Expert Investor: Qiao Ma And The Investment Thesis For Shenzhou International

Bryce Leske: [00:00:57] Welcome to another episode of Equity Mates, a podcast that follows our journey of investing. We break down the world of investing from beginning to dividend so that you can hopefully make some returns. My name is Bryce and as always, I'm joined by my equity buddy Ren. How's it going? [00:01:10][13.7]

Alec Renehan: [00:01:11] I'm very good. Bryce very excited for this episode. The second this week, where we continue our ongoing love affair with the Hearts and Minds conference and the listed investment company that comes out of it. [00:01:23][12.2]

Bryce Leske: [00:01:24] I feel like we're building a bit of a long term relationship here. [00:01:26][1.9]

Alec Renehan: [00:01:26] So I well, we are long term investors. So. So that's good. [00:01:29][3.4]

Bryce Leske: [00:01:30] Yes. We spoke to Hamish from TDM on Monday and very much looking forward to unpacking another one of the stock pictures from the conference. We do have Rory from hearts and minds here with us in the studio again. So, Rory, welcome. Firstly, fun going well. [00:01:44][14.5]

Rory Lucas: [00:01:45] Great to be back. It's going well. We're pretty happy. [00:01:46][0.8]

Alec Renehan: [00:01:48] Well, I think after the conversation we had with Himesh on Monday. Yes, you can say why you're smiling a bit just a few weeks after the conference. [00:01:55][7.6]

Bryce Leske: [00:01:56] So, Rory, we are lucky to have, as I said, another conference manager here today. And we thought we would give you the honor to introduce Qiao Ma. [00:02:05][8.3]

Rory Lucas: [00:02:05] Thank you. So you remember a few days ago we had Himesh, which was one of our returning speakers at each conference. We try to have a mix of returning speakers who have got some track record at the conference and also some fresh faces. And so today we've got Qiao Ma from Cooper investors, Cooper investors are one of our core managers as well. So Peter Cooper, who founded Cooper Investors, has been involved in the conference since 2016. He's been a conference speaker himself. Some of his portfolio managers speak at the conference. And this time we've got Chamar and Asian equities specialists, very educated. She's an author, has written a book in Chinese Harvard, educated, way smarter than me. And so without any further ado, I'll get back to you guys as well. [00:02:52][46.9]

Bryce Leske: [00:02:52] Welcome to the show. [00:02:53][1.0]

Qiao Ma: [00:02:54] Thank you, guys. And thank you for that, Rory. You're far too kind. [00:02:57][3.3]

Bryce Leske: [00:02:59] So just to give a little bit more a background to an already impressive resume that Rory spoke about. Yes. Qiao is Asian equities fund portfolio manager at Cooper Investors, an Australian based, long only investment manager with over 12 billion assets under management. Prior to starting at Cooper in 2017, Chao spent several years investing in technology and consumer sectors right across Asia and the US. She's worked at Lehman Brothers Kuchu Management and was head of Asia at Jeriko Capital, a multibillion dollar global investment fund manager in New York. Apologies if I have butchered the pronunciation of both, I suppose. But yes, you were a presenter at the 20/20 Sewn Hearts and Mind conference and you pitched Chenzhou International. So let's get stuck in. [00:03:46][47.1]

Alec Renehan: [00:03:47] Let's do it now, shall we? Want to talk about your conference pitch and really go deep on the stock. But before we do, we would love to get to know you a little bit more and hear a bit about your background in finance and investing. And we do like to start those conversations by hearing about people's very first investment. We generally find there's a good story or some good lessons that come out of it. So to kick us off today, can you tell us the story of your first investment? [00:04:12][25.5]

Qiao Ma: [00:04:13] Sure. And you guys are spot on. I think the first investment is there is always a nail biter. This one is no exception. So my very first job with a large US hedge fund called Chota, I joined a fund about a decade ago in New York. And my very first stock, which was a company called Senior back then, operates one of the largest social network websites in China called Weibo. This is equivalent to sort of think about a more feature rich version of Twitter. And, you know, no one really caught on to the trend when we started buying the stock. And I dedicated about six months of my life doing a deep dive as possible into it, a product even figure out why you hired a computer programmer and figured out an algorithm that could actually track the daily usage of label, which means we can improve in real time that this service is absolutely going explosive. Well, so we bought the stock and built it over time to about 10 percent of a five billion US fund. So as a half a billion dollar position at some point and one day and, you know, we've actually initially made quite a bit of money. And then one day the company just announced that the crown jewel asset, which is Waibel Faustina, they listed the public shareholders who thought all of us thought we owned one hundred percent of this asset management just announced out of the blue that you actually only own eighty five percent and just stole 15 percent from the public shareholders. So the stock fell 20 percent in one day. And, you know, sort of we were really upset about it because, you know, sort of first year on the job and you're like a hundred million. That's just not a good day and then mean eventually recover most of the losses and a bit of a long story. But I think, you know, this event really left a huge imprint in my own philosophy and way, thinking about investments. I think, you know, when we think about a company, people love talking about products and industry and total addressable market, how fast it could grow. But I actually think, you know, the one element that has not been talked about is really the quality capability and in this case, the integrity of management. And then from then on, every company that I even think about investing over the past decade, I check management in five different ways, 10 different ways, basically every single way I could possibly think of and go way deeper than just simply talking about some extra employees. We'll talk to industry contacts. We talk about the co-founders that used to work with this founder, how their relationship evolve. We're really talking to the personal motivation and character of a top decision maker. We talk to the VC who back a certain management team five rounds before they even came to the public market. So that just really becomes something that is absolutely essential for any kind of investment thesis. [00:07:15][182.1]

Bryce Leske: [00:07:16] Wow, what a first investment. [00:07:17][1.4]

Alec Renehan: [00:07:19] I think you're the first guest we've had on the show whose first investment was in the billions. [00:07:24][5.0]

Qiao Ma: [00:07:27] It's a bit of a scary number yet. [00:07:29][1.4]

Bryce Leske: [00:07:30] So speaking of major lessons, you were at Lehman Brothers in 2007 and 2008 during the GFC. What was that experience like? I imagine it was a pretty crazy one, but also an important one in your investing journey. What were some of the key lessons that you have taken from that experience? [00:07:47][17.4]

Qiao Ma: [00:07:48] You know, it was a really interesting experience. So I left Lehman Brothers in April 2008. I actually managed to sell all my Lehman stock to pay for tuition for Harvard Business School. So that was a fortunate event personally for myself. But I could tell you from two thousand sixteen, seventeen and twenty eighteen, if you were sitting in the office of Lehman Brothers, not a single person around you would believe that the company would ever go under. So in investing, we talk about every industry. Every company tend to go through a hubris to humility cycle. And that was basically the peak of hubris. I still remember the day that Bear Stearns got bought by JPMorgan and we were all laughing at the Bears. People not even thinking that Lehman Brothers could actually be the one that goes down without being acquired. I reflected on that quite a bit. And that really just spoke to a certain industry after a quite a long time of growth, thinking that they're invincible. But really, at the core, every business is vulnerable and there's really no room for hubris in any part of the organization or psychic. And just to put matters worse, when I was a Lehman Brothers, I was a investment banker in the financial institutions group. So all the banks, insurance companies, brokerage firms were actually my clients. So me and my group, we sit around analyzing the balance sheet to the income statement, the financial health of all of our clients on a daily basis. And not a single one of us thought of, hey, how does our own employer look going through the same lenses. So that just shows you that once was hubris creeps into the organizational culture. That is extremely dangerous place to be. [00:09:41][113.0]

Alec Renehan: [00:09:42] Yeah, well, I like that idea of a hubris to humility cycle. I imagine Lehman in 08 was one of the quickest slides down that cycle that we've seen in history. [00:09:52][10.4]

Qiao Ma: [00:09:53] And we were always dreamily humble ever since. [00:09:55][2.2]

Alec Renehan: [00:09:55] Yeah. So you've done so much in your career. You've been a professional investor in the US, now in Australia at Koper investors. You've been to Harvard Business School, you've written a book. You've seen to have ticked a lot off your bucket list throughout that journey and throughout your career. Have you developed an investing philosophy that you apply to your personal investing? [00:10:18][22.8]

Qiao Ma: [00:10:19] There is no boundary between where there's no difference between my personal and professional investing, all our money. We're actually in the fund that I manage. So we would deeply believe in alignment of incentives to fund managers and our clients. But in terms of investment philosophy, I think, you know, I don't have a very powerful one. I would say the two things that to me are the most important one. And this is particularly relevant for investors sitting here in Australia. I basically started my investing in Asia, in far corners of Asia, in New York, and never thinking of being a New York. So we kind of handicap actually being anywhere is not an excuse if we invest in the company, the bar should be that you need to know more about this company, everything about it than anyone else in the world. There is no shortage of excuses or discount given based on geography. And when we run, our teams out in Australia is the same bar, same philosophy. It doesn't matter that we are investing in some rural stock in India. Our team needs to know more about that stock than anyone else. And I really think investors around the world in the digital era today, there really shouldn't be accepting any kind of information disadvantage just because, you know, you're not physically there. And then, of course, you know, once global travel resumes, we love visiting companies and we go to Asia sort of hundreds of times a day, a year for that particular reason. And the second one ties back to the first lesson that I talked about. It is really to understand people, companies at some point, all the professional investors tend to think of companies as a taker, as a stock, as a vehicle to make money. But at the end of the day, companies don't actually exist. A group of people exists and they have their own personal motivation, personal drive, personal reasons to make certain decisions. And does has a financial outcome which you end up seeing in the financial disclosure. So, you know, to really understand the humanity side of business to me is both a challenge and one of the biggest joy. [00:12:25][126.3]

Bryce Leske: [00:12:26] something that almost every fund manager we speak to says is the most one of the most important aspects of their research is understanding management. Yet it's the hardest thing to find information on as a retail investor. So maybe we can try and do something about that before we move on to Cooper Investors. [00:12:42][15.7]

Bryce Leske: [00:13:56] So we've just taken a trip down your background and we are going to delve into some stuff about Cooper investors now you manage in Asian equities fund and I guess the question is, what is attractive about Asia at the moment? Why invest in Asia? [00:14:12][16.9]

Qiao Ma: [00:14:13] Yeah, so it's been a long term passion of mine, and not just because I grew up in the region and clearly have a familiarity and affinity to it. I think when we look at Asia as a region, two things really jumped out at me. One is when I first investing in Asia probably 12 years ago and I started off in New York and in all the funds we worked at, including Kuper investors, we never really lower the standard for management. So for an Asian company to be eligible to be a portfolio company, the management quality and capability really need to be top asset class. And we don't give any emerging market discounts. So if we invest in a department store in China, the guy that runs that department store better be as good at running as the guy who is running Macy's or Target in the US. So that's really the bar that I deeply believe in. And 12 years ago, I couldn't have possibly confidently tell you that I could find a portfolio of 40 management teams. There are every bit as good as the best in class American management teams. And now just across our team, we identified about a hundred teams. So one hundred management teams in one hundred different companies that we think are every bit as good as the best in class, Australian and American companies. And that's a really profound change in the quality of management. And there are many, many reasons behind it. This is a new crop of management team. Many of them have been Western educated, work at multinational companies before jumping back into a domestic business. A lot of them are digital natives. So they're just inherently fantastic at managing the whole digitization process. It tend to be younger, which means the industry and the young consumers and so on and so forth. So I think that the vast improvement of quality of Asian management is still being very underappreciated by the global investors. And when I go meet with potential investors, the first question I got is always corporate governance is always how do you trust the Asian managers? And I could look them straight in the eye and say, you know, the portfolio companies that we invest in or trust him completely, I follow them for years. These are the personal track records that these people have shown us. This is how well aligned they are. And this is really how passionate and capable and highly people with high integrity. So I think that's the one thing that's been underappreciated. And that really leads to the second point, which is, you know, for the equivalent growth business and also for the equivalent quality of management, you see a lot more bargains in Asia. All these misunderstanding and probably not misconception persay, just sort of an outdated version of what Asian management companies were like, really lead to a pretty deep discount on Asian equities compared to global. So, you know, the portfolio that I'm managing today across 40 of these stocks. So, you know, when we identify that one hundred percent cost management team that holds you guys about, we pick the 40 best of the best, and that's our portfolio. And across the portfolio now, they're trading at twenty five times PE for an average growth of mid teens. And then over a past five to 10 years, a long term return on equity of these companies is over 15 percent. So this is really the high quality company managed by really good people and still trading at discount. So that's really at this point why I'm really excited about the portfolio and the quality of Asian companies at this point. [00:18:03][229.6]

Bryce Leske: [00:18:03] A bit more of a basic question, I guess, but what do you actually define as management team? Is it board and CEO? I mean, generally speaking, I'm sure it changes from company to company, but like, how deep do you actually go within the organization? And then if you've got 40 companies to look after, making sure that you're across changes within a management team would be important. And what's the process there? [00:18:24][21.0]

Qiao Ma: [00:18:25] Yeah, it's a fantastic question. So management team is really defined by, in my view, anyone that has the power of making a decision that matters. And of course, on top of management teams, sort of individual assessment, you have the overarching culture, which is a really sort of code of conduct for the whole organization. So how do we go? We go as deep as possible. Usually for a company to be eligible to be a portfolio company, we would have to follow the company about two years. And during these two years, we usually would have at least four touch points, usually one on one meetings with the management teams, we rarely join broker conferences. So these meetings are really us traveling to the company headquarters, going through their plans, their factories go eat to the employee dining hall and really have a feel of what it's like working in this company. Now, let's think about eight touch points with a company management team before investing in them. You don't get a lot of incremental information if you talk to the same person eight times. So obviously, you know, we usually start with the investor relations person and then we move on to the finance controller director, CFO and the CEO, eventually CEO and founder. And we could have access to some of the board members. We do. But personally, I feel sort of the executive directors management team, just more interesting talk to you, because these are what we call the coalface element of management. So these are the people that really should stay in and they are doing the work. So on average, we hold the stock for longer than five years and we're long only we don't short. So we come across as very friendly long term investors. For a lot of these Asian companies, we're almost the ideal investor. So we actually found that with patience and persistence and showing our faces at their headquarters, you do get pretty good corporate assets over time. [00:20:25][119.4]

Alec Renehan: [00:20:25] It's a fascinating area of the market, Asian equities. There's so many fast growing companies and some that capture a lot of headlines. You know, some of the big Chinese tech stocks like Alibaba, Tencent and stuff like that, I think most people are familiar with. I'm interested to know, though, from your perspective, outside of the sort of the big markets of China and Japan, are there any other Asian markets that you think are particularly interesting or exciting at the moment? [00:20:54][28.6]

Qiao Ma: [00:20:54] Yeah, so India is a fantastically interesting one. So we are very dedicated to investing in India and in a lot of industries in India today. I would say the industry either exhibit sort of similar characteristics of some of the Chinese industries maybe a few years ago. But in terms of sort of the culture that we're looking for, which is, you know, we'd love proprietorial culture where founder and CEO work alongside the employees and really maintain that entrepreneurial passion and drive throughout the organization, we could find sort of very, very impressive Indian companies on that perspective. And also in terms of the industry consolidation, which is a actually a very, very interesting thematic that we see across Asia today. India and China are very similar. So the ultimate reason for this is when you find a really great management team in Australia, this management teams, competitors tend to be, you know, rather professionally run, probably still fairly capable company, just probably not as passionate and as capable as a company. But if you find a company of equal quality in China or India, its competitor tend to be either a state or employee, which is basically run by politicians who care very little about commercial interests or some very, very small mom and pop business that really lacks the scale of investing in infrastructure, investing in I.T. and most likely appointed three young and two uncles to serve the important business functions instead of finding the capable professional managers. So when you are thinking about, you know, this kind of quality of management team competing against much weaker companies, you know, we have this analogy, I call it, it's like slicing a hot knife through butter. And the prospect of this particular company consolidating the market and taking market share is just so much higher. So I would say both China and India today exhibit very strong characteristics of this so that the best in class companies taking market share almost across every industry would look at, oh, wow. [00:23:11][136.6]

Bryce Leske: [00:23:11] So let's move to sewn hearts and minds. You were a conference fund manager pitching this year, and we loved watching the pitch along with all of the other fund managers. So thank you, I guess, from the Equity Mates community for giving you time to do so. It was a great insight, I guess, for a lot of our community. So hopefully we'll see you back next year. Thank you. Before we get into Chenzhou International, why did you decide to participate in the conference? What is it about the hearts and minds that is appealing? [00:23:40][28.6]

Qiao Ma: [00:23:41] Well, so even when I was in New York, I will go to the song conference in New York on the Lincoln Center every year. And I always remember saying to myself how fantastic it was as experience because it's about fund managers giving back. But is. Giving back more than dollars and cents is giving back with the best thing that we do, which is stockpicking. So I thought that was just such a great way of charity. And frankly, you know, all the fund managers presenting the song conference in New York could probably write a check for a few million dollars. But I would say their time and their participation and enthusiasm, pitching the stock, you know, that's sort of near and dear to the hearts, probably give more to the industry and to the cause than just writing a check. So I think so hearts and minds very much sort of has that same philosophy. And then, of course, on top of that, you know, mental health is actually one of the key area of investing donation for so hearts and minds and throughout the whole organization of corporate investors, mental health is another issue that's just very near and dear to our hearts and is something that we all feel really passionate about. So clearly, we also support the cause for this. [00:24:58][76.9]

Bryce Leske: [00:24:58] What you said when we interviewed you, that they're giving away essentially their IPPEI, which is pretty phenomenal. So, yeah, I guess, as I said, a big thank you from all of the Equity Mates community. [00:25:06][7.9]

Alec Renehan: [00:25:06] So I think we've kept everyone in suspense long enough. I think it's time to get to the stock up. Zengel, I hope I'm pronouncing that right. Yeah. So maybe for people that didn't see the stock pitch at the conference, maybe if we start with the basics, can you tell us a little bit about the company, what it does and what your investing thesis was? [00:25:28][21.8]

Qiao Ma: [00:25:29] Sure. Stango is one of my favorite stocks. That's why I pitched it. But it's also just a phenomenal human story. So just a bit of a background. Sanjo trades out of the Hong Kong Stock Exchange. The ticker is twenty three thirteen and is the world's largest manufacturing for sportswear. So think about the workout t-shirts that we all wear for Nike and Adidas. Most likely they are made by singles. And, you know, the start of Sanjo was phenomenal. You know, about 30 years ago, back in the 1970s in China, in a small town near Shanghai, a little local boys just decided he didn't want to go to school anymore. And his mother, almost as a form of punishment, sent him to a local textile factory. As you figured, you know, the pretty grueling conditions at the textile factory, which is drive this little boy back to school in no time, but instead he found his lifetime passion, which is textile. And everyone knows that this is a really challenging industry. The famous Berkshire Hathaway used to be a textile business that Warren Buffett couldn't turn around. So this is known for being almost a graveyard for both investing and companies. But, you know, Sanjo actually has been a huge success over the past two decades. And the little boy that used to work at a textile factory was the founder and still is the CEO. And he owns a very big chunk of the company himself. So when we look sort of under the hood on a very, very challenging industry that people keep saying is commoditization, automation isn't to come and take away all these factories business. And then, of course, you have trade war. So Sanjo 70 percent of the production space out in China, but most of the sales actually goes out of China. So trade war is another natural issue for the company. Why would you be interested in investing with Sanjo? But when you look under the hood and that's really sort of why we got so excited about that, Joe is one someone has to make that shirt for Nike and Adidas and Sanjo was just better at it in every single element is better with quality control. It is better with automation. So I actually think someone will come up with that clever machine, the ultimate whole process of textile automation. And I think that companies go into Google Senju is invested way ahead of all its peers in terms of I.T. technology, in terms of computer and automated modules. And the most impressive thing about their I.T. is it didn't exist in the lab. It worked closely with its biggest customers, which are Nike, Adidas, Unico, and Puma. So CentOS Technologies Backwords integrated back to how Nike think about designing and making their own fabric. So these are really battle tested, proven technology from that standpoint. You know, again, Miles ahead of his competitors. And looking forward, why am I so excited about Sanjo? Well, two things. One is because of the quality control and automation. So enjoy is going to keep taking share from other smaller manufacturing companies. And right now it's only got about 30 percent wallet share. And we think that has the potential of going up to way over 50 over time. And the second one is I talked about Sanjo, 70 percent of it being based in China, but the other 30 percent actually started setting off about five years ago of various production bases out in Vietnam and Cambodia. So no one else in the world right now has a viable production by using three different countries. And the advantage of that is it depends on what the most favorable either tax or political policies are. In the end, market scenario can freely choose where to ship the products from. So if Sino US relations become very tense, was then can ship Cambodia to the US. If Cambodia and Europe are having some kind of trade spat wilderness and you can choose a ship from Vietnam to Europe. So this kind of flexibility you really don't get from any other manufacturer ended up course Giovinco but 19. When the borders are closed, single country manufacturers really struggle. A single having this flexibility actually step up and took quite a bit of market share. So when you put everything together, you have a best in class, very passionate founder who is still working day and night sweating at the factory. I still remember a week after covid-19 hit China and that's in the middle of the Chinese New Year week. I was actually on the phone with Mr. Ma and ask him how things are going. And he said, I just got off the phone with my Vietnam operation. This is what's happening to Vietnam. I stayed up all night talking to my Cambodia people. And this is what's happened in Cambodia. I mean, this kind of the passion and dedication from the founder is just so rare. And in terms of the last element of it, which is worker relationship, I mean, way before, you know, sort of corporate social responsibility became a popular concept. Central was taking care of his workers way better than everybody else. So it's the only company that we know that has the best in class employee dining hall. I love going to St. Joe's factories and eating there. So my favorite meal of the whole trip. And but that really speaks to the deliciousness and nutritious ness of his food at a very, very subsidized price for his workers. You get to see the working conditions being very good, very clean or air conditioned. And, you know, some of the smaller gestures know every year a Chinese New Year, Sinja would actually send busses to send the workers back to their hometown because that's the once a year opportunity. They can see their families back in the villages. So all these small things really add up to strong labor relationship, the lowest labor turnover. And across three countries, Sanjo has always been the leader of worker relationship and never really had a dispute. So when you add it all up, you know, this is just, I would say, a pretty awesome company and still trading at roughly about 30 times PE for a solid mid teens growth in the next five to seven years. [00:32:00][391.5]

Alec Renehan: [00:32:01] Yeah, well, it sounds like an incredible company and we're excited to ask you some questions and delve a little bit deeper into some of those things you just talked about before. We do. If you think back to when you first came across this stock, how did you first find it? I think that's a common thought in the Equity Mates community. You know, there's all these great companies out there, but how do you go about actually discovering them and then filtering through them all and, you know, finding which ones you're going to really go deep on and research more and visit and all of that. [00:32:31][30.4]

Qiao Ma: [00:32:32] So every investor only has twenty four hours a day. So I'm a big believer of concentrated effort into both the trends, the industry and the companies you believe in. So sportswear is one of those industries that across the team would dedicate a huge amount of time studying. And really every evidence that we could see is showing us sportswear is a very long term secular trend. Probably got even accelerated after college. I bet you a lot of ladies are going to drop their heels and showed up at work in twenty twenty one in their sneakers. So that's one thing that we've observed. So we own some of these sportswear brands in the portfolio that we start asking the question to the up and down the supply chain. What else can we invest in? Who else can we talk to? And the value of doing so is a lot of times you do find a few investable companies. But even if you don't, you also have a deeper understanding of the companies you are investing in because you have to understand the supply chain, you know, sort of in a holistic sense to really understand one part of it. So we started actually looking at the retailing operations. So a lot of these brands, actually just wholesale their products to another retail operator that actually operates their brands. So we start talking to the retail. And then we also look up the supply chain and start looking at guys like Sanjo that actually put together the fabric, and we actually even look further on, say, you know, sort of the pure plays, looking at dyeing the fabrics, for example. So that's really sort of part of the journey we came across. And Joe and I still remember sort of maybe the first time thinking or visiting Sanjo, I was quite skeptical. And it just shows the value of visiting a company and suspending sort of a lot of skepticism and truly understand how the business works. Because I look at the financials, I know there's something in this company. You don't have this kind of return on equity. You don't have this kind of growth on a very sustainable basis over a decade without some secret sauce. And I was determined to find out what the secret sauce was and was. You see, the culture of Sanjo was you see the passion and dedication to this industry. You became everything you saw when you visit them. It is impossible not to see it. So I still remember that that aha moment with Sanjo and that really sort of drove the long term conviction, because I think that's the moment where you actually connect with what a company is all about. [00:35:12][160.7]

Bryce Leske: [00:35:13] So given that the idea of the conference is that the stocks will go in the portfolio for 12 months, Rory will do his thing and then likely sell them all at the end and we go again unless it does going to the core. But your view of this stock and I guess your philosophy more generally is that sort of five to 10 year time horizon. Is there anything about this pitch that you think is going to be delivering particular upside in price over the next 12 months? So the catalysts that you're looking at that will sort of deliver a stronger result over the next 12 months compared to the longer term? [00:35:45][31.2]

Qiao Ma: [00:35:45] I think that's a really sharp observation. And what we think about investing, we firmly think about investing Horizon quite a bit longer than 12 months. So this does not sort of us pounding the table to say this is a one year double stock. But I think in the near term, there are quite a number of that quite positive. I think one of the reasons is to see how much smaller manufacturing companies are still scattering. Even in half the world has opened up at this point post pandemic. You still see them having a hard time and lots of challenges. Recovering a scenario is already fully charging ahead everything. And Centro is back to a growth trajectory. So that's definitely positive to observe for the near term. And secondly is, I think the relationship this angel has with his customers today and when compared to about 18 months ago, was quite a different relationship. I think their performance and absolutely outstanding delivery. So over the covid-19 period, Centro should deliver to its customers faster than what they did in 2019. And this kind of flexibility is exactly what Nike and Adidas needed when they didn't know what the end demand is going to be. So when your consumer demand is being volatile, you appreciate the short lead time from our manufacturing partners just so much more. So I could just see a very, very different relationship that is going to benefit both near me, the near medium and long term. [00:37:18][92.8]

Alec Renehan: [00:37:19] So on that point around the customers, one thing that you noted in your pitch was that they have quite a concentrated customer base between Nike, Adidas, Unico. And was it Puma the fourth? Yeah. Yeah, they represent. Was it something like over 80 percent of the correct the the customer base. You know, generally a concentrated customer base presents a risk for a company because if one of those companies decides to go elsewhere, then that's a big percentage of their customers walking out the door. How do you think about such a concentrated customer base for this company? [00:37:52][33.7]

Qiao Ma: [00:37:53] I think that's completely you're completely right is contrary to conventional thesis, but we love it. I think this kind of concentration on customer precisely showed the focus of Sanjo is because he focused on his customer to such an extent. That's really why Stenger's quality control is so much higher than everyone else, because he's been holding the bar of Nike and Adidas quality control firmly since the 1980s. That's also why he's leading the industry on it and on automation, because again, it is aiming to serve the best in class companies in the industry and serve them better than everyone else. So I actually think that it is contrarian, but this is precisely why Sanjo has been so successful. I think if they had really diluted their brands and diluted their focus away and start serving lots of smaller brands, they might just lose that edge. And then additional benefit of serving these four customers is D-R a house? Names, these are really leaders of the industry, so the good work that Sanjay is doing for Nike in the dust and Unical did not go unnoticed. So almost every sportswear maker brands that we speak to know who Sanjo is. If you ask them why are not a big client of Sanjo, the answer is always because they wouldn't take. So there was a line out of a door and then I would say some of these Chinese were on top and leaning more. Some of these up and coming brands like Lululemon under armor. If Sanjo would agree to really take them on as a major customer, they would sign up to them in a heartbeat. So so, you know, Centrals real bottleneck of growth is actually not demand. The real bottlenecks growth is to really keep constructing these manufacturing bases in the three countries that are currently in and keep building the factories, keep building the lines, getting the machines in and recruiting the labor. [00:39:52][119.4]

Alec Renehan: [00:39:53] That's a good answer and a good distinction for us to pay attention to. It's not a concentration of customers because that's all the customers they can get. It's a concentration of customers by choice. And there's a line of people waiting to take their place. So we're just going to pause here and hear from our sponsors. So you've told us a little bit about this company, Shenzhou, what it does, some of its major customers. One thing that I wrote down when I was listening to your pitch was around automation. In your pitch, you said something along the lines of you were confident that automation would come to the manufacturing sector and they are confident that Shenzhou would be at the forefront of it. Where does that confidence come from? And I guess how do you test that hypothesis? [00:40:37][43.9]

Qiao Ma: [00:40:38] You know, I think automation within each industry comes up in a different form and automation is rarely so. We think the snap of a finger and everything changed from human powered human managed to a machine managed process automation as tend to happen in incremental step by step change. So over the past decade, things and we have already seen that loss of these very delicate jobs of cutting fabric that used to only be performed by a very skillful, most likely a female worker because they're smaller, more dense textures. But we've done a lot now are actually being replaced by computer modules. And if you think about a computer module is expensive and to first investing, that clearly takes a lot of initial investment. So what kind of company would actually take the time and half the capital of investing that module? Or is that is the largest company to start with because you can amortize the cost of that module over a much larger scale. Fabric is also a company with vision, a company that works with the client that require this kind of sophisticated cutting and sophisticated scale. So this is all sanjo. And that's really why, you know, when you think about one of the trends of sportswear, the sportswear is actually becoming a lot more technical. So we used to always wear probably the same gym shirt to the gym to go play tennis, then go hiking. Now, every single sports actually have a very niche design of shirts and pants and different accessories that best tailor for the needs of the sport. So sportswear become a lot more technical. These kind of very delicate changes of fabric and innovation on the fabric also become forefront. And that's really where social housing to. And we could see it every trip we go there, we get to see some of the modules getting more and more sophisticated, more and more granular, and we get to see the machines getting smarter. What's amazing about Sanjo is they have really spent all this time training the workers to to do a lot of manual work. But as machines come into the factory, what they end up doing is retraining these worker, upskilling them so that they become the manager of machines instead of just being laid off. So that really shows sort of another culture element of compassion of the company towards the workers themselves. But seeing with our own eyes, sort of no other company, you can't really be just sitting in the Silicon Valley in a startup office and somehow dream up these different machines that have very, very specific deep industry expertize behind designing these machines and these computer modules and then just evolved over time. So that's really what gave us the confidence, isn't Joe is going to be really incremental innovator. And eventually at some point, you know what? When the factories become more than 50 percent automated, for example, San Jose be the first one to got there. [00:43:44][186.4]

Bryce Leske: [00:43:45] So try to close out the conversation around Chenzhou. Obviously, we're going through a pretty intense period at the moment of U.S. China trade tensions. We're just wondering how you think about this sort of macro trend when analyzing the company and how does it play into your probability of success or I guess failure? [00:44:03][17.9]

Qiao Ma: [00:44:04] Yeah, it's a great question. And, you know, I have another contrarian answer for you. [00:44:10][5.8]

Alec Renehan: [00:44:11] It's a hoax. [00:44:11][0.2]

Qiao Ma: [00:44:13] I mean, if you find the right management teams, macro's, it doesn't matter at all. And this is the reason is as investors, we're not the management of a company. We're not making the day to day decisions on how to execute a strategy, how to make things happen, and is absolutely impossible to sit in the position of investor and somehow predict what's going to happen to the industry, to the political environment, whatever happened between the currency and ultimately the changing consumer preferences, it's just impossible. We don't have a crystal ball. What we can do and we can do reasonably well is to find the guy that we think is the best in class at doing all those things. And this is the management team that we end up backing. So whatever US trade war analysis that I could possibly come up with, I've always found consistently by the time I get to that management person, what? That's CEO and say, hey, I think these are the five things that matter. You give you a complete list, 20 things that go down to the most granular basis. What are the exact regulation, what the fine print that may or may not impact his business. And he's already thought of a strategy of how to deal with the situation. So it's five steps ahead and that's really why he's so good at it. If you think about St. Joe, which is a great example, you know, when it first started setting up factories in Vietnam and Cambodia, there was a lot of pushback. Some even said just old investors who say, why are you doing that? China has plenty of labor, plenty of land. You have a proven track record training and recruiting Chinese workers, which you did not have in these foreign countries and, you know, trade what was not even close in anybody's horizon. We're still just calculating the dollars and cents. But he's actually stayed up worrying about the political situation, say what's going to happen to me if I only have a single country manufacturing base and what would happen if certain things happen in the world and geopolitics. So now, looking back, having 30 percent of your production coming from Vietnam and Cambodia is an absolute luxury. And that's only because he had the vision be for the investor community's ever did and over and over again. I have found that the best management can navigate through a lot of these seemingly insurmountable macro or industry or regulation. Change is way better than what we expected them to, but more importantly, way better than their competitors. So as a result, when all the things sort of been all the dust settled, they actually come out with a much stronger market share and end up consolidating the industry way faster than what they originally do. So they are also very good at turning a challenge into an opportunity. So every time, you know, my own investors or myself read about some really scary industry news, the reason that we get to sleep really well at night is to know that we are backing a team or we're backing a guy that I think is the best in the world to handle this particular situation. If there's someone that's going to figure it out, is this guy so is the confidence, again, to humans that end up making the decisions that could make and that could change the outcome that really give me that confidence? [00:47:36][203.1]

Alec Renehan: [00:47:37] I love that line of thinking. And as he was saying, it made a lot of sense and maybe I'll sleep easier not trusting some of the management team of the stocks that I own now. But Rory, you've been sitting there waiting patiently, so I want to turn back to you quickly. You got this stock pitch and you know, it's a Chinese company based in Hong Kong among a sea of Australian companies, a few US companies, from your perspective, managing the portfolio for the year. Do you have to approach these different markets in a different way, or is there any different risk management approach you take with an Australian stock compared to a Chinese stock? Or is it all just one and the same for you? [00:48:15][38.2]

Rory Lucas: [00:48:16] Well, first of all, I just like to say I told you so about how smart we have one of our managers right here. This is incredible. Rather than a lesson for me as well in terms of the risk management of the portfolio, my direct line is to our fund managers like Celle. And hopefully after the last 45 minutes of listening to Chao speaking, you guys and your listeners have got a whole lot more confidence in the stock pickers. So in terms of risk management, the only real difference is different. Markets are open different times of the day. And so I may get calls at different times of the day or not. But outside of that, if I've got a good relationship with the fund managers, then it's pretty much the same thing all the way round the clock. [00:48:56][40.0]

Alec Renehan: [00:48:56] Yeah, yeah. I imagine the few days after the conference pictures, you probably had a few sleepless nights trying to execute all those trades around the world. [00:49:03][7.2]

Rory Lucas: [00:49:04] Yeah, it was, it was fun times. I think I worked at that. There were twenty two hours of the 24 hours in a day where one of the five markets that I was trying to buy stocks in wasn't open. [00:49:14][10.7]

Alec Renehan: [00:49:16] And that's one. We want to thank you for taking the time today and explaining your stock pitch. And Rory, we want to thank you for coming in and joining us again. We've loved the success we've had to some of the managers or some of the people that have pitched for this portfolio. It's been incredible to speak to some of these people and to hear you talk about your stock. So, first of all, we want to say a massive thank you to both of you. Now, if people want to follow you online, hear more about Cooper investors. Is there anywhere they should go online or any particular social media that yourself or Cooper are active on? [00:49:49][32.5]

Qiao Ma: [00:49:50] We have a LinkedIn channel, and our website is a pretty good place to start. [00:49:55][5.0]

Alec Renehan: [00:49:55] Cooper investors, dotcom, no doubt, are you? So go check that out and you can say all their funds and their performance. Now, shall we do like to end these interviews with a final three questions so we'll get stuck into those? The first one is, do you have any books that you consider? Must read, [00:50:11][15.1]

Qiao Ma: [00:50:11] if it's a good question. I don't actually think, you know, probably just the intelligent investor, which is not a surprising answer and anything by Peter Lynch. But I've actually found the investing community to be a very prolific one. So almost every hedge fund or long term funding, the journey that you've read about has written a book. So I personally really, really just love sort of reading everything I could get my hands on, on investing anything, even for some of the traders that end up setting up their old firms or some of the autobiographies of I found all the books. Pretty fascinating [00:50:46][34.2]

Alec Renehan: [00:50:47] On the second question, we like to ask is, what is your go to source for investing and financial information? [00:50:53][6.1]

Qiao Ma: [00:50:54] You know, I'm really old school. I just start with the annual report and then I think Google and YouTube is actually a fantastic story. That sounds silly, but some of the management teams and especially founders of the businesses, I've actually dug up some of the video interviews they did with some local media maybe 20 years ago, and that actually show more insights on who they are as a person, especially when I first started off their journey. Then, you know, any of the public speeches they do today. So, you know, I would really encourage everybody to use all the digital tools and then, you know, just anything that's publicly available on these video sites has been pretty great. [00:51:33][38.6]

Alec Renehan: [00:51:33] Final question. If you think back to your younger self, you know, when you were just starting out investing, when you were putting on that multibillion dollar trade is your first investment. If you think back to your younger self, what advice would you give to your younger self? [00:51:47][13.9]

Qiao Ma: [00:51:48] I would have told my younger self to sell your silly Chinese stock and buy MBAs on a test. Like, what were you thinking? All kidding aside, I think it's just really cheap to reach out to people. You know, I think investors will love reading, but I've found learning from people just as helpful. Everybody is actually quite friendly in the industry. So just reach out to anybody in the industry that you either look up to or you think you can learn from and then just cold call or email. And I've found that sort of just random learning from people. The pretty amazing tool just to learn about things. [00:52:25][37.1]

Bryce Leske: [00:52:26] Nice. Just before we get into the thank you is a reminder to our Equity Mates community that if you love listening to Chow today and hearing about her stock pitch, as well as Hamish and Griffin, you are able to access all of their stock pitches via the one listed investment company, which is obviously listed on the ASX. And through one easy trade, you can get the access to all of the amazing stocks. The ticker is one, so go and check that out. If you don't want to be going and buying the individual stocks that were pitched, it's an awesome vehicle to be able to get access to these incredible fund managers, as we've just heard today. So go and check that out. Both Ren and I are very much involved with that. So it's. Yeah, loving it. But Chao, thank you so much for your time, not only today, but also, you know, putting it in with the conference. As I said, we certainly loved your pitch. We got a lot out of it, as I know a lot of our Equity Mates community did as well. And we got even more out of this discussion this afternoon. So it was phenomenal to hear from you. And, you know, again, thank you very much. [00:53:28][62.3]

Qiao Ma: [00:53:29] Pleasure's all mine. Thank you for having me. [00:53:29][0.0]

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