One of the factors that Warren Buffett takes extra notice of is whether a company possesses a business economic moat. In our local space, we look to three Buffett-style companies that share the same favourable trait.
Investors Takeaway: 3 Buffett-Style Companies With Wide Economic Moat By RHB
China Aviation Oil
For investors who are unfamiliar with China Aviation Oil (CAO), the company supplies jet fuel to foreign and domestic airlines flying through Chinese and other international airports. Its state-owned parent is Asia-Pacific’s largest physical jet fuel trader and the sole supplier of imported jet fuel for China’s civil aviation market.
This literally puts CAO in the “monopoly status” for the supply of imported jet fuel to China’s aviation industry and is one of the key investment merits that RHB sees. Especially with the growing outbound international aviation traffic, CAO is going to be a key beneficiary as the sole importer of jet fuel into China that is consumed by all of the country’s international flights.
International passenger traffic in China grew 15 percent in 2018 alone and RHB foresees this strong growth to be sustained in 2019, with January and February already registering 14-23 percent year-on-year growth. Overall, RHB remains optimistic on CAO’s share price outlook given the strong growth in China’s international aviation traffic. Not to forget, the ex-cash valuation of 5.8 times forward-FY19 price-to-earnings per share (P/E) also makes CAO a compelling investment.
UnUsUaL runs a unique business of concert promotion and event production in Asia, making it one of the companies with a solid economic moat that is listed on the Singapore exchange.
According to RHB, the group has a scalable business model and is looking to expand into China where the average consumer spending is surging. UnUsUaL can leverage on its strong relationships with artistes and hold concerts in different parts of China via its stake in Beijing Wish Entertainment. This will allow UnUsUaL to tap and host on bigger concerts that earn yield better margins. UnUsUaL is also expanding into family entertainment shows like Walking with Dinosaurs, Disney On Ice and Apollo. Apollo also marks the group’s first foray into the live entertainment industry in North America.
With bigger-scale concerts as well as family entertainment shows, investors can expect UnUsUal’s revenue and profit to easily grow by 20-30 percent per annum for the next 2-3 years. This would significantly reduce its current seemingly rich valuations over the period of time. Coupled with potential M&A opportunities, RHB is optimistic on UnUsUal’s prospects.
Another company with a unique business in our local space is VividThree Holdings (VV3). VV3 is a virtual reality (VR), visual effects and computer-generated imagery studio. The two primary business of VV3 are content production and post-production.
In the content production segment, VV3 signed its first IP rights with Contents Panda to develop and produce the “Train To Busan” VR Thematic Tour Show Set, showcasing its VR and augmented reality (AR) technology capabilities. Assuming the company is able to add about $1-1.5 million of income to its profit per set they sell, this will represent a significant potential in its profitability growth.
Meanwhile, the VR market is expected to grow at a compound annual growth rate of 33.5 percent by 2024 and VV3 is poised to benefit from the VR market growth trend by taping onto mm2‘s (parent company) established network. Besides Train To Busan set, VV3 has signed a memorandum of understanding (MOU) with Slightly Mad Studios to develop VR arcade games for use in location-based entertainment, further expanding its offerings.
Overall, RHB thinks that the group has huge growth potential as it goes on to acquire more IP rights and transitions itself into a content producer.