cash flow valuation (see Excel model below).

I bought my shares at around EUR 15.20. At this price, I have ~37% margin of safety and 58% upside.

I had originally planned to publish this thesis before SPG released its earnings on 17 Mar 2026, but a severe flu left me bedbound until now. Unfortunately, the share price has increased significantly after the earnings release.

The current share price of EUR 19.00 implies 21% margin of safety and 26% upside. This is still attractive, but not as much as before.

On a near‑term earnings basis, SPG trades at 12x NTM P/E on consensus forecasts and 13x on my estimates.

At my intrinsic value estimate, SPG would trade at 17x NTM P/E. I view this as reasonable given: (a) the under-recognised growth and (b) attractive capital returns.

Prior to the ‘SaaSpocalypse’ sell-off, WLY, SPG’s closest comparable, traded ~ 16x NTM P/E.

Catalysts

1. Revenue growth sustained above low-single digit, driving the consensus to realise that SPG is not software and thus has better growth prospects

2. Higher capital returns

Risks

Transition to open access. Traditionally, libraries and institutions pay publishers for access to journals. This is known as the subscription model.

Academia is shifting towards open access. In the open access model, journals are free to read online. The publisher is instead paid upfront by the author’s funder or institution. This is typically via an article processing charge, or APC.

At first glance, this shift creates uncertainty. However, open access is positive for SPG.

By making journals free to read online, open access increases the demand for journal articles. Open access articles are downloaded 6x more and receive 1.6x more citations2.

Between 2016 and 2025, the number of articles published under open access grew 13% p.a., much higher than 2% p.a. for subscription articles3. SPG’s full open access journals delivered a compound annual revenue growth rate of 12.3% from 2021 to 2023.

I initially thought the shift to open access would mean more volatile revenue. SPG would become more exposed to research funding cycles.

Open access has shifted customers’ spending from library budgets to research-funding budgets. However, research-funding budgets are remarkably stable. Since 2000, global spending on research and development (R&D) has increased every year, including during the 2008 financial crisis and 2020 COVID-19 pandemic4.

In 2020, SPG published ~37% of its articles under open access. By 2025, this % had reached 55%. During this period, SPG’s revenue grew 3.4% p.a.

SPG managed the transition to open access through transformative agreements (TA). TA are multi‑year contracts that give researchers full access to subscription journals while also allowing them to publish their articles open access without paying individual APCs. The TA thereby acts as a transitional mechanism for shifting spending from subscription models toward open access.

In the foreseeable future, I expect TA will be the dominant model for 2 reasons.

First, the subscription revenue from high impact factor journals like Nature is too high. If Nature flips to open access, it would need to charge an APC in the mid-five-figure range to achieve parity with its subscription model. The APC for an open access journal average only between USD 1k to 2k.

Second, 100% open access would mean research-intensive universities will bear the brunt of research publication costs while other universities will ‘piggyback’ off their work. TA solves this problem by charging non-research universities subscription fees to access the best research like those in Nature.

If TA becomes the dominant model as I expect, then SPG will benefit. In its IPO prospectus, SPG reported that revenue from customers under TA grew 4.7% p.a. between 2019 and 2023. This is more than double the typical subscription price increase of ~2% p.a. during the same period. SPG attributes this to the higher usage of articles covered by TA, suggesting increased value creation of TA to its customers.

Private equity ownership. BC Partners, a European private equity (PE) firm is the second largest shareholder (~35% shareholding). There is a risk of prolonged undervaluation as the market anticipates discounted block selldowns.

However, BC Partners has not sold shares after its lock-up period ended in April 2025. This suggests the PE firm believes SPG is undervalued. BC Partners will likely only start selling after the share price has increased significantly.

BC Partners has the holding power to wait for a higher valuation. It currently holds its SPG shares in a continuation fund created in 2021. A continuation fund is typically set up with a 8 to 10 years term. This means the risk from PE overhang will become material only around 2030.

Risk from paper mills. In 2024, WLY suffered major reputational damage, journal closures, and USD 35 to 40 mn of lost revenue after paper mills infiltrated its Hindawi open‑access journals5.

Such risk appears low at SPG. Its portfolio of journals is established and reputable. However, it will be useful to monitor its new journals like the open access Discover journal series.

In June 2025, a group of academics criticised SPG’s new “Discover” journal series as a deliberate copy of MDPI’s high-volume, APC-driven publishing model, arguing it will further erode research quality and trust in science6.

The article mainly argues that Discover looks structurally like an MDPI clone and is therefore risky. However, it does not yet show strong direct evidence that Discover’s current article-level quality is as bad as MDPI’s worst cases. The MDPI article I found funniest was one on “tomatoes roaming the fields”7.

Because most Discover journals are still very new, it is too early to make a definitive judgement on whether the series might drift toward predatory‑style practices. There is currently no clear evidence of such behaviour, but it is still prudent to monitor how Discover develops over time.

Factors that could lead me to increase investment in SPG

1. Evidence that revenue growth can be sustained above mid-single digit for the foreseeable future (e.g. higher demand for open access journals that can be met without compromising quality)

2. Share price falls > 20% without significant deterioration in business fundamentals

Factors that could lead me to decrease investment in SPG

1. Evidence of pervasive predatory publishing

Upcoming events

Tue 31 Mar 2026: Publication of 2025 annual report

Tue 5 May 2026: Q1’26 earnings release

Thu 28 May 2026: Annual general meeting

Valuation model

2026 03 24 Spg

242KB ∙ XLSX file

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References

Disclaimer: This is a record of my investment decisions, not financial advice. I may change my decisions without notice. Use this only for education and entertainment. All analysis and opinions expressed are solely my own, and SPG has not reviewed or endorsed this post. Do not rely on this for your investment decisions.

About

Share price: EUR 15.06

Market capitalisation: EUR 2,995 mn (USD 3,460 mn)

Enterprise value (EV): EUR 4,346 mn (USD 5,021 mn)

Average daily volume (ADV): EUR 600 k (USD 692 k)

NTM P/E: 10x

Time spent: ~5 hours

My decision

Shortlist

Background

Springer Nature is not software.

Springer Nature AG & Co. KGaA (SPG; SPG GR) sold off -24% year-to-date amind the ‘SaaSpocalypse’. However, the market is probably wrong.

SPG is not software. SPG is a brand. It owns Nature, one of the most prestigious scientific journals in the world. Nature is to science what Hermès is to fashion.

I shortlisted SPG because of (a) under-recognised growth and (b) a high probability of higher dividends.

In this Substack post, I walk through these 2 factors in detail. I also discuss what I will focus on as I investigate further.

To receive updates, click on the link below and subscribe to my Substack.

Business model

Breakdown of 2024 revenue (EUR 1,847 mn, -0.3% YoY):

• 77% from Research (+3.1% YoY)

• 10% from Health (-0.3% YoY)

• 13% from Education & Professional (-3.4% YoY)

Research revenue mainly comes from long‑term institutional subscriptions and transformative agreements for journals and eBooks, complemented by open‑access publishing fees and a smaller share from books and research‑support services.

The Health segment earns revenue from clinical publishing, pharma marketing services, and medical education for healthcare professionals.

Education earns revenue mostly from selling school and language-learning materials while Professional earns revenue from specialist publications, digital tools and industry events for European professionals.

SPG earns ~40% of its revenue from Europe, Middle East and Africa (EMEA), 32% of its revenue from Americas and the remaining 27% from Asia Pacific.

Most of its Research revenue is under contract like subscriptions (62%). The remaining 38% Research revenue is transactional.

SPG is diversified, with no single customer dominant. In the Research segment, the top 50 customers account for only about 56% of subscription revenue, and overall revenue is spread across thousands of institutions worldwide.

The largest expense is personnel costs (36% of revenue). This mainly consists of wages and salaries for its 9,200 employees across editorial, technology/product, sales and marketing, and corporate/operations roles.

In 2023, SPG estimated it holds ~14% market share by article volume in the Research journal publishing market. This makes SPG the second largest publisher in the world.

Source: Springer Nature (2025)

According to Scilit, an online index of research publications, SPG remains the second largest publisher in the world so far in 2026. SPG has even supplanted Elsevier as the largest publisher of open access articles.

Source: Scilit Rankings (2026)

Relevant public comparables include RELX PLC (REL; REL LN), John Wiley & Sons, Inc. (WLY; WLY US), Informa plc (INF; INF LN) and Wolters Kluwer N.V. (WKL; WKL NA).

REL owns Elsevier, WLY owns Wiley, INF owns Taylor & Francis while WKL owns Wolters Kluwer Health.

My reasons

Under-recognised growth? The market seems to be trading SPG like it is a software company.

In figure 1 below, I plot the % change in the price of SPG (green) against the price of IGV (purple). IGV is one of the largest ETF tracking North American software stocks. I also provided SPY, an ETF tracking the S&P 500 index, as a baseline (grey).

Source: Tikr

SPG and IGV are generally correlated. Since Jan 2026, “SaaSpocalypse” sparked a sharp sell-off of software stocks. SPG sold off sharply too.

SPG delivers ~88% of its research digitally and 62% of its Research revenue is derived from contracts like subscriptions. However, this is where the similarities with software companies end.

SPG is not a software company. SPG is a brand.

Customers (such as academic libraries) choose SPG because of the quality and prestige of its journals. SPG’s flagship journal is Nature, which publishes many important breakthroughs and has featured work by more than half of Nobel laureates in medicine, physics, and chemistry. It is also among the most cited journals worldwide.

For this reason, researchers choose SPG. For them to be fully recognised as experts in their fields, publication in many of SPG’s journals is often seen as a prerequisite. At some universities, having articles in SPG journals is considered almost essential for achieving tenure over the long run.

Generative artificial intelligence (gen. AI) can help researchers produce better research. Given that gen. AI is trained on historical data, I doubt it can replace researchers in pushing the frontier of knowledge. Even if this happens, it won’t change the fact that SPG’s value lies in its branding and reputation, not software capabilities.

Yet the market is not fully recognising SPG’s ability to sustain or even accelerate its growth. The market seems to be pricing SPG like a software company facing existential threat from gen. AI. SPG currently trades at 10.4x NTM consensus EPS. On my initial estimate of sustainable free cash flow to firm, SPG is trading at ~8% yield on enterprise value. This is an attractive 5% premium over Germany 10y government bond yield.

Capital returns? I believe there is a very good chance that SPG will increase dividends.

For 2024, SPG declared and paid a cash dividend of EUR 0.13 per share. The yield on current share price is ~0.9%. It looks very low.

In its 2024 IPO prospectus, SPG stated it intends to pay an annual dividend in an amount of ~50% of its adjusted net income1. Adjusted net income refers to SPG’s net result for the period before gains/losses from the acquisition/disposal of business/investments, amortization/depreciation and impairment on acquisition related assets and exceptional items.

Fitch expects dividends of EUR 25 mn in 2025 (~0.8% dividend yield), increasing to EUR 175 mn in 2026 (~5.8% yield) and reaching EUR 213 mn in 2027 (7.1% yield)2. If these estimates are realised, then by 2027, SPG’s dividends will be offering an attractive 4% premium over Germany 10y government bond.

I believe the probability of this happening is more likely than not. In 2024, SPG reached its leverage target. By Oct 2025, SPG has received an investment grade rating from Fitch. The business is very capital light. Beyond offices, not much capex is required. Working capital is a source of cash because customers pay in advance for subscriptions.

Factors to focus on

How will the shift towards open access impact SPG? Traditionally, libraries and institutions pay publishers for access to journals. Academia is shifting towards open access publication. In this model, the journals are free to read online. The publisher is instead paid upfront by the author’s funder or institution. This is typically via an article processing charge, or APC.

At first glance, this shift is slightly positive or neutral for SPG. Volume should grow faster because more papers can be published. However, it could also mean more volatile revenue as SPG becomes more exposed to research funding cycles. ~27% of SPG’s Research revenue is derived from open access articles.

I would like to gather more data to get a deeper understanding of the shift and its implications.

Private equity ownership. BC Partners, a European private equity (PE) firm is the second largest shareholder (~35% shareholding). There is a risk of prolonged undervaluation as the market anticipates discounted block selldowns. How significant is the risk of PE overhang?

Risk from paper mills. In 2024, WLY suffered major reputational damage, journal closures, and USD 35 to 40 mn of lost revenue after paper mills infiltrated its Hindawi open‑access journals3. What is the risk of a similar incident at SPG?

References

Disclaimer: This is a record of my investment decisions, not financial advice. I may change my decisions without notice. Use this only for education and entertainment. All analysis and opinions expressed are solely my own, and CHZ has not reviewed or endorsed this post. Do not rely on this for your investment decisions. I own shares in CHZ.

About

Share price: SGD 0.73

Market capitalisation: SGD 722 mn (USD 580 mn)

Enterprise value (EV): SGD 412 mn (USD 343 mn)

Average daily volume (ADV): SGD 100 k (USD 80 k)

NTM P/E: 14.7x

My decision

I decided to become a shareholder of CHZ.

The share price now is SGD 0.73. Within 3 to 5 years, I expect to sell my shares for at least SGD 1.27.

Over 3 years, I expect to earn ~27% p.a (21% capital gains; 6% dividend yield). Over 5 years, I expect to earn ~18% p.a. (12% capital gains; 6% dividend yield).

Background

The share price of European recruitment agencies such as Adecco Group AG (ADEN; ADEN SW) is down -68% in the past 5 years. During the same period, Japanese recruitment agencies like Persol Holdings Co.,Ltd. (2181; 2181 JP) is up +12%. What happened?

The short answer: Japan is facing a tight labour market, while economic growth in many European economies has been weak.

Singapore’s labour market seems to be reaching an inflection point, yet this is not widely recognised.

HRnetGroup Limited (CHZ; HRNET SP) is Singapore’s largest recruitment agency. I decided to become a shareholder because (a) CHZ is a good business facing temporary headwinds; (b) potential for capital returns and (c) under-recognised growth.

In this Substack post, I walk through these reasons in detail and explain the risks I am watching. You can also access my Excel model in my Substack post.

Business model

Breakdown of 2025 revenue (SGD 584 mn, +3% YoY):

• 90% from flexible staffing (+3% YoY)

• 9% from professional recruitment (+2% YoY)

• 1% from others (+1% YoY)

Revenue from flexible staffing is earned from providing contractor employees to clients and billing them a marked‑up service fee on top of the contractors’ payroll and benefit costs, generally invoiced monthly as services are rendered.

Revenue from professional recruitment is earned from billing clients a fee calculated as a percentage of the successful candidate’s first-year remuneration, recognised when the candidate signs the employment contract or starts work.

84% of revenue is derived from private sector while 16% from public sector.

24% of revenue is derived from IT & tech, 21% from financial & insurance and 14% from retail and consumer. The remaining 41% is derived from healthcare, manufacturing, services and others.

No single customer accounted for > 10% of revenue. Top 5 clients contribute ~17% of revenue. These clients have been with them for an average of 18 years.

The largest expense is sub-contractor expenses (79% of revenue). This mainly consists of the payroll of contractor employees deployed to customers.

Because of this, breakdown by gross profit is more meaningful (SGD 123 mn, +1% YoY):

• 52% from flexible staffing (0% YoY)

• 45% from professional recruitment (+1% YoY)

• 3% from others (+7% YoY)

52% of gross profit is earned from Singapore, 43% from North Asia (mainly mainland China and Taiwan) and 5% from rest of Asia like Malaysia, Indonesia and Thailand.

At its IPO in 2017, CHZ is the largest recruitment agency in Singapore, with revenue market share ~20%1. The second and third players are Kelly Services (aka PERSOLKELLY) and Adecco. Both have ~10% revenue market share each. The remaining players are much smaller.

Relevant public comparables include Persol Holdings Co.,Ltd. (2181; 2181 JP), Adecco Group AG (ADEN; ADEN SW), ManpowerGroup Inc. (MAN; MAN US), Amadeus FiRe AG (AAD; AAD GR) and JAC Recruitment Co., Ltd. (2124; 2124 JP).

Source: Tikr (20 Feb 2026)

ADEN, MAN and ADD have significant exposure to Europe and are therefore the worst hit by the slowdown in economic growth in Europe. 2181 and 2124 earn most of their revenue from Japan. Because of the tight labour market in Japan, they performed among the best globally.

The Sim family owns ~80% of CHZ. Founder Peter Sim, his brother JS Sim and his daughter Adeline Sim serve as executive directors. In April 2025, Fidelity emerged as the second-largest disclosed shareholder (~8%), ahead of a long tail of broker and nominee accounts. No other visible activist or private equity players on the shareholder register.

Thesis

Good business, temporary headwinds. CHZ is a good business. Its competitive advantage arises from its position as the largest recruitment agency in Singapore with a long and proven track record.

Clients use CHZ for flexible staffing because it has a long track record and the balance sheet to fund these working capital requirements. Few competitors can support this level of working capital.

Clients use CHZ for professional recruitment because CHZ combines a structured search methodology with a strong brand and long track record. Clients have an incentive to use a widely recognised brand. If a client uses a no-name recruitment agency and the new hire turns out to be bad, the client will be blamed. If you’re the HR on the client’s side, why risk your career?

Because of these reasons, CHZ has achieved a good return on equity (ROE), despite a significant cash pile. Last twelve months (LTM) ROE ~13%. Prior to the current downturn, its ROE averaged 18%.

Like its global peers, CHZ has been facing economic headwinds. However, I believe an inflection point is here. In 2025 H2, gross profit grew +4.2% YoY. This is the first time gross profit grew since it started declining in 2022 H2. Analysis of Singapore’s job vacancy rate suggests that CHZ’s gross profit growth is sustainable.

Figure 1 shows that YoY % changes in CHZ’s revenue closely track YoY % changes in Singapore’s job vacancy rate. The job vacancy rate measures unfilled labour demand (job vacancies) as a share of total jobs. A rising rate indicates a tighter labour market with more unfilled positions. This is good news for recruitment agencies like CHZ.

Figure 1: YoY % changes in CHZ’s revenue closely track YoY % changes in Singapore’s job vacancy rate

Figure 2 shows YoY % change in quarterly job vacancy rate. The data has bottomed out around Q2’24 and has been on an upward trend ever since. The latest data in Q3’25 shows that the YoY % change in job vacancy rate has finally turned positive. The Ministry of Manpower (MOM) will only publish the data for Q4’25 around mid-Mar 2026. Nonetheless, past cycles suggest a high likelihood that the job vacancy rate will continue growing in Q4’25. This means CHZ’s revenue and gross profit will likely continue growing YoY. Barring any significant exogenous shocks, downside risk is low, at least for the next few quarters.

Figure 2: YoY % change in quarterly job vacancy rate finally turned positive in Q3’25

This view of a sustained recovery is further supported by trends in CHZ’s contract liabilities. In 2024, growth in contract liabilities finally turned positive. This pointed to a recovery in 2025. Indeed, in 2025, CHZ’s revenue and gross profit YoY growth finally turned positive too. In 2025 H2, other payables and accruals, which includes contract liabilities, increased +3% YoY.

Finally, during the earnings call on 26 Feb 2026, management reported that they already have visibility of the pipeline for H1’26. The pipeline quality has improved compared to last year.

However, the market has not recognised that CHZ is a good business, that its headwinds are temporary, and that an inflection point is here. CHZ currently trades at ~9% free cash flow to firm (FCFF) yield on enterprise value (EV), based on my estimate of sustainable FCFF. This is a very attractive ~7% premium over Singapore’s 10y government bond.

Capital return. I believe there is a good chance that CHZ will return more capital to shareholders.

In 2025, CHZ had ~SGD 336 mn cash pile (~47% of market cap.). Management has earmarked SGD 40 mn (~6% of market cap.) for dividends and SGD 10 mn (~1% of market cap) for share buybacks.

CHZ increased its dividends in 2025. The full year dividend reached 4.2 cents, up 5% from 4.0 cents last year. Dividend payout ratio increased to 78%, above its historical range of 50% to 60%. At the current share price, this implies a dividend yield of ~6%, an attractive ~4% premium over Singapore 10y government bond.

Management sees dividends of 4 cents per share to be strong and sustainable. They also indicated that when the business performs well and value is unlocked from its investments, it intends to share more with shareholders, as they have done this time. Unlike many peers that pay lip service to capital returns, CHZ has backed words with action through higher dividends.

Under-recognised growth. CHZ has earmarked SGD 156 mn of its cash pile for M&A and organic growth. During my meeting with Jennifer Kang (CHZ Group CFO), she explained CHZ hopes to execute a sizeable M&A deal.

For example, a business generating SGD 31 mn of NPAT, acquired at 10x P/E for a 51% stake — would imply a consideration of about SGD 156 mn. This is well within CHZ’s financial capacity, while retaining the optionality to take on debt if it enhances returns or accelerates growth.

On a pro‑forma basis, an M&A like this would add ~SGD 16 mn of attributable NPAT to CHZ. This will lift group NPAT by 30% to ~SGD 67 mn. Today’s market cap. of SGD 717 mn would equate to only ~11x pro‑forma earnings, suggesting the market is not pricing in CHZ’s M&A growth option yet.

Valuation

I estimate intrinsic value at SGD 1.27 per share based on a discounted cash flow valuation (see Excel model below). At the current share price, this implies approximately 43% margin of safety and 76% upside.

On a near‑term earnings basis, CHZ trades at 14.7x NTM P/E on consensus forecasts and 12.8x NTM P/E on my estimates, suggesting the market has yet to fully price in the earnings inflection ahead.

At my intrinsic value estimate, CHZ would trade at 22.4x NTM P/E, which I view as reasonable given: (a) the underlying business quality and largely temporary nature of current headwinds, (b) the potential for higher capital returns, and (c) attractive growth opportunities via M&A.

Japanese recruitment companies like 2181 and 2124 trade at ~ 22x on average in the past 5 years.

Catalysts

1. Acceleration in the growth of gross profits

2. Higher capital returns

3. M&A

Risks

Headwinds may not be temporary. There is a risk that a downturn in hiring activity could result in only a short-lived recovery of gross profits.

Nonetheless, this risk appears to be limited. The YoY % change in Singapore’s quarterly job vacancy rate bottomed out around Q2’25 and has recently turned positive in Q3’25. Historical trends suggest that this improvement is likely to persist for at least the next 12 months.

This outlook is further supported by positive working capital movements at CHZ and management’s recent commentary. Contract liabilities, a leading indicator of revenue, have increased for the first time in 2024 and has likely increased further in 2025. Additionally, management has highlighted an improved sales pipeline heading into the first half of 2026.

Mass unemployment from generative AI disruption. There is a risk that generative artificial intelligence (AI) will reduce junior white-collar jobs. CHZ is already seeing signs of this.

To mitigate this, CHZ is leaning into executive search. Senior roles are less impacted by generative AI. However, it is still not clear how much this pivot can offset the weakness.

I believe this risk is limited in the long run. Prolonged mass unemployment among young workers is socially unacceptable and politically costly. Governments will likely find ways to re-employ displaced workers. In fact, the Singapore government has already launched a slew of initiatives to do this.

Capital allocation. There is a risk that future M&As may destroy value.

In 2019, CHZ acquired a ~29% stake in Staffline Group PLC (STAF; STAF LN). According to SIAS, CHZ invested ~SGD 56 mn in STAF and suffered significant losses. SIAS questioned if it is prudent for CHZ to invest when it does not appear that CHZ has access to detailed financial information to carry out due diligence nor had CHZ been able to appoint a non-executive director to the board of STAF2.

In the same document, CHZ said the loss did not affect the group’s P&L because the investment is carried at FVTOCI. In my view, regardless of CHZ’s accounting policy, this is still an economic loss.

At first glance, it may seem that management has done a poor job of allocating capital. However, their investment performance needs to be understood in a wider context.

CHZ first invested in STAF on 31 July 2019. In the table below, I estimate the total return CHZ would have earned had it instead invested in other listed recruitment companies over the same period. Despite the unrealised losses on STAF, the data suggest CHZ had limited scope to do materially better within the listed recruitment sector, given the unexpectedly weak labour market in much of the world.

Source: Tikr

Finally, there are signs that STAF is also turning the corner. In STAF’s latest full year trading update, it reported it expects 2025 results to be significantly ahead of market expectations3

Other payables. Between 2020 and 2023, CHZ reported ‘other payables’:

SGX-ST queried CHZ on the 2022 balance. CHZ replied that these “…were monies set aside in year 2020 and 2021 for contingencies to respond to trade related situations during the pandemic. The counterparties are not related parties.”

When asked why the balance declined significantly in 2022, CHZ said “The reversal was made … after considering historical data and qualitative reasonable forward-looking information to estimate the amount that was no longer needed. The amount was S$14.8m ...”4

Although this item is non-recurring and will have no financial impact from 2025 onwards, I remain puzzled by its accounting treatment. The accrual recognised in 2020 does not appear to have affected the profit and loss statement (P&L). It is unclear how this other payable was initially recorded in 2020 and why, if it did not impact the P&L then, its subsequent reversal was routed through the P&L in later years. Because this is material, I am asking management for further clarification.

Factors that could lead me to increase investment in CHZ

1. Significant improvement in quarterly job vacancy rate

2. Value‑accretive M&A at an attractive valuation

3. Capital returns that are higher than expected

4. Share price falls > 20% without significant deterioration in business fundamentals

Factors that could lead me to decrease investment in CHZ

1. Material accounting treatments that I cannot understand

2. No meaningful use of the cash pile (dividends, buybacks, or value‑accretive M&A) over the next 3–5 years

Upcoming events

Sat 14 Mar 2026: SIAS Market Outlook - Corporate Connect with HRnetGroup (link)

Mid-Mar 2026: MoM publishes Singapore job vacancy rate for Q4’25 (link)

Tue 21 Apr 2026: Annual general meeting

Valuation model

2026 03 11 Chz

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References

Disclaimer: This is a record of my investment decisions, not financial advice. I may change my decisions without notice. Use this only for education and entertainment. Do not rely on this for your investment decisions. All analysis and opinions expressed are solely my own, and 5WJ has not reviewed, approved, or endorsed this post.

About

Share price: SGD 0.76

Market capitalisation: SGD 672 mn (USD 525 mn)

Enterprise value (EV): SGD 1,546 mn (USD 1,208 mn)

Average daily volume (ADV): SGD 1.0 mn (USD 0.8 mn)

LTM P/E: 9x; LTM P/B: 3x

My decision

Pass

Background

In 2013, gold price fell -16%. Albemarle & Bond, the UK’s then second largest pawnbroker, resorted to melting gold jewellery to stave off bankruptcy.

Times have changed. MoneyMax Financial Services Ltd. (5WJ; MMFS SP), Singapore’s largest pawnbroker, reported +94% YoY growth in 2025 H2 earnings. Business is booming.

After the results, I revisited 5WJ and decided to stick with my original decision to pass.

In addition to the points from my first take, I am concerned that earnings now have more downside than upside. In this Substack post, I discuss why I believe if gold price simply stops growing, 5WJ’s earnings will decline significantly.

During the 2013 gold crash, 5WJ looked resilient on the surface, with headline earnings still growing low single digits.

But that was largely driven by opening more stores. On a per‑store basis, revenue and profit collapsed. With outlet density now near historical highs, I doubt 5WJ can repeat that playbook.

Business model

Breakdown of 2025 revenue (SGD 542 mn; +39% YoY):

• 78% retail and trading of gold and luxury items (+43% YoY)

• 18% pawnbroking (+46% YoY)

• 4% secured lending (-15% YoY)

Revenue from pawnbroking is earned from the provision of financing solutions secured by pledged collateral such as gold, jewellery and luxury timepieces.

Revenue from retail and trading of gold and luxury items is earned from the sale of brand‑new gold jewellery, pre‑owned jewellery, luxury timepieces and branded bags, including wholesale trading of gold.

Revenue from secured lending is earned from collateralised loans to individuals and businesses, including automotive and property financing and lease receivables.

In 2025, 5WJ earns 85% of its revenue in Singapore with 51 outlets. The remaining 15% is earned from Malaysia with 62 outlets.

The group serves:

• Retail pawnshop customers who pledge gold, jewellery, luxury watches and bags for short‑term financing.

• Retail customers who sell their gold and jewellery to MoneyMax.

• Retail shoppers buying new and pre‑owned jewellery and luxury items, both in-store and online.​

• Borrowers (individuals and SMEs) using secured lending for automotive and property financing.

In 2024, the top customer accounted for ~34% of revenue. This major customer is from wholesale trading of gold and luxury items segment.

Breakdown of 2025 net profit after tax (NPAT) (SGD 76 mn; +83% YoY):

• 54% retail and trading of gold and luxury items (+107% YoY, 10% NPAT margin)

• 44% pawnbroking (+88% YoY, 34% NPM)

• 8% secured lending (-33% YoY, 24% NPM)

• 25% others (+84% YoY)

• -30% consolidation elimination (likely offset against ‘others’)

The most relevant public comparables are its two competitors in Singapore: ValueMax Group Limited (T6I; VMAX SP) and Aspial Lifestyle Limited (5UF; ASPL SP).

5WJ holds ~ 21% market share by number of outlets in Singapore, up from 16% in 2016. In Malaysia, 5WJ holds ~6% market share, up from 3% in 2016.

My reasons

Earnings have more downside than upside. The bulls see 5WJ as a bargain. In the last 3 years, it has grown its net profit after tax (NPAT) by 48% p.a. yet it is still only trading at LTM P/E of 9x.

The segment that contributed the most to the NPAT growth is retail and trading of gold and luxury items (‘retail and trading’).

Over the past 3 years, this segment grew 64% p.a., much faster than the 47% p.a. growth in group NPAT. Retail and trading is now 5WJ’s largest segment, contributing to 54% of group NPAT.

What drove the growth in retail and trading? The short answer: movements in gold price.

Source: 5WJ annual reports (retail and trading NPAT); Investing.com (gold price)

From the chart above, it’s obvious that when gold price rises, NPAT at retail and trading increases more than proportionately and vice versa.

When gold price rises, sales volume increases. People strapped for cash have more incentive to sell their gold jewellery. Aunties and uncles dig out long forgotten and unwanted gold jewellery from their closets to sell.

However, what’s not so obvious is that, when gold price is generally flat, NPAT from retail and trading decreases.

In 2017 and 2018, gold price was flat, but NPAT from retail and trading declined -50% and -165% YoY respectively. Why?

The short answer: time lag between the point when a pawnbroker buys gold from retail customers and the point when the pawnbroker sells it for scrap.

When a customer sells their gold to a pawnbroker, the pawnbroker typically holds the gold in inventory for processing until it is sold to its wholesale customer.

If gold price increases during this period, the pawnbroker enjoys a larger spread. If gold price is flat during this period, the pawnbroker will make a much smaller spread.

Gold price grew 23% and 41% in 2024 and 2025 respectively. Yet NPAT from retail and trading grew 129% in 2024 and 171% in 2025.

Besides higher sales volume, I believe the time lag is a strong contributor to the huge growth.

In the first two months of 2026, gold price increased 68% YoY. Retail and trading NPAT should continue to grow in Q1’26.

After rising +23% in 2024 and another +41% in 2025, how long can the gold price continue its meteoric rise? 1 year?

With the conflict in the Middle East, maybe yes. 2 years? 3 years?

Remember, if gold price simply stops growing, NPAT from retail and trading will likely decline significantly.

With earnings facing more downside than upside, I believe 5WJ is not an obvious bargain at LTM P/E of 11x.

Market likely reaching saturation. At first glance, 5WJ seems resilient to falls in gold price. In 2013 and 2014, gold price fell -16% and -9% respectively. 5WJ’s revenue fell only -13% in 2013 and grew 11% in 2014. NPAT grew +3% and +1%.

However, that’s because 5WJ added more outlets.

Number of outlets increased +23% in 2013 and +47% in 2014. On a per-outlet basis, revenue declined -30% and -24% in 2013 and 2014. Because of operating leverage, NPAT per outlet performed worse: -75% in 2013 and -70% in 2014.

If gold prices fall, can 5WJ add more stores to offset the fall in demand, just like in 2013 and 2014? I believe the answer is no because the markets are reaching saturation.

5WJ earns ~85% of its revenue from Singapore. Before the gold price crash in 2013, outlet density in Singapore was still not high.

The number of outlets per 1 mn people is only between 34 and 36. This allowed 5WJ to add more outlets when the gold price fell in 2013 and 2014.

By 2014, outlet density reached 42 outlets per 1 mn people and has plateaued around that level ever since.

Malaysia contributed only 15% of revenue in 2025, and is not big enough to offset any severe declines in Singapore.

Moreover, after stagnating between 15 to 20 outlets per 1 mn people during 2014-2020, outlet density increased rapidly in the past few years and reached an all-time high of ~27 in 2024.

This raises the question of whether the Malaysian market has added too many stores on the back of the gold rally in recent years, and how sustainable this can be.

Financial risk looks high. As of 2025, 5WJ carries a loan book of SGD 1,012 mn. This is funded by short-term borrowings of SGD 650 mn and long-term borrowings of SGD 219 mn. The remaining SGD 143 mn is funded by equity.

Just 14% of 5WJ’s loan book needs to default for its equity in its loan book to turn negative. From my experience with Ramsdens, the UK’s second largest pawnbroker, the % of a pawn loan book in default is usually ~25%.

5WJ is effectively a bank. It borrows from banks and lends to sub-prime borrowers on gold collateral.

But 5WJ’s financial risk is higher. 5WJ relies on bank loans for funding. Such wholesale funding is more ‘flightly’ and tends to disappear precisely when the borrower comes under stress.

You could argue that 5WJ’s financial risk is not as elevated as headline leverage suggests.

Although its SGD 650 mn of short-term borrowings is about 5x operating profit and looks high, this is partly offset by the fact that the current portion of its loan book stands at SGD 842 mn. Pawn loans are typically short-tenor (around six months) and collateralised.

However, if gold prices crash, the value of gold collateral can drop below the outstanding loan amount.

This increases the incentive for borrowers to default and forfeit their collateral. 5WJ may be forced to liquidate pledged gold at discounts to preserve capital and meet its own debt obligations.

In 2013, the UK pawnbroker Albemarle & Bond resorted to melting down gold jewellery to raise cash and avoid breaching covenants1. The pawnbroker eventually went into administration anyway.

Difficulty in assessing the quality of the loan book. You could argue that 5WJ’s financial risk is mitigated by the fact that the loans are collateralised.

However, management does not disclose its loan-to-value ratio (LTV ratio). There is also the risk that if gold price declines significantly, whatever LTV ratio that appears prudent now may not actually be sufficient.

In 2024, 5WJ’s allowance for impairment is only SGD 2.2 mn against a gross loan book of SGD 755 mn. This is 0.3%. The same % for Ramsdens is 7%.

At first glance, it seems like 5WJ may not have sufficiently provisioned against loan impairments. However, there may be good reasons why this % should be lower at 5WJ.

But because management does not disclose key metrics like % of the loan book in default, aging of loan book, LTV ratios, it is hard for me to assess whether 5WJ has sufficiently provided for loan impairments.

Capital intensive. Between 2016 and 2025, NPAT increased 12x but dividends only increased 4x. This is because the profits had to be reinvested into the loan book for growth. In fact, free cash flow to firm has been negative since 2017.

Whereas banks can rely on low-cost stable retail deposits to fund their growth, 5WJ has no such privilege.

5WJ has to reinvest all its profits and rely on bank loans to grow. This makes each dollar of earnings from 5WJ less valuable than the big 3 banks.

Because of this, I am not sure whether 5WJ (LTM P/E: 11x) can trade at the same LTM P/E multiple as DBS (15x), UOB (13x) and OCBC (13x).

On LTM P/B basis, 5WJ (LTM P/B: 3x) is already trading higher than DBS (2x), UOB (1x) and OCBC (2x). How sustainable is this?

Factors that could lead to a change in my decision

1. Diversification of earnings away from the current heavy exposure to gold price.

2. Strong evidence that the market remains underpenetrated in Malaysia and 5WJ is in strong position to capture the growth.

3. Reduction of financial risk by shifting short-term loans to long-term loans with friendly or no covenants.

4. Management disclosing key metrics on their loan book (e.g. LTV ratio, aging of loan book, % of loans in default) and the key metrics are healthy.

5. The business becomes less capital intensive (e.g. 5WJ securitising pawn receivables).

6. Share price falls to SGD 0.64 (~30% below my estimate of intrinsic value) without significant deterioration in business fundamentals.

Valuation model

2026 03 09 5wj

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Disclaimer: This is a record of my investment decisions, not financial advice. I may change my decisions without notice. Use this only for education and entertainment. Do not rely on this for your investment decisions.

Background

“The shares are only selling for 1.1x P/E. I am all-in!”

It is Jan 2006. You are browsing Value Investors Club (VIC), a forum for professional investors and hedge fund managers to exchange investment ideas. You see the latest contest winner: a stock pitch on First Natural Foods Holdings (1076; 1076 HK).

“First Natural Foods Holdings is a Chinese seafood processor that is trading for 4 times earnings and less than 25% of my valuation appraisal. If you back out the 35 cents of distributable net cash, the stock is selling for 1.1 times earnings.”

You could feel your heart skip a beat. This is exactly what you’re looking for. 1.1x P/E! You recall what you learnt from the value investing gurus. Mr. Market must be an idiot for giving away these shares at such a huge margin of safety! You hurriedly called your broker, instructing her to sell everything and go all-in into 1076.

In Dec 2008, you received a notification on your Blackberry. The Hong Kong Stock Exchange (HKEX) has suspended trading in 1076. By Jan 2009, provisional liquidators were appointed.

What happened?

In my Substack post, I walk through 4 common reasons why shares trading at low P/E are not always bargains: (1) earnings are expected to decline; (2) interest rates are high; (3) financial leverage is high or (4) there are serious doubts over the quality of earnings.

The lower the P/E, the better… really?

So, what happened at First Natural Foods Holdings? Why were they suspended?

Before we discuss that, let’s make sure everyone is on the same page. What do we mean when we say that a company’s shares are trading at price-to-earnings or P/E ratio of 15 times?

P/E of 15 times means we are paying $15 for every $1 of profits the company will earn. We calculate this by dividing the share price by earnings per share (EPS).

Correct. All else equal, you will want to buy shares with the lowest P/E because they are considered cheap. You will pay the lowest price for $1 of earnings. In developed economies like the USA, long-term P/E ratio has averaged around 15x. As a rule of thumb, if you can buy shares below 15x P/E, that’s attractive.

Makes sense. But there must be a catch, right?

There are instances where shares trading at very low P/E are not bargains. The first instance is when there is a significant risk that earnings may decline. For example, Weibo Corporation (WB; WB US) trades at NTM P/E of only 6x mainly because its monthly active users (MAU) and its earnings per share (EPS) are declining. There is no clear visibility when the decline will stop.

A chicken that can lays fewer eggs in the future will naturally be worth less. What’s the next category?

A company that is trading at low P/E ratio may not be a bargain if interest rates are high. Joint Stock Company Kaspi.kz (KSPI; KSPI US) is a fintech and e-commerce company operating primarily in Kazakhstan. In the past 2 years, KSPI grew its net income by 12% p.a. and the consensus expects it to grow its net income by 7% p.a. over the next 2 years. Yet, it is only trading at NTM P/E of 6x, making it look like a bargain. A high growth company at single digit multiple! That’s the bull case for KSPI.

However, once you consider that Kazakhstan 10y government bond yield is 15%, KSPI now looks expensive. KSPI’s earnings yield is only 16% (1/6.1 = 16%). Why invest in KSPI and earn 16% when you can just invest in Kazakhstan 10y government bond yield and earn 15%? You are only compensated an extra 1 percentage point (1 ppt) for taking on significantly higher risk.

I would argue otherwise. In frontier markets, equity valuations tend to be most attractive when bond yields are elevated. As foreign capital returns, it typically drives bond yields lower and pushes equity prices higher.

Yes, but that is a macroeconomic forecast, not a stock pitch. If you buy KSPI on that basis, you are essentially betting bond yields will decline. If you believe in your thesis that foreign capital will return and push down bond yields, then there is even more reason to prefer Kazakhstan 10y government bonds over KSPI. The bonds carry higher yield and have a direct relationship to changes in interest rates.

Ok… Let me digest that. What’s the next point?

A company trading at low P/E may not be a bargain when its financial leverage is high. Imagine you have 2 companies that are the same in all ways except financial leverage. Company A has very high financial leverage and its bonds are rated junk. Company B has no debt, and it is rated investment grade. If you are an investor, which company is more attractive to you?

Obviously Company B. Its earnings are more secure because it has no financial leverage.

Exactly. On the other hand, you’re not sure whether company A will go bankrupt. Because of its high financial leverage, company A’s earnings are riskier. You will want to pay less for every $1 of company A’s earnings. That’s why companies with high financial leverage will generally have lower P/E ratio.

This is straightforward enough. No need for real-life examples. When are you going to talk about First Natural Foods Holdings?

This brings me to my final point. A company trading at a low P/E multiple may not be a bargain if there are serious doubts over the quality of its earnings. In 1076’s case, the reported earnings turned out to be illusory. 1076 reported cash of RMB 857 mn and RMB 843 mn in 2007 and 2006 respectively1. However, bank statements obtained by the Securities and Futures Commission (SFC), Hong Kong’s regulator, showed a balance of only ~ RMB 20 mn on December 29, 20072. Furthermore, in December 2008, the Chairman of 1076 stole ~ HKD 85 mn from the company’s bank accounts before disappearing.

Wow. How could this have happened? Aren’t the cash balances audited by the auditors?

As the VIC write-up stated, the lead auditor described extensive procedures for verifying cash balances. The SFC reported the auditors had obtained written confirmation of bank balances directly from the banks3. However, the figures shown in the confirmation turned out to be false and fabricated. In some developing markets, it is not uncommon for bank officers to be bribed.

Is there anything we could have done?

The VIC write-up highlighted the biggest red flag: unnecessary capital raising. “It’s bizarre that a company with this much cash on hand and this much cash flow (at least 100m renminbi of FCF per year) should be raising money from outside.”4.

Sadly, the writer later dismissed it as “Maybe it’s a cultural thing.” Whenever companies have a lot of cash but raise capital heavily at a high cost, there is a high probability the cash does not exist.

Can you make it less technical?

It’s like going on a date where the guy keeps bragging about how much money he makes but asks you to pay the bill. If he is indeed so rich, then why can’t he afford the meal? If a company indeed has so much cash, why do they need to borrow more at high interest rates?

That’s definitely more relatable! What other red flags do you look out for?

Imagine you are the CEO of a company. You want to inflate your revenue. You book some fake sales. Whenever you have sales, you have receivables. This is true for most companies, except for those that sell for cash. The more you inflate your revenue, the more receivables will pile up on your balance sheet. People will start becoming suspicious because rapidly increasing receivables is a tell-tale sign of inflated revenue. So, what do you do?

You need to get rid of these receivables. Your first option is to convert it into cash. But in most developed markets, it’s difficult to bribe bank officials. So, your auditor will quickly find out the fake cash. The other options are better. You can ‘spend’ the fake cash on a huge headquarters. It’s easier to forge property documents. You can also ‘prepay’ for some goods or services and record the ‘prepayment’ under ‘other assets.’ Investors typically do not read the notes to the financial statements, so they will unlikely pick this up.

That’s why in my first takes on Jiayin Group Inc. (JFIN; JFIN US) and China Everbright Water Limited (U9E ;CEWL SP), I focused on their unusually high and growing receivables and JFIN’s unusually large purchase of a headquarter. To be clear, I am not accusing them of fraud. There is no conclusive evidence of fraud. All I am saying is that if you are an investor, these are the key areas you would want answers to before you invest.

So, fake profits lead to fake assets. To catch fake profits, we should scrutinise the balance sheet carefully for any unusual assets.

Exactly. If any assets do not make business sense, it’s best to investigate further before investing.

To summarise, a company trading at a low P/E ratio may not be a bargain if (1) its earnings are expected to decline; (2) interest rates are high; (3) financial leverage is high or (4) there are serious doubts over the quality of its earnings.

There is actually a 5^th factor that many investors do not fully appreciate. I will save that for a future post. To receive the post when it is published, make sure to subscribe.

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References