mirae asset lens issue 4 mirae asset automation: from ......equipment, and the rise of low-end...

Automation: From Cyclical to Structural

Automation has been an obscure theme in the past, largely discussed only by manufacturing

specialists and financial analysts during the past several decades, with the rise of global robot

makers Fanuc, Yaskawa, ABB and Kuka originating from Japan and Europe (contributing for

approximately 2/3 of today’s global supply according to The Wall Street Journal). However,

today’s tech sector giants – Amazon, Google, and Apple – are demonstrating an aggressive

foray into robots and automation with high profile “sci-fi”-like creations of the “Octocopter

Drone”, “Big Dog”, and “Meka Robots” (see images below). In turn, automation has been

“renovated” by flocking media coverage (e.g. a documentary on Tesla’s full blown robotic

factory), gaining mainstream popularity and public attention since 2013.

The shift to automation is premised on rising labor costs in Asia (led by China) and a shortfall

in the urban working population as of last year, owing largely to the one-child policy instituted

in China since 1979. This has brought a focus on productivity, resulting in iconic headlines

like that of “China became the world’s largest industrial robot market in 2013 with 36,560

units sold, after 28% CAGR (compound annual growth rate) during the last 3 years” (according

to the International Federation of Robots (IFR) data).

Contributors

Mirae Asset Global Investments (HK)

Asia Pacific Investment/Research Team

Rahul Chadha

Co-Chief Investment Officer

Lawrence Gong

Investment Analyst

Joao Cesar

Investment Analyst

Ashley Hsu

Investment Analyst

In this edition:

Automation: From Cyclical to Structural

Iron Ore: China in the Driver’s Seat

Rise of Chinese Technology Companies – A threat for Taiwanese and Korean peers.

ISSUE 4

September 2014

Mirae Asset LENS

Amazon’s Octocopter Drone Google’s Big Dog LS3

Google’s Meka Robot Tesla's Factory

1

MIRAE ASSET LENS ISSUE 4

The Structural Shift

As the automation market is CAPEX (capital expenditure) cycle-driven, there has always been

debate about whether the secular story is strong enough to counter the inherent cyclicality

of the industry, despite a foreseeable trend of wage inflation. Our view is that the cycle is

becoming longer on the back of structural trends in manufacturing across industrialized

manufacturing hubs and Chinese demand brought on by a lag in automation and lower

market penetration relative to developed countries (refer to “China Automation 35 Years

Behind Japan” and “China Still Lowest Penetration” charts below).

Our view is that the cycle is becoming

longer on the back of structural trends

in manufacturing across industrialized

manufacturing hubs and Chinese demand

1993

1994

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2012

2014

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2015

1995

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Source: NBS, JMTBA

China Automation 35 years behind Japan

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China Non-NC Machine Tool Production

China NC Machine Tool Production China NC Ratio

Japan NC Ratio

Source: IFR, World Robotics Data, 2013

Japan GermanyFrance US Korea China

%

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0

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China Still Lowest PenetrationRobot Density 2013 (robot per 10,000 employees)

Auto Other Industries

1,133

147

1,091

76

939

300

11

213

1,562

219

1,137

60

2


We see five major trends that are driving this structural shift:

1) China Labor Shortage :

According to The World Bank’s estimate, China’s working population (ages 15-64) would

peak in 2016 at 998mn, and would start to see a declining trend thereafter (see “Labor

Shortage in China” bar chart). Moreover, the children of the 1st generation of migrant workers

are undergoing a change in mindset owing to better education, information exposure and

a stronger traditional & social media influence, culminating in a reluctance to follow in the

footsteps of their parents with harsh and tedious factory jobs.

2) A Closing Wage Gap with the US :

The Boston Consulting Group (BCG) estimates that the US may become one of the lowest

cost manufacturers amongst developed markets by 2015, with 8%-18% lower costs per unit

relative to Germany, Japan, France, Italy, and the UK, attributable to higher labor productivity

and a natural resource advantage. Moreover, we believe that the cost gap vs. emerging

markets will shrink even further as the US benefits from other significant factors such as

lower logistics costs, highly customized products, and lower time to market (in line with the

following table “Shrinking Wage Cost Gap vs. the US”).

2011 2020 2030 2011-2030US 100 100 100 0

UK 99 99 102 3

Spain 74 83 92 18

Turkey 43 63 86 43

South Africa 42 57 77 35

Poland 33 51 69 36

China 15 29 45 30

Mexico 13 19 26 13

India 4 8 13 9

Philippines 5 8 13 8

Shrinking Wage Cost Gap vs. the USAverage Monthly Wage vs. the US (US = 100)

Source: PwC, September 2013

Labor Shortage in China China Labor Force % of Population Total

Source: World Bank

%

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0

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1990

2010

2030

2050

1970

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1950

2000

2040

3


3) Consumer Product Life Cycle (Technology, Automobile, and Consumer Discretionary)

– Shorter, Faster, More Customized, and Digitalized :

Competition is shortening new product cycles across consumer sectors, ranging from

electronics, automobiles, food & beverage, to fashion. For instance, Zara delivers new

products twice a week to approximately 2,000 stores globally, while 30% of Prada sales

are generated from new monthly arrivals (according to company disclosures). In today’s

era of hyper competition, extra logistics means wasted time and lagging accuracy. Rising

customization demand requires higher flexibility and efficiency in production. For automobiles,

full customization across models is available with BMW in the US or with the Range Rover

Evoque. In the electronics space, the Moto X smartphone from Motorola is offered in 19

colors and features a personalized customer signature engraving. Apple is hiring fashion

veterans and talent from YSL and Burberry, while Nike is investing in the future of wearable

device software. Indeed, smaller products such as wearable devices are requiring a higher

level of precision and responsiveness.

4) Expansion of Automation Application from Auto-Centric :

IFR estimates that around half of existing robotic automation is serving the auto industry.

British Automation & Robot Association even states that nearly two thirds of UK robots

are deployed in auto manufacturing, which experienced 32% CAGR during 2007-2012

in robot sales compared to a more subdued 5% CAGR in the rest of the industries. The

cost competitiveness argument is increasingly compelling due to the rising productivity of

automated products, localization and scalability-driven lower production costs of automation

equipment, and the rise of low-end automation in pneumatic and linear motion. Even within

the high-end robot segment the costs remain attractive. As reported by Stanford University,

the hourly wage of a Baxter Robot (deployed in manufacturing environments) is US$3.5

compared to US$25.8 & US$1.4 for factory workers in Germany and China, respectively

(assuming 20 hours/day, 300 working days/year for a robot vs. 8 hours/day, 260 working

days/year for a factory worker). Beyond costs, the productivity and precision benefits from

increasing human-machine collaboration in factories are enormous, where workers are

redeployed to higher value tasks that robots are unable to carry out. Our recent trip to a

Jaguar Land Rover plant in Solihull, UK was an eye opener as the number of robots deployed

was nearly twice the humans. The only activity significantly done by humans was driving off

robot assembled cars to the parking area. Clearly, a world dominated by machines raises the

profound question: if machines were to dominate the workforce then can there be enough

job creation for future car buyers?

Source: Jaguar Land Rover; Solihull, UK

Our recent trip to a Jaguar Land Rover plant

in Solihull, UK was an eye opener as the

number of robots deployed was nearly twice

the humans.

If machines were to dominate the workforce

then can there be enough job creation for

future car buyers?

4


The food and medical industries are most commonly mentioned by automation leaders as

representing the most promising areas for future growth, where tighter requirements for

traceability would drive up demand, particularly for vision systems. IFR figures show that

robot sales in China grew by 52% CAGR during 2010-2013 compared to an overall CAGR of

28%. Leaders in low-end automation pneumatic and linear motion – Airtac, Hiwin, SMC, and

THK – are already enjoying diversification and expansion of demand into electronics, food,

textile, medical, fashion, packaging, and logistics. We think such low-cost automation would

see benefits in the early cycle of automation expansion in Asia while the diversified customer

pool from underpenetrated sectors would support stability in demand.

5) US Manufacturing Resurgence :

54% of large US manufacturers are considering to return to the US compared to 37% a

year prior1, which can be witnessed in the repatriation movements of market leaders across

traditional industries and the technology sector:

• Apple: 2,000 jobs in 20 states for the MacBook Pro (1% of sales) with all parts being

US-sourced; a new Arizona plant constructed in November 2013 for iWatch;

• Google: Nexus Q produced in the US from 2012; Moto X customization in US only;

• Lenovo: "Global-Local Philosophy" translating into 115 people working in a US

assembly center for personalized computers with a local service center and locally-

sourced packing materials;

• Ford: Truck plant moved from Mexico to Ohio for 2,000 jobs; newly opened Michigan

plant to create 1,200 jobs;

• Walmart: US supplier spending expected to rise by US$50bn in next decade;

• Volkswagen: Assembly line added in Virginia for 3,300 jobs, as Europe manufacturing

costs are 15%-25% higher; and

• GE: Large appliance plant relocated from China to Mexico and finally returned to

Kentucky for closer designer-factory-customer proximity.

Besides political incentives, a faster response time from R&D to the voice of the customer

(consumer feedback) serves as a key reason for US onshoring in a global context.

Furthermore, the actions of big players are bringing about a “cluster effect” whereby

suppliers are also repatriating operations closer to their clients. An example of this can be

evidenced with Hon Hai Precision – the world’s largest contract electronics manufacturer

– in planning for two projects in Pennsylvania: expanding a US$30m panel-making plant

from 30 to 500 employees for R&D and production and investing US$10m for robotics

automation.2 As the US is favorably positioned from a cost comparison perspective (as

mentioned above in trend 2), we think that the forthcoming factory CAPEX upcycle will

serve as growth driver for the automation of the entire value chain, including the upstream

suppliers and low-end automation producers in Asia.

1 Boston Consulting Group. Majority of Large Manufacturers Are Now Planning or Considering ‘Reshoring’ from China to the US. September 2013.2 South China Morning Post. Hon Hai pivots to America after China problems. January 2014; company disclosures

5


Opportunity and Challenge

After decades of development, the dominant leadership of the earliest innovators from

Japan, Europe, and the US have not changed, despite the accelerating pace of developing

technology and user-end demand. With strong government support and a relaxed stance

on intellectual-property rights, Chinese automation manufacturers have proliferated. As

laid out in China’s 12th Five-Year Plan, factory-automation technology was deemed a key

industrial development policy area. Chinese automation-related companies receive support

through research grants, low-interest financing, and subsidies and demand support from

state-owned enterprises (SOEs). While visiting the Chinese robot leader Siasun and other

automation companies in China along with global leaders, we have come to the conclusion

that Chinese firms are unlikely to represent a fundamental threat to global leaders in the near

term. The biggest challenges lie in 1) technology (speed and precision), 2) dependence on

critical foreign components, which present a major cost burden (e.g. decelerator for multi-

axis robots), 3) system/software compatibility issues, and 4) reputation.

According to data compiled by the Shenyang Institute of Automation, Chinese CNCs

(computer numerical control) operate at 6,000-10,000 RPM (revolutions per minute,

rotational speed), while foreign CNC systems are typically capable of 8,000-40,000 RPM.

Moreover, Chinese robots operate at 20-50 degrees/second (referring to robot operating

speed) vs. foreign counterparts that function at 60-300 degrees/second. Chinese companies

are struggling to mass produce the vital “decelerator” component, which has always been

a strong suit of Japanese companies. As seen with car manufacturers in China, domestic

players can learn piecemeal processes, yet high barriers remain to replicate entire systems

and a fully-fledged platform. As most of the Chinese automation systems are not compatible

with global standards, it proves difficult for full implementation that adheres to world-class

norms as factory automation systems are usually not operated on a standalone basis.

However, given the government’s strong determination and support in concert with high

quality management, we believe that a few winners will emerge from China in the coming

years. We expect to hear more success stories in the future, such as Foxconn partnering

with Tesla on the mass production of Green Cars backed by their army of robots.

Unlike robots, the low-end automation segments in pneumatic and linear motion offer a more

promising opportunity for ex-Japan Asian players. Close to China physically and culturally,

with legacy DNA and resources globally in tech hardware, the Taiwanese upstream players

(eg. Airtac and Hiwin) are gaining traction and market share from existing leaders in Japan

through a mix of higher localization, customization, deeper channels and lower price points.

Continuous indigenization and vertical expansion is enhancing Taiwanese competitiveness

and opening new doors. We will monitor this space closely as the future remains interesting

and is set to rapidly evolve. In the words of Simon Whitton from Stäubli (a Swiss mechatronics

firm), “There might be an invisible elephant in the room,” following Foxconn’s unveiling of its

plan for 1mn in-house robots (compared to 1.2mn laborers in the past 4 years).

While visiting the Chinese robot leader

Siasun and other automation companies in

China along with global leaders, we have

come to the conclusion that Chinese firms

are unlikely to represent a fundamental

threat to global leaders in the near term.

Given the government’s strong determination

and support in concert with high quality

management, we believe that a few winners

will emerge from China in the coming years.

Unlike robots, the low-end automation

segments in pneumatic and linear motion

offer a more promising opportunity for ex-

Japan Asian players.

6


Iron Ore: China in the Driver's Seat

When iron ore prices averaged US$100-140/ton, the seaborne market dynamics3 have been

dominated by the fast-growing demand in China, which absorbed all new low-cost supply

and created room for marginal cost low-grade local producers, setting a new high cost

support. Since 2011, every time prices fell below the cost support of around US$110/ton,

Chinese domestic supplies dropped, forcing steel mills to increase imports in a tight market,

in turn causing an iron ore seaborne market shortage, which led to a price recovery.

This protracted higher priced environment has prompted the largest global producers, namely

Vale, Rio Tinto, BHP and Fortescue to bring significantly more low cost capacity on-stream.

As demand growth decelerates, new supply is bringing on a market surplus, replacing some

of the high cost Chinese producers permanently, flattening out the cost curve and setting a

new cost support that is lower than in the past.

Seaborne market dynamics have been

dominated by the fast-growing demand

in China.

3 Refers to market of benchmark ore, with 62% iron content for immediate delivery into China4 Source: Bloomberg; China import Iron Ore Fines 62% Fe spot (CFR Tianjin port) per dry metric tonne. This price index is compiled by The Steel

Index Ltd (TSI). It is the volume-weighted average of actual transaction price data submitted confidentially online to TSI by companies operating

within the relevant supply chain, including buyers and sellers, based on their latest sales and/or purchases within this product category. The

price data submitted is processed, if necessary normalized/adjusted to the reference product specification, and then any outliers excluded

before the volume-weighted average reference price is calculated and published as the index. For further information on the specification of the

reference product for this index, or on the calculation methodology used, visit www.thesteelindex.com or email [email protected].

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Iron Ore Prices (USD/ton)

SMAVG (200)SMAVG (50)

SMAVG (100)Mid Price

4Source: Bloomberg, TSIPO62 Index

7


Most of the new cheap capacity has been brought online by Rio Tinto (RIO), which

completed its expansion ahead of schedule and reached nameplate capacity of 290mtpa in

1Q14. RIO is also expanding its infrastructure to reach 330mtpa of capacity by end of 2015

(see “Iron Ore Supply” table).

After visiting iron ore producers in Western Australia, we believe that the cost of some of

the existing capacity can be further reduced. BHP’s 2015 estimated cost of production of

around US$34.8/ton, for example, is higher than RIO’s $US20.5/ton for a similar asset. In

our view, BHP can decrease costs to match RIO through measures of optimizing logistics,

increasing synergies, and decreasing employee costs. Indeed, BHP has recently announced

moves to spin-off less profitable assets, “de-diversifying” its aluminum, coal, and manganese

operations to focus on the core commodities of iron ore, coal, copper, and petroleum that

enjoy higher margins.

In our trip to Western Australia, we also learned that most of the junior mines, such as Atlas

Iron, Mount Gibson and Roy Hill, are trying to increase production. However, we believe that

in this new pricing environment, most of these companies will struggle because they simply

do not have the scale, the infrastructure, or a large enough balance sheet. The only juniors

which may succeed are the ones that count on partnerships with infrastructure owners, such

as Mount Gibson, which has secured a partnership with Fortescue.

Going forward, we estimate that supply will grow by around 230mt (2014-2016), mainly

driven by Australia and Brazil. In our view, it will take a bit of time for Australian and Brazilian

producers to slow down their production growth rates as they are still very profitable at lower

iron ore price levels and would take this as an opportunity to capture market share. While

pursuing this, we believe they will improve their cost structure prior to scaling back their

expansion plans.

The Chinese market is considerably more fragmented compared to the Brazilian and

Australian markets with regards to production, thus finding accurate cost and production

data is not easy. However, we believe that the private players will be the ones to leave the

market first, given their low fixed costs and high price sensitivity. SOEs will take longer due

to government support while some integrated players may not exit the market at all. There

are also some in-land Chinese producers which are not affected by the seaborne market and

who will most likely not curtail production.

The Chinese market is considerably more fragmented compared to the Brazilian and Australian markets with regards to production.

8


The only scenario where steel demand growth would turn negative would be in the event of a property crisis in China in our view. However, given the country urbanization targets, we do not expect steel consumption to decrease until the end of the decade.

On the demand side, we believe the most important signs that new supply growth is

outpacing demand are 1) iron ore inventories are piling at different ports, while steel

inventory at steel mills and distributors remain low, and 2) increasing market evidence of

widening discounts to the 62% Fe benchmark. The only scenario where steel demand

growth would turn negative would be in the event of a property crisis in China in our view.

However, given the country urbanization targets, we do not expect steel consumption to

decrease until the end of the decade.

Iron Ore Total Supply (mt) 2011 2012 2013 2014E 2015E 2016E 2017E 2018E

Rio Tinto 229 235 251 295 330 345 355 360

BHP 174 187 216 237 253 258 269 283

Fortescue 46 64 92 139 146 146 146 146

Other Australia 33 50 69 73 69 76 69 60

Vale 272 265 265 264 305 302 336 384

Other Brazil 61 61 61 64 89 106 108 102

India 77 47 10 25 23 20 19 18

ROW 186 200 281 276 231 220 196 176

Total Seaborne Iron Ore Supply

1,078 1,109 1,245 1,373 1,446 1,473 1,498 1,529

Iron Ore Total Supply Growth (mt) 2011 2012 2013 2014E 2015E 2016E 2017E 2018E

Rio Tinto 5 6 16 44 35 15 10 5

BHP 25 13 29 21 16 5 11 14

Fortescue 6 18 28 47 7 0 0 0

Other Australia 3 17 19 4 -4 7 -7 -9

Vale 15 -7 0 -1 41 -3 34 48

Other Brazil 6 0 0 3 25 17 2 -6

India -26 -30 -37 15 -2 -3 -1 -1

ROW 20 14 81 -5 -45 -11 -24 -20

Total Seaborne Iron Ore Supply Growth

54 31 136 128 73 27 25 31

Source: Market data and Mirae Asset estimates.

Iron Ore Supply

9


Source: Google Images; China high-speed railway (left) and public housing in Shanghai (right)

We conclude that in the short-term there could be some pain for iron ore producers, as the

pricing power shifts from the mines to the steel mills, which are expanding capacity more

prudently. However, in the mid- to long-term, we believe the iron ore industry will become an

oligopoly with four main players: Vale, RIO, BHP and Fortescue.

Our key investment takeaways from the site visit to Western Australia are that even with

declining Iron Ore prices 1) BHP can still reduce costs, increase its iron ore business

profitability, and deliver EBITDA & earnings growth ahead of consensus, and 2) Fortescue

can still generate enough cash to service its debt, and if iron ore prices are sustained above

$US70-60/ton, its market cap can expand further.

10


Rise of Chinese Technology Companies - A threat for Taiwanese and Korean Peers

The comparative stock performance chart below clearly reflects the ever-changing landscape

of the Information Technology (IT) industry of Asia. The Chinese technology market has

tremendously outperformed Taiwan and Korea markets since 2013. There are many

cyclical and structural reasons behind this performance and we believe that these forces

could represent disruptive threats to the existing global technology supply chain. We will

highlight two key trends in the market which are favorable to China becoming a long-term

winner in tech space, growing at the expense of Taiwan and Korea to some extent. The two

overarching trends are that 1) China has become the largest technology market by value, and

2) Chinese companies have improved their technology competitiveness.

The Chinese technology market has tremendously outperformed Taiwan and Korea markets since 2013. There are many cyclical and structural reasons behind this performance and we believe that these forces could represent disruptive threats to the existing global technology supply chain.

Stock performance of Asia Technology Sector since 2009

Source: Bloomberg

MSCI China ITMSCI Taiwan ITMSCI Korea IT

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11


5 IDC, Gartner, iSuppli, Barclays

Asia Technology Landscape Background

In its infancy during the 1980s, the China IT industry focused on producing basic components

such as tool works, screws, antennas and plastic casings. Taiwan was the shining star, the

center of technology in late 1980s and into the early 1990s, driven by the booming demand

for personal computers. On one hand, Taiwanese firms maintained close relationships with

global technology companies like HP, IBM, and Dell, hence received a strong pipeline of

outsourcing orders, while on the other hand, they built many production sites in China and

enjoyed lower manufacturing costs and government support for land acquisitions and tax

benefits. Korea's involvement in the China IT supply chain has been limited as they were

late comers and mainly invested in their homeland post-1990s, with the technology supply

chain mainly driven by conglomerates like Samsung and LG. Japan’s technology position

in the global supply chain has remained more or less important to Chinese technology

given that most of their components were made domestically and focus on high-end niche

components.

Large home market creates a perfect ecosystem

China has the biggest market for all consumer electronics currently, accounting for

approximately 25% of global demand in terms of shipments and approximately 20% in terms

of value at roughly US$150bn in 2013, growing at 9.7% CAGR since 2008.5 This market

growth would continue as Chinese consumers upgrade in product purchases on the back of

rising incomes and aspirations in concert with improving infrastructure.

Chinese handset brands gain market share worldwide

%

40

60

20

0

80

Chinese Brands + White BoxApple + Samsung Tier-2 Foreign brands

3Q08

4Q08

3Q11

4Q11

1Q10

2Q10

1Q11

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4Q12

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3Q13

Source: IDC, Gartner, CLSA Research

12


Chinese brands have captured market share at home by being sensitive to their domestic

market and remaining agile to market changes. A negative structural shift is unfolding for the

global downstream IT sector, capping the market share of foreign tier-1 handsets makers like

Motorola and LGE. Even Samsung is facing fierce competition in China against fast-growing

Chinese brands, explaining why it has the lowest market share in that country.

Source: Gartner

Samsung has lowest Market Share in Greater China amongst its Global Footprint

Greater China

Asia Pacific ex China/JP

Latin America

Eastern Europe

North America

%

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50

Chinese handset brands are shipping more handsets than global Tier-1 peers like LG and Motorola

2008

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Q14

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%

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5

Source: Gartner

LG

Xiaomi

MotorolaHuawei

Lenovo

Chinese BrandsGrobal Brands

13


Chinese tech companies have climbed the learning curve

Taiwanese technology hardware companies have benefited from low manufacturing costs

and rising of global tier-one US/Europe brand companies' growth. However, in the last

decade, Chinese technology companies accumulated product design and manufacturing

know-how thanks to aggressive management teams, capital market, and to some extent

government support.

Source: LG D851 Black; LG Electronics (Korean) Source: Lenovo Vibe X; Google Images (Chinese)

Why things are changing now?

The two advantages of Taiwan supply chain are less relevant today with the backdrop of

higher labor costs and market share erosion suffered by US hardware companies over the

past decade. Taiwanese hardware companies are faced with a double whammy situation;

on the one hand, they are losing market share to Chinese peers due to weaker partnerships

with key domestic (Chinese) brands (who are gaining global market share), and they are also

losing order inflows of global tier clients to Chinese competitors as the latter catches up on

technology capability.

On the other side, the Korean IT supply chain is largely exposed to domestic technology

giants like Samsung and LG. In difficult periods, the supply chain faces severe average selling

price and market share downward pressures, altogether.

Implication to Asia tech supply chain

It really only took less than one decade for Chinese tech to close the gap in technology that

is now competing head-to-head with Taiwan and Korean companies. We foresee intensified

competition in the future as IT is one of the key industries earmarked for Chinese government

support. Chinese brands will continue to extend their presence to the global stage, such as

Lenovo, Huawei, and Xiaomi to only name a few. This trend can only strengthen the China

tech supply chain at the expense of Taiwan and to some extent Korea.

Chinese brands will continue to extend their presence to the global stage, such as Lenovo, Huawei, and Xiaomi to only name a few. This trend can only strengthen the China tech supply chain at the expense of Taiwan and to some extent Korea.

14


Investment principles

We value a team based approach in decision making

What does it mean to us?

We do not rely on any single star portfolio manager or star analyst.

We believe in sharing information and analysis among ourselves.

We rely on our collective knowledge and invest in long-term ideas.

How do we apply it?

We openly discuss and examine key ideas in Investment Committee

meetings where investment professionals participate.

We share our research notes globally on MARS (Mirae Asset

Research System) online, over email and we have regular video

conference calls with other overseas offices.

We identify the sustainable competitiveness of

companies


We believe companies that have strong moats will have stable

earnings growth and cash flow, and share prices will rise as

these companies add considerable value each year. This tenet

drives our investment ideas, not short-term trading profits.

How do we apply it?

Sustainable competitiveness scorecards: We thoroughly analyze 30

factors for each company to identify the competitiveness of the company

for the long term. This scorecard includes six main categories,

which are: Barriers to Entry, Competitive Dynamics, Sustainability of

Returns, Management Track Record, Reliance on Outside Support,

and Ownership of Distribution/Production Supply Chain.

Extensive company meetings and research trips: Third party research

is useful for us to know the consensus, but it cannot be the sole

input when making investment decisions. We have investment

professionals around the globe; we frequently hold meetings in our

offices and conduct numerous on-site visits and meetings.

We invest with a long term perspective


Many of our investors are investing with us for their retirement, or

even for their children. Long-term does not mean only three to

five years for us. Our goal is to find companies that can last and

prosper in the next several decades and invest in them – these

are companies with high terminal values.

How do we apply it?

Analysts and portfolio managers are evaluated by their long-

term performance. To add a new position into a fund, we spend

considerable time researching and evaluating it. We’re not looking

to rush in based on a news headline, we are more concerned with

generating solid, long-term, well researched ideas.

We assess investment risks with expected return


We constantly monitor the changes in regulation, competitive

environments, and managements strategies. We do not fall in love

with our holdings, and will exit a position when the investment

thesis is no longer valid. The potential upside and downside and

our conviction drives the sizing of our positions.

How do we apply it?

In addition to risk analysis done by research team, where we quantify

the upside and downside to earnings and valuation, our risk team

monitors various parameters including sector volatility and liquidity,

and gives active feedback to the research team. Our risk team is

aided with a range of third-party risk management systems such as

Factset, Axioma, Thomson Reuters, and Bloomberg POMS/AIM.

15


Global Offices

Mirae Asset Global Investments

East Tower 26F, Mirae Asset CENTER1 Bldg,

67, Suha-dong, Jung-gu,

Seoul, Korea (100-210)

Tel.+82-2-3774-6644

Mirae Asset Global Investments (HK)

Level 15, Three Pacific Place, 1 Queen’s

Road East, Hong Kong, HK

Tel.+852-2295-1500

Mirae Asset Global Investments (UK)

4-6 Royal Exchange Buildings,

London, EC3V 3NL, United Kingdom

Tel. +44-20-7715-9900

Mirae Asset Global Investments (USA)

1350 Avenue of the Americas,

33rd Floor, New York, NY, 10019, USA

Tel. +1-212-205-8300

Mirae Asset Global Investments (Taiwan)

6F, NO. 42, Sec.2 Zhongshan N. Rd.,

Taipei City 10445, Taiwan (R.O.C)

Tel. +886-2-7725-7555

Mirae Asset Global Investments (India)

Unit No. 606, 6th Floor, Windsor Building

Off. C.S.T Road, Vidyanagari Marg.

Kalina, Sanatacruz (East), Mumbai

400 098, India

Tel. +91-22-6780-0300

Mirae Asset Global Investments (Brazil)

Rua Olimpíadas, 194/200,

12 Andar, CJ 121, Vila Olímpia

São Paulo, CEP 04551-000, Brazil

Tel: +55-11-2608-8500

Disclaimer

This document has been prepared for presentation, illustration and discussion purpose

only and is not legally binding. Whilst complied from sources Mirae Asset Global

Investments believes to be accurate, no representation, warranty, assurance or implication

to the accuracy, completeness or adequacy from defect of any kind is made. Division,

group, subsidiary or affiliate of Mirae Asset Global Investments which produced this

document shall not be liable to the recipient or controlling shareholders of the recipient

resulting from its use. Mirae Asset Global Investments is under no obligation to keep the

information current and the author’s views may have changed since the date indicated.

Also the opinions expressed are those of the author and may differ from those of other

Mirae Asset investment professionals.

The provision of this document shall not be deemed as constituting any offer, acceptance,

or promise of any further contract or amendment to any contract which may exist

between the parties. It should not be distributed to any other party except with the written

consent of Mirae Asset Global Investments. Nothing herein contained shall be construed

as granting the recipient whether directly or indirectly or by implication, any license or

right, under any copy right or intellectual property rights to use the information herein.

Mirae Asset Global Investments accepts no liability for any loss or damage of any kind

resulting out of the unauthorized use of this document. Investment involves risk. Past

performance figures are not indicative of future performance. Forward-looking statements

are not guarantees of performance. The information presented is not intended to provide

specific investment advice. Please carefully read through the offering documents and

seek independent professional advice before you make any investment decision.

16


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