Quarterly Letter, SC VIP

Quarterly Letter from Co-CEO, VIP Singapore Chapter, Q2 2024

Dear Sponsors, Board of Advisors, Members, and Readers,

I am Javier, one of the Co-CEOs for the Singapore Chapter. With this letter, I am eager to share the exciting updates for VIP for Q2 2024.

SEA Restructuring

This quarter, the club underwent a refresh in overall structure to incorporate a better model to accommodate more members and improve communication among members in the same region. VIP SEA will now be renamed VIP Singapore Chapter (SC); You Gin and I will assume the positions of CEOs of SC, and new leaders are also stepping up to head VIP and EIP separately under the major SC umbrella. We expect this new structure to bring about stronger unity and collaboration across all members in Singapore, and help to facilitate a freer exchange of ideas. We are thrilled to see where new structure will bring us moving forward.

Recruitment

We have also been putting great efforts into new analyst recruitment. Recruitment this year was done on a much larger scale than in previous years; we ramped up on marketing investment through social media to increase the club’s visibility, albeit in a cost-effective manner. It seems like our club had finally hit critical mass, having a long track record of successful alumni and inspiring philanthropic efforts. The result of this was VIP seeing the highest number of applicants in the club’s history by a wide margin. With a higher volume of applicants, we could adjust the bar higher for admission as well. Admission criteria has become more stringent; VIP’s admission process now includes a detailed case study with Q&A, tests for passion in investing and tests for intellectual capacity through brain teasers. Our view is that having a healthy pipeline of bright and capable members is key to long-term sustainability of the club. New members are also instilled with our philosophy of “giving back” to the club since day 1; be it eventually stepping up as a leader when the time comes, funneling down career opportunities, or even by offering advice to juniors. We believe that fostering such a culture as early as possible will help to sustain the success and growth of the club in the long-term, and we believe that Z Club is now well positioned to continue many more years of mentorship for students who are just starting out on their investing journey.

Z Club Academy

As part of our Z Club Academy Program, we hosted 3 more speakers this quarter. In April, we had a sharing session by Allen Xiao (Deputy Chief Risk Officer at Amundi Asset Management) where he discussed his lifelong learning philosophy, insights on risk management, the CFA and his beliefs in ESG and investor education. In May, we hosted Daniel Phua (ex-Temasek and current analyst at Foord Asset Management), where he shared about Swedish Serial Acquirers and discussed his own investor journey. In June, we had Soo Chuen Tan (President and PM at Discerene Group), who shared about his unique career pivots, the founding story of Discerene, and advocated for the importance of gratitude and giving back. In Q3, we have several esteemed guests such as Dennis Hong (Shawspring) and Richard Lawrence (Overlook Investments), so please stay tuned for further updates!

Internal Curriculum

For our internal meetings this quarter, we pioneered and trialed a new curriculum to educate members on more advanced accounting, modelling, and investing fundamentals. These lessons are meant to bring analysts to the next level after going through the foundations during their bootcamp. The curriculum will be taught by leaders (CEOs/PMs etc) and entails more advanced accounting and modelling, approaches to valuation, and more refined thinking around crafting investment theses. Curriculum is still being fine-tuned and future lessons may evolve based on the varying knowledge gaps to fill within each batch. It has been some weeks since our first few lessons have been held, and we are pleased to say that this has translated into higher quality output in members’ initial memos.

Portfolio Updates

Investment Highlights

Sony

Sony is a new stock that we added to our portfolio this quarter, and we expect our thesis to take about a year to play out. Sony is a huge media and entertainment conglomerate with many business segments, but for investors, the gaming segment is the key area of interest as it is the most idiosyncratic (content-slate dependent business). To summarize the play, we believe that the release of a major game title, Grand Theft Auto 6 (GTA 6), will be a major catalyst for value creation, and the street has yet to reconcile the potential impact of the game’s release on Sony’s hardware (HW) and software (SW) sales. Game launch precedents from popular franchises indicate that there is a high probability that the ability of this game to influence HW and SW sales has been grossly underestimated. The quality of the gaming content slate should also improve from here as we emerge from delayed development timelines post-covid, hence any downside should be minimal. Overall, we think the risk-reward from a 1-year perspective is very attractive and have added a sizeable position of Sony stock to our portfolio.

BYD

After about a year of weakness after investing in BYD, the stock had finally shown some strength YTD Jun’24. The company reported impressive H1 results, with revenue growing by 15.76% y/y to CNY 301bn and net profit growing by 24% y/y. In the brands ranking, BYD (+18.4%) has now established itself as the uncontested leader with 1.3 million sales over six months. The gap with #2 Volkswagen (-5.6%) is now over 373,000 units. Toyota (-14%) stays in third place but drops significantly. Notably Tesla (-5.4%) edges down and stays at #12. The BYD brand has proven itself to be competitive globally and we believe that exports will now become a main driver of growth moving forward. BYD continues to be a solid vehicle for China exposure within our portfolio (no pun intended), and we continue to maintain high conviction in BYD as a long-term hold.

Spotify

SPOT has continued to rally, up ~18% this quarter and 67% YTD. Spotify continues to be a key contributor to VIP SC’s P&L. This strong performance can be attributed to strong continued MAU growth, despite the company also implementing price increases for their subscription plans. In my earlier memo, I had called out that the stickiness in Spotify’s customer base was underappreciated; as the industry underwent a price hike cycle, Spotify would benefit disproportionately. This thesis has continued to play out over the past year. We are continuing to track where we are in the price hike cycle for the industry; the key player being Apple Music. Seeing as to how Apple’s services growth has been weak in recent quarters, we are expecting that Apple will again use pricing as a major lever moving forward for services growth. Apple has a sticky ecosystem and this has granted them pricing power for their services. If Apple were to hike prices, it is highly likely for Spotify (and other players) to follow close behind. If Apple signals any change in strategy, that would the time to exit the stock, but as of now this still holds and we maintain our conviction in Spotify stock.

To New Beginnings!

This will likely be the last quarterly letter from myself (and You Gin), as we prepare to hand VIP off to the next generation of rising stars. It’s been a great run – filled with learning and great memories. We have full confidence in the next batch of leaders and we believe that they have the potential to elevate the club to new heights. Thank you for standing by our humble student organization and we hope you share our excitement for what the next chapter of Next Gen will bring!

With Best Wishes,

Javier Chan

On behalf of the Value Investing Program’s Singapore Chapter