Wide-Moat Investing in the Asian Capital Jungle

Bamboo nnovator
1
R.E.S.-ilience in Value Creation
《竹经：经商经世离不得立根创新》
Wide-Moat Investing In the Asian Capital Jungle
Navigating with the Bamboo Innovator approach
11th Value Investing Seminar, Trani
July 17-18, 2014
KB Kee
Managing Editor
The Moat Report Asia
www.moatreport.com
www.twitter.com/bambooinnovator
bambooinnovator@gmail.com
The Da Vinci Flying Machine can be
considered as Leonardo’s Magnum
Opus in scientific design. Leonardo
had designed the frame to be made
with bamboo shoots.
Marco Polo on bamboo: “… stronger
than hemp… One of the engineering
marvels of the world.”
SSRN: http://ssrn.com/author=1174940
Moat Report Asia publications: http://www.moatreport.com/updates/
BeyondProxy publications: http://www.beyondproxy.com/author/koon-boon-kee/
SMU profile: http://accountancy.smu.edu.sg/directory/Kee-Koon-boon
(1) Mental Model: Bamboo Innovator (2) The Idea: Taiwan Microlife (4103 TT) (3) Biggest Mistake (4) Book Recommendation

Bamboo nnovator
2
To Catch An Asian Snake:
Detecting Accounting Frauds Ahead of the Curve
Value Unplugged, Naples
KB Kee
Managing Editor
The Moat Report Asia
July 14-16, 2014
www.moatreport.com
www.twitter.com/bambooinnovator
bambooinnovator@gmail.com
SSRN: http://ssrn.com/author=1174940
Moat Report Asia publications: http://www.moatreport.com/updates/
BeyondProxy publications: http://www.beyondproxy.com/author/koon-boon-kee/
SMU profile: http://accountancy.smu.edu.sg/directory/Kee-Koon-boon
Krishna dances over the subdued poisonous
Kaliya snake in river Yamuna, where only one
solitary Kadamba tree grew on the river bank.
From a Bhagavata Purana manuscript, c. 1640.

Bamboo nnovator
3
Taiwan’s Bamboo Innovators 80: Who Are They?
$93 billion
MXAPJ
$7.2 trillion
13.7x
Bamboo Innovators
bend, not break, even
in the most terrifying
storm that would snap
the mighty resisting
oak tree. It survives,
therefore it conquers.
GreTai
Bamboo Innovators
Watchlist:
Taiwan 80
TaiEx
Market Cap
PE
$880 billion
17.7x
Source: Bloomberg, 24 Jun 2014
31.2x
The Taiwan stock market (TaiEx) has approximately 800
companies with total market cap of $870 billion, while the
GreTai OTC market has around 700 companies with total
market cap of $92 billion. TaiEx is ranked the #15 global stock
exchange by trading value.
5%
Institutional subscribers get access to the Bamboo Innovator Index of 200+ companies and
Watchlist of 500+ companies in Asia and the Database has eliminated companies with a higher
probability of accounting frauds and misgovernance as well as the alluring value traps.
Index 222 + Watchlist 312 = Bamboo Innovators 534
Index Big Mid Small Micro TOTAL %
Singapore 3 5 2 10 4.5%
HK 8 10 7 1 26 11.7%
Korea 2 9 14 1 26 11.7%
Taiwan 2 14 8 24 10.8%
Thailand 1 6 15 3 25 11.3%
Indonesia 2 8 5 2 17 7.7%
Malaysia 2 7 9 7 25 11.3%
Philippines 2 6 2 10 4.5%
India 2 14 9 25 11.3%
ANZ 4 15 12 3 34 15.3%
TOTAL 28 94 82 17 222 100.0%
Watchlist Big Mid Small Micro TOTAL %
Singapore 8 5 13 4.2%
HK 1 9 9 19 6.1%
Korea 3 14 19 4 40 12.8%
Taiwan 2 21 29 4 56 17.9%
Thailand 1 11 6 19 37 11.9%
Indonesia 4 9 11 3 27 8.7%
Malaysia 7 7 5 19 6.1%
Philippines 8 5 13 4.2%
India 5 28 25 2 60 19.2%
ANZ 12 13 3 28 9.0%
TOTAL 16 127 129 40 312 100.0%
Big >$10bn, Mid $1-10bn, Small $200m-1bn, Micro <$200m
(1) Mental Model: Bamboo Innovator

Bamboo nnovator
4
Resilience: The Ability to Replicate & Scale from Scratch &
The Indestructible Intangibles to Bounce Back From Crisis!
$48B
Sales
$180B
Mkt Cap
“If you gave me $100 billion and
said, ‘Take away the soft-drink
leadership of Coca-Cola in the
world,' I’d give it back to you and
say it can’t be done.” - Buffett
$68B
Sales
>$150B
Value
Robert Bosch (1861-1942) worked as apprentice at German
companies, in US under Thomas Edison, in UK at Siemens
1st breakthrough: Magneto ignition device (1887)
2nd breakthrough: MID to vehicle engine (1897, 1902)
Global expansion: 1898-1913
WWI (1914): Lost it all! Factories and plants all destroyed!
Never give up: Electric horn (1921), windshield wiper
(1926), power brake system (1927)
Boat engines, jet skis, garden and forestry equipment, gas
engines, water pumps and emergency generators…
2012: 11 billion spark plugs produced by Bosch
Ownership: 8% Bosch family, 92% Foundation (1938 will)
Burn and destroy all the
tangible assets!

Bamboo nnovator
5
“The first rule is that you can’t
really know anything if you just
remember isolated facts and try
and bang them back. If the facts
don’t hang together on a
latticework of theory, you don’t
have them in a usable form.
You've got to have models in
your head. And you've got to
array your experience - both
vicarious and direct - on this
latticework of models.”
– Charles Munger, “A Lesson on
Elementary, Worldly Wisdom As
It Relates To Investment
Management & Business ”, USC
Business School, 1994
Mental Model: Bamboo Innovator
Bamboos Bend, Not Break in the wildest storms that would snap the mighty resisting
oak trees; it survives and therefore it conquers.
A “Good-to-Great” checklist
approach might overlook the
resilient Bamboo Innovators.
After all, there are much
larger impressive trees in the
forest. By comparison a
bamboo looks smaller,
thinner, and fragile. The list of
Bamboo Innovators is a
surprising one; many of them
are not the typical ones that
one would come across.
Empty hollow center
The nutrients and moisture that
would have been exhausted
making and maintaining this
empty center can be utilized for
growth of other culms. From a
builder’s viewpoint, the
architecture of the bamboo culm
presents a powerful configuration:
fibers of greatest strength occur in
increasing concentration toward
the periphery of the plant.
“Rootedness” in cultivating a culture of kindness, trust and
cooperation to contend with and heal creative dissent and
incentivize innovative experimentations R Rootedness
E Emptiness
S Sheath
“Emptiness” like the empty hollow center of a bamboo in having
(1) “indestructible intangibles” which in turn derives its strength
from either a certain know-how or trust and support in the
community; (2) a “core-periphery” network; and (3) an “open-innovation”
business model in which both internal and external
partners co-develop new products and creations.
“Sheath” in leadership to create the context, adaptive-govern,
coordinate, synthesize and weave diverse networks and groups who
might otherwise be excluded into a coherent whole, rather than the
typical command-and-control “positional/title-based” leadership.

Bamboo nnovator
6
Search Methodology for Bamboo Innovators:
“Emptiness” in Business Model
Indestructible
Intangibles
 Proprietary know-how
 Trust and support from
community of customers,
suppliers, partners
Open Innovation
 Both internal and external
partners co-develop new products
and services
 Qualcomm (QCOM US)
 Ecolab (ECL US)
 Luxottica (LUX US)
 Novozymes (NZYMB DC)
 TSMC (2330 TT)
 CSL Limited (CSL AU)
220+
Bamboo
Innovators
U.S.
Europe
Asia
Core-Periphery
Network
 Scaling by empowerment and
decision-rights beyond the founder
 Scaling by technology as an
enabler and embedded into the
business model design
 RockTenn (RKT US)
 Balchem (BCPC US)
 O’Reilly Automotive (ORLY US)
 Sherwin-Williams (SHW US)
 Fastenal (FAST US)
 Bosch, IMA SpA (IMA IM)
 Novo Nordisk (NVO DC)
 Inditex (ITX SM)
 ASSA Abloy (ASSAB SS)
 Yunnan Baiyao (000538 CH)
 Kewpie (2809 JP)
 DKSH (DKSH MK)
 Major Cineplex (MAJOR TB)
 Home Product Center (HMPRO TB)
530+
Watch List
~15,000*
Listed Asian
Stocks
* Asia ex-Japan ex-China A-shares.
Includes India, HK, Taiwan, Korea,
Singapore, Malaysia, Thailand,
Indonesia, Philippines, Australia,
New Zealand, with a market value
of over $8.5 trillion. If Japan and
China A-shares were included, the
investment universe is expanded
to over 20,000 stocks with a
market value of over $15 trillion.
3.7%
1.8%

Bamboo nnovator
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An Italian Bamboo Innovator: IMA SpA
But the Asian Capital Jungle is Far More Complex….
Q: Why is it that throughout the financial crisis, Italy has
remained Europe’s second-largest export economy, after
Germany, despite Italy being ranked as the 80th place in the
World Bank’s “Ease of Doing Business” survey because of
his strong labor unions, seemingly boundless bureaucracy,
organized crime, and endemic tax evasion?
Hidden global champion: Do you know that 70% of the tea filter bags in the world are made
from IMA’s automatic packaging machines?
Intangible know-how in high-tech automatic machinery applications in packaging: World
leader in the design and manufacture of automatic machines for the processing and packaging of
pharmaceuticals (tablet, capsule filling, coating, freeze dry etc), cosmetics, tea, coffee and foods.
IMA has filed about 1,200 patents worldwide and has launched many new machine models over
the last years. Over 400 of its 3,600 workforce are designers committed to product innovation.
Established in 1961 in Bologna (Emilia Romagna – the “Packaging Valley”), listed in Milan Stock
Exchange since 1995
760.9 million Euros for the fiscal year 2013 (export: 92%).
Vacchi family 66.2%.
Quiet innovator
until
exponential
spurt

Bamboo nnovator
8
Missing Cash in S-Chips (Singapore-Listed Chinese
Companies): Left Side In, Right Side Out!
 First, the controlling shareholders will engage in
'propping' activities to artificially inflate the sales
and assets of the listed firms through related-party
transactions (RPTs) to entice the funds of investors
who did their 'fundamental analysis' of the firms.
Artificial accrued sales are booked under 'other
receivables', while the bogus cash-based sales stay
hidden in the 'cash & cash equivalents‘.
 After 'propping', 'tunnelling' or expropriation of
these assets out of the listed firm follows,
engineered through related-lending and transfer
activities which are rarely paid back by the
controlling shareholders. These cash transfers are
done artfully, often in short-term transactions in
order to be qualified as 'cash equivalents'. That
explains why most of the artificial cash balances in
these firms typically earn low average interest rates,
at below one per cent, when the typical bank rate in
China varies between 5 and 10 per cent.
 In other words, there is left-side in via propping,
and right-side out via tunnelling.

Bamboo nnovator
9
The Case of Sino-Environment
 Take the case of the high-profile and 'highly profitable' S-chip Sino-
Environment. Footnote 12 of their 2008 Annual Report revealed that the
average interest rate earned from their 728 million yuan (S$143 million) cash
in the balance sheet is merely 0.56 per cent. In Footnote 13, the amount due
and dividend receivable from its subsidiaries in the company accounts is 282
million yuan. In their group accounts, the amount of non-trade receivables is
240 million yuan out of the 276.5 million yuan in total receivables.
 From Footnote 12, Sino-Environment possibly made dubious related-party
acquisitions, financed by the IPO and secondary equity offerings, to cancel
the artificial receivables that were created in collusion with the related
parties, and booking the set-off as goodwill and intangible assets which
stood at 228 million yuan.
 In a Raju-deja vu fashion, property was involved. According to news articles
reporting about the firm's situation, its chairman Sun Jiangrong reportedly
tried to siphon away a 100 per cent stake in Chongqing Daqing Property,
which owned properties in China worth 10 billion yuan, to his Hong Kong
private firm called Top One Property Group, and later to a Chinese firm
owned by his brother, Sun Shaofeng, the chairman of HK-listed China Green.
 Wrote and submitted the article in Apr 2010. Published on 25 Nov 2010
in Business Times Singapore

Bamboo nnovator
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Left Side In, Right Side Out!
Sino-Environment-China Green (904 HK) Connection
China Green
Published article
 Wrote and submitted the article in Apr 2010. Published on 25 Nov 2010 in Business Times Singapore

Bamboo nnovator
11
Egana (48 HK) and Peacemark (304 HK): Durable Consumer
Franchise & Value Stocks With Lotsa Cash in Balance Sheet?
Egana (48 HK): HK$1.4 billion “cash and cash
equivalents”; ~HK$1 billion are promissory
notes due from related investment companies
Peacemark (304 HK): HK$600 million net cash;
HK$330 were “deposits” placed with related
parties
• Of the HK$1B, $693.7m was rolled over upon maturity for
another one to three months. These promissory notes have
been building up for years. This begs the question of how
many times some of these notes have been rolled over, who
the borrowers are, and what ability they have to repay.

Bamboo nnovator
12
Dalang-mite: The Primacy of Governance Pitfall in Value
Investing in Asia
Q: Why are the faces and clothes of puppets
in the wayang performance – a traditional
Javanese show – painted with bright colors
when the audience sitting behind the screen
can only see their shadows? More
importantly, why is the philosophy
underlying the wayang performance critical
for value investing in Asia?
A: Colors of the puppets are not meant to be seen by the common masses; only the audience
behind the stage, those who are closer to the puppet master, the dalang, have the privilege
of seeing the true colors of the faces and costumes of the puppets. When a warrior like
Arjuna or Bima is about to appear, the dalang places on that puppet a golden mask. The
privileged few behind the screen close to the dalang know in advance that a war is about to
begin before the front audience sees it over the screen and they have a deeper understanding
of the feelings and behavior of the manipulator.

Bamboo nnovator
The Case of PT Davomas, Indonesia’s Second-Largest Cocoa
Processor with MNC Customers
Davomas was listed in the Jakarta Stock Exchange in 1994 and it grew to become the largest exporter of semi-processed
chocolate products (cocoa powder and cocoa butter) in Indonesia with international trading houses and
large chocolate manufacturers in Europe and US as their customers. Davomas became a darling stock with its growth
prospects and technologically-advanced facilities. In Apr 2007, the main shareholders Tse Kam Bui and Husein Sutjiadi
sold a 24.9% stake to a handful of investors at Rp400 per share, raising about IDR 610.2bn ($67m). Foreign institutional
investors such as Templeton became significant shareholders. Davomas continues to enjoy glowing sell-side research
reports such as the one on the right dated 25 Jan 2008.
On May 2009, Davomas shares were suspended because it defaulted on its $238m 11% guaranteed senior bonds
due 2011. Shareholders agreed to a restructuring plan involving an exchange offer for the original bonds and a $33m
shareholder loan. The shareholder loan was from the secretive majority owner Tse Kam Bui who controls five BVI-registered
companies that together hold a 51% stake in Davomas. The debt to the BVI companies was immediately
repaid via a rights offering for those shareholders. The original bondholders took a 50% haircut and exchanged for
$119m variable interest rate guaranteed secured bonds due 2014 and retained security over the assets of Davomas
and the BVI companies. In March 2012, Davomas once again defaulted on its debt due 2014. In June 2012, Davomas
shockingly reported new debt of IDR 2.87tr to PT Aneka Surya Agro (PT ASA), allegedly a supplier to Davomas. Although
the debt represented more than four times equity and more than double its IDR 1.32tr in revenue, no other
information about the transaction was given.
The June 2012 debt restructuring called for the conversion of all outstanding debt into equity in Davomas. However,
the debt-to-equity conversion requires the consent from the general meeting of shareholders and the shareholders’
meeting on Sep 2012 was cancelled due to confusion regarding the identity of the persons entitled to represent the
majority shareholders, namely the secretive Tse Kam Bui. The irregularities in its financial statements remain
unexplained. Later, it was suspected that PT ASA belongs to this secretive controlling owner, the dalang behind all the
transactions. The aggrieved bondholders and shareholders are still demanding for justice.
13

Bamboo nnovator
Microlife: Boring Global #1/#2 in Patient Monitoring Device
(Digital Thermometer/Blood Pressure Monitor)
ROE 21% with a unique solution-services business model protected by innovative worldwide patents
Durable Franchise Value in Boring and
Resilient Patient Monitoring Device –
and a Quiet, Powerful Cost Consolidator
Microlife’s manufacturing technology
platform has enabled it to build a global
durable franchise in the niche patient
monitoring device market that has stable
resilient growth and yet is experiencing
potential disruptions led by Microlife’s new
innovation in blood pressure monitoring
protected by worldwide patents. Microlife has
the potential to consolidate the market further.
Worldwide Patents in Algorithm-
Technology in Afib and MAM blood
pressure measurement
Microlife’s worldwide patents in algorithm-technology
in blood pressure measurement has
been commercialized into the WatchBP product
series that is at the heart of its total solution
service business model. This valuable intangible
asset is not factored into long-term valuation.
Potential Takeover Target by Omron, J&J
Microlife’s long-term terminal value and
downside risk will be protected by giants such
as Omron, J&J (LifeScan), Bayer, Abbott etc who
wish to swallow it up to possess its valuable
manufacturing technology platform and
worldwide patents.
14
Why is Microlife
underappreciated still?
Valuable Process IP/Know-How and
(LifeScan), Bayer, Abbott
Global #1 Market Share
(Digital Thermometer)
50%
Technology in Afib and MAM
The innovative WatchBP with the Afib
detection and MAM technology are not
merely additional features; it “forces”
the clinical community to adopt them as
the standard, which in turn helps drive
home-use penetration. It transforms the
BPM product into a unique strategy.
Worldwide Patents
in Afib and MAM
Total Solution Service
Business Model
Incorporates software
development to create
value-added services for
health monitoring and
collaborating with hospitals
and governments on tele-healthcare
Microlife’s ROE 21% (Why?)
projects.
(Digital Blood Pressure
Monitor)
17-18%
Quiet, Powerful Cost Consolidator
Reliable manufacturing platform for
over 30 years with in-house capabilities
to combine Swiss design, high-precision
electronics with clinical healthcare to
produce world-class products with cost
competitiveness.
Sticky ODM Partner to
Reputable Customers
Diversified customer base to
customers such as Wal-
Mart, Costco, CVS,
Walgreen’s; none accounts
for >10% of sales.
US #1 Market Share
(Electric Flexible
Heating Blankets)
50%
91% of Sales in
Developed Markets
(54% US, 37% Europe)
EV/EBIT 9.7x
EV/EBITDA 8.8x
Dividend 5.6%
Net Cash 23% MV
(1) Mental Model: Bamboo Innovator (2) The Idea: Taiwan Microlife (4103 TT)
(3) Biggest Mistake (4) Book Recommendation

Bamboo nnovator
15
Salient Points
See Appendix for the Full and Complimentary Version of The Moat Report Asia
(1) An undervalued hidden world champion:
World’s #1 and #2 manufacturer of two healthcare equipment
Decent valuation: EV/EBIT 9.7x, EV/EBITDA 8.8x
Sustainable dividend yield: 5.6%
Healthy net-cash balance sheet: 23% of market value
Shareholder-friendly: Reduce 10% of shares outstanding in Sep 2012 to boost capital efficiency
(2) It’s boring! It’s misunderstood! Why wide-moat (Part 1)?:
Quiet powerful cost consolidator: Reliable manufacturing technology platform to build a global durable franchise
in the niche patient monitoring device market that has stable resilient growth
In-house capabilities to combine Swiss design, high-precision electronics and sensor components
Core competence of having an algorithm to allow fast reading/filtering of signals and outputting the accurate
results in a short period of time
Worldwide patents in innovative algorithm technology in Afib and MAM to support its total solution service
business model
Valuable intangible asset is not factored into long-term valuation

Bamboo nnovator
Conversation with Management: Microlife’s Founder and
Chairman LIN Kin-yuan (KY Lin)
Q: “What is the secret to Microlife’s success in maintaining such high profitability in relatively
mature - and even boring! – products that are seemingly simple to manufacture with low
barriers to entry?”
KY: “There’s big knowledge even in this seeming simple and boring digital and infrared
thermometer products. The speed in measuring body temperature is not limited to the
sensitivity of the sensor device but rather how the thermometer can rapidly reach the
calibration point of the body temperature with different physical principles of thermometry. As
these techniques involve specialized knowledge and industry secrets, they are protected by
patents. Microlife is one of the rare few in the whole world to have the capability to produce
models with read time of 1 to 60 seconds. This is something that the rest of our rivals can never
match. For infrared ear thermometers, after shooting out the infrared energy to measure the
temperature, the sensory parts must receive the signal and convert the radiant power to an
electrical signal that can be displayed in units of temperature after being compensated for
ambient temperature. It involves high-precision parts and complicated configuration and
calculations before reaching an accurate standard. Thus, the barrier to entry is not low.
Our R&D in Taiwan concentrates on high-tech electronics parts and components, such as the in-house
manufacture of sensors, establishing the high-precision measurement platform,
temperature micro-controller design. Our Europe medical R&D and clinical trial center artfully
combines high-precision electronics with healthcare to produce world-class high-quality
products and new innovations.
It’s not easy to manufacture quality thermometers with cost competitiveness. The various
components are expensive. IC chips are the most expensive, accounting for 10-15% of the total
cost. LCD 10%, sensor 10%, pump 10%. We have economies of scale in procurement and
manufacturing. We will continue to consolidate this market, albeit gradually. Our market share is
around 40% five years ago and about 50% now. Our market share is higher for higher-end
products, especially for the range of infrared products.”
16
Microlife’s KY Lin, 61 years old
“There’s big knowledge even in this
seeming simple and boring digital
and infrared thermometer products…
As these techniques involve
specialized knowledge and industry
secrets, they are protected by
patents. Microlife is one of the rare
few in the whole world to have the
capability to produce models with
read time of 1 to 60 seconds. This is
something that the rest of our rivals
can never match… For infrared…It
involves high-precision parts and
complicated configuration and
calculations before reaching an
accurate standard. Thus, the barrier
to entry is not low.”
Chinese-to-English translation by KB Kee.
Any translation errors are mine.

Bamboo nnovator
17
Atrial Fibrillation (Afib) and Stroke Prevention
Microlife has worldwide patents in Afib in BPM
http://well.blogs.nytimes.com/2014/06/25/longer-heart-monitoring-backed-for-stroke-patients/?_php=true&_type=blogs&_r=0
http://well.blogs.nytimes.com/2013/12/30/with-a-fib-rhythms-higher-odds-of-stroke/?_php=true&_type=blogs&_r=0

Bamboo nnovator
18
WatchBP is the only solution announced by Italy’s medical
society SIMG (Società Italiana di Medicina Generale)

Bamboo nnovator
Disruptive Technology with Clinical Use: The WatchBP is the potential disruptive
technology in the blood pressure monitor market as it has increasingly gained the
acceptance as the preferred clinical use with implemented guidelines given its
patented measurement of Afib with hypertension to detect stroke and hear diseases
in advance. The WatchBP also has professional analytical software to enable easy
and accurate diagnosis.
Logarithmic vs Exponential Growth: BPM has been a logarithmic growth market
as incremental functional improvements are enhancers to the product. We believe
that once the hospitals and clinics start to adopt WatchBP as the standard BPM,
home-use could rise in an exponential manner.
Empowerment Tool as an Active Participant in Managing Health: Microlife
developed the WatchBP solution as a way to help physicians accurately diagnose and
treat hypertension and empower patients to be an active participant in managing
their health. Two things drive effective care; good data and patient
accountability. The best medical decisions are made with the best data. Patients
also need to believe that the doctor’s advice and treatment is meaningful,
understandable, and important to their well-being. Microlife provides accurate,
reliable, patient-centered solutions that engage patients and empowers them to
manage their health.
19
Microlife: Why Wide Moat? Fundamental Dynamics Behind 21% ROE
WatchBP as the potential disruptive technology

Bamboo nnovator
20
Salient Points
Worldwide patents in algorithm in Afib: Not just a product, but a strategy! Why wide moat (Part 2):
- “Forces” the clinical community to adopt them as the standard, which in turn helps drive home-use penetration.
- Transforms the BPM product into a unique strategy that incorporates software development to create value-added services for
health monitoring and collaborating with hospitals and governments on tele-healthcare projects.
- Watch BP Afib was soft-launched in 2010. 50,000 units are sold in 2011, and the number doubled to 100,000 units in 2012 and
around 250,000 in 2013, about 10% of group sales.
Sticky ODM Partner to Reputable Customers, Yet Is Able to Build Its Own Brand, Demonstrating Bargaining
Power! Why wide moat (Part 3):
- Microlife has a diversified customer base as the ODM partner to reputable companies including Wal-Mart, Costco, CVS and none
of the customers account for more than 10% of Microlife’s sales.
- Microlife has demonstrated that it has bargaining power over its powerful customers with the ability to build its own brand since
1998 (44% of sales in DT/BPM, 62% of overall sales).
Long-term industry growth potentially switching gears from logarithmic to exponential growth:
- Patient monitoring device (PMD) will be a niche resilient growth segment with the rise in aging population and chronic malady.
Patients are increasingly aware of the need to manage their own health and home-use of BPM will be a long-term growth trend.
Nearly half of hypertensive patients are inaccurately diagnosed and accurate blood pressure measurement is increasingly difficult
due to the complexities of modern diseases. Standard BPM are increasingly not effective. Microlife’s unique WatchBP has the
potential to disrupt the market with the adoption led by the clinical community and possibility to spread to home-use as patients
seek a consistent and integrated healthcare experience

Bamboo nnovator
21
Salient Points
Long-term downside protection in terminal value as takeover target:
- Microlife’s long-term terminal value and downside risk will be protected by giants such as Omron, J&J (LifeScan), Bayer, Abbott etc
who wish to swallow it up to possess its valuable manufacturing technology platform and worldwide patents in algorithm-technology
in Afib and MAM blood pressure measurement.
Microlife’s KY Lin, 61
years old
Stable long-term shareholdings and patient capital foster innovation:
- The stable long-term shareholdings and patient capital by the founder KY Lin and the management team
who together own around 48% of the equity has enabled Microlife to adopt a very long-term approach
to building its business and cultivating new growth areas. While KY may sometimes be slightly over-optimistic
and thinking too far ahead with his long-term opinions, this idealistic engineer-visionary-philosopher
has done a fantastic job in continuously defying the odds of many skeptics by growing
Microlife from a small startup into one of the world’s leading patient monitoring equipment company.
- KY is the rare Asian entrepreneur who was persistent in building his own brand despite the threat of
offending his ODM customers. KY was also early in cultivating and coordinating a global network with
high-tech component, R&D and manufacturing in Taiwan, manufacturing, assembly and packaging in
Shenzhen, China and medical R&D and clinical testing and accreditation lab center in Europe, including
making the difficult decision to establish a direct marketing sales force in Europe and North America
given the high cost.
- Unlike most Asian business owners whose interest and focus in the core business starts to wane due to
complacency from growing personal wealth and the inability to scale the core business, KY is genuinely
passionate in the company’s ability to add value to the patients and society. The idea of the innovative
WatchBP actually came from an in-depth conversation between European hypertension specialist
Professor George Stergiou and KY.
- Microlife can effectively run without KY with the long-term corporate culture and management system in
place, yet KY can inject great value as the steward in new innovations; we believe that this combination is
rare for an Asian company and deserves a valuation premium.

Bamboo nnovator
22
Microlife 10-Year Price Chart
Microlife breaks into
Wal-Mart
Tipping Point:
WatchBP soft-launched
in
Switzerland and
Europe
Sep: Reduce share capital by
10% to boost capital efficiency
Oct: New MAM series in blood
Anti-dumping saga in US against
Chinese imports. Sales of Microlife’s
Made-in-China Biddeford was affected
and Microlife shifted its production
facilities to Philippines.
Sales from Microlife
brand exceeded
OEM/ODM business
Microlife is listed in GTSM (GreTai Securities Market) on Mar 29, 2001.
Source: http://investing.businessweek.com/research/stocks/charts/charts.asp?ticker=4103:TT
pressure monitors
UK’s NICE announces
WatchBP to be used in
hospitals; 10th
consecutive A award
for Most Transparent,
Best Disclosure listed
company; Frost &
Sullivan award.
WatchBP sales growth
accelerated from
50,000 in 2011,
100,000 in 2012 to
250,000 in 2013.

Bamboo nnovator
23
Market Statistics and Financial Summary:
PE 13x, EV/EBIT 9.7x, EV/EBITDA 8.8x, Dividend Yield 5.6%
Financial Summary
YE Dec, TWD mil 2010 2011 2012 2013 US$M
Sales 5,622.9 5,124.4 5,367.8 5,896.7 196.7
GP 2,067.8 1,794.9 2,005.9 2,201.5 73.4
EBIT 582.3 464.1 676.0 705.9 23.5
EBITDA 636.4 507.5 721.5 778.0 26.0
Net Income 430.2 468.8 557.2 633.6 21.1
CFO (Op Cashflow) 230.1 321.0 769.0 677.0 22.6
Capex -92.9 -74.3 -41.0 -60.6 -2.0
Profitability
GP Margin 36.8% 35.0% 37.4% 37.3%
EBIT Margin 10.4% 9.1% 12.6% 12.0%
EBITDA Margin 11.3% 9.9% 13.4% 13.2%
Net Margin 7.7% 9.1% 10.4% 10.7%
GP/TA 46.4% 41.0% 44.4% 42.2%
ROA 9.6% 10.7% 12.3% 12.1%
CFO/Total Asset 5.2% 7.3% 17.0% 13.0%
ROE 16.3% 16.9% 19.9% 20.9%
Market Stats
Date: Jun 24, 2014
Share Price: TWD 74.2
Market Cap: US$272m
Shares Outstanding: 110m
FX Rate: USDTWD 30.0
Daily Liquidity: $0.3m
52 Week: TWD 73.4-91.9
Valuation Summary
P/E (FY13): 13.1x
P/Book (FY13): 2.73x
P/Sales (FY13): 1.40x
P/CFO (FY13): 12.2x
EV/EBIT (FY13): 9.7x
EV/EBITDA (FY13): 8.8x
ROA (FY13): 12.1%
ROE (FY13): 20.9%
Div Yield: 5.66%
Cash vs Accruals 2010 2011 2012 2013
Capex% Sales -1.7% -1.4% -0.8% -1.0%
AR Day 77 100 99 112
Inventory Day 48 55 49 59
AP Day 74 68 62 80
CCC 51 87 86 91
Leverage
Mkt Value (TWD mil) 7,211 6,111 6,490 8,943
Shares Outstanding 122.2 122.2 110.0 110.0
Net Debt -1,424 -1,268 -1,371 -1,405
Debt/Book Equity -53.9% -45.8% -49.0% -46.3%
R.E.S.-ilence Factors in Value Creation
R = “Rootedness” in innovative culture?
E = “Emptiness” in business model durability & scalability?
(1) Indestructible intangibles in know-how and trust and support from community?
(2) Core-periphery business model via technology and empowerment?
(3) Open innovation business model?
S = “Sheath” leadership/ management quality?
Ownership
Management & family 46.9%
Foreign investors 14.4%
(Franklin Resource 11.1%)
Domestic funds & fin 12.5%
Risk Factors
Industry dynamics
Business transparency
Accounting quality
Corporate governance
Catalysts/ Tipping point
Valuations
Liquidity
 Microlife’s ROE has been steadily increasing
from 16.3% to 20.9% due partly to better
profit margin contribution from its
innovative WatchBP products and rising net
cash position.
 Microlife has undertaken the unusual capital
management program to retire 12.2m
shares (10% of its shares outstanding) in Sep
2012 to boost capital efficiency by utilizing
the comfortable net cash position. Share
price has since spiked up over 25%. The
proactive shareholder-friendly stance
backed by its strong net cash position should
limit any downside in share price.
 Note that net cash in FY13 has grown from
$47M to $65M in 1Q14
 1Q04 sales +4.6% but OP -1.2% with GP
margin maintained at 37.7-37.9%, mainly
due to a 8.6% increase in selling and
marketing expenses. During 1Q14, Microlife
forex gain has fallen to $0.5m from $16m in
FY13. It also suffered a hedging loss of
$0.9m as opposed to a gain of $0.3m in
FY13. Overall, other income has dropped
from $2m profit in FY13 to -$0.2m in 1Q14
http://emops.twse.com.tw/server-java/t16sn02_e1?TYPEK=otc&step=current&co_id=4103

Bamboo nnovator
24
“Skate to where the puck is going to be”: From “Brands” to Inno-Facturers
Microlife is Part of the Long-Term Valuation Re-rating Trend from Brands to Inno-Facturers
Investors are always enamored by the brand story, sometimes
right but often wrong, since, after all, there are few Coca Colas.
In our view, the profit and valuation premium in the value chain
will start to skate to the “Inno-facturers” and the hidden ODM
innovators (the brand behind brands) consolidating the industry
with their unique business models, while the “brands” start to slug
it out amongst themselves. Brands without their own distribution
network in emerging markets to equitize end customer relationship
will suffer de-rating given the explosion in advertising/ marketing
and distribution/ logistics costs, the attack of private labels and too
many me-too brands everywhere.
Investors will always misunderstand inno-factures. They are distinct from the usual low-cost manufacturers in emerging markets
because of their “manufacturing technology platform” that creates both that option value to break new grounds in new
markets/customers and to widen the moat to fend off the typical distracted/complacent Asian emperor owners who need to indulge in
luxury lifestyle and property/non-core investments to feel alive since the underlying core business cannot be institutionalized.
Increasing complexity and shorter design life-spans in a multitude of products mean that the “modular design” process of products
requires plenty of technical interaction and tacit knowledge exchanges among brand companies, key component suppliers and
formulation through their system integration and technological development abilities. ODMs have become an irreplaceable and integral
part of the R&D and design process value chain.

Bamboo nnovator
The compounding effect of the neglected and misunderstood giant TSMC, a
wide-moat ODM company with no “brand”, but enabler of fabless
innovators such as Qualcomm and UK’s ARM. TSMC is up >25x since 1994 to
a market value of $117bn.
TSMC (2330 TT, MV $117bn) is now the largest ODM foundry in the world. When TSMC was established by Morris Chang in 1987, the
market asked, “Who is TSMC going to manufacture the wafers for? The Intels and Texas Instruments are also manufacturers themselves and
they would let TSMC manufacture their wafers only when they didn't have the capacity, the leftovers, or didn't want to manufacture the
stuff themselves anymore. As soon as they got the capacity they would stop orders to TSMC, so it couldn't be a stable market. And when
they didn't want to make the wafers anymore, the chances were that it was losing money for them. And so why would TSMC want to do it?
Does TSMC want to take over the loss? And Taiwan is two generations behind in technological capabilities.” TSMC has the last laugh as it
enabled fabless innovators such as Qualcomm and UK’s ARM to emerge.
25
ODM Vs Brand in Valuation = Inno-Facturers Will Always Be Misunderstood
The case of TSMC (2330 TT, MV $117bn), the ultimate ODM now nearly as valuable as Intel

Bamboo nnovator
26
5 Examples of Inno-Facturers in Asia Besides Microlife
Example #1: Our Drinking Partner – The Asian Equivalent of Peter Lynch’s Multibagger Winner
Crown Cork & Seal
Example #2: Our Digital Entertainment Partner – Hidden Global Consolidator with
Underappreciated GoPro Growth & More
Example #3: Our Bakery Partner – The Middleby of Asia in Baking up Defensive Growth
Example #4: Our Fashion Partner - Global #1 in Velcro fastener and “spec-in” partner to all top
20 sports shoe brands
Example #5: Our Eyecare Partner - World’s #1 ODM in Soft Lens (Global #5) and Hidden
Champion in Color Lens That Giants Can’t Do Well

Bamboo nnovator
27
Example #1: The Asian Equivalent of Peter Lynch’s
Multibagger Winner Crown Cork & Seal?
Blossoms in the Desert: Great Companies in Lousy Industries
Peter Lynch: “Crown Cork & Seal makes soda cans, beer cans, paint cans, pet food containers, jugs for antifreeze, bottle
caps, bottle washers, bottle rinsers, bottle crowners and can warmers. I probably don’t need to tell you that can making is a
lousy industry with a thin margin… They never pay a dividend... Crown is a perfect company. A classic example of how to run
an unexciting business and make it exciting for shareholders. We’d all be richer if we’d put all our money into Crown.”
Peter Lynch managed the obscure Magellan Fund from 1977-May
1990, growing AUM from $18m to $14bn with annualized return
of 29%. Crown Cork & Seal is up over 670% for Peter Lynch.
if we can invest BEFORE the wide
economic moat is obvious?”
$1.6 billion
market cap
John Connelly, a former Crown supplier, takes over as president in 1957 at a time when the company is
reeling from a series of poor diversification and is on the verge of bankruptcy. In 32 years as chief executive
of Crown, this blacksmith's son stubbornly went his own way. Other companies diversified with disastrous
results but Connelly stuck single-mindedly to what he knew best: the manufacture of metal cans and caps.
When he yielded to the infirmities of age in April 1989, it was an industry leader with 17,750 employees in
28 countries and annual revenues of $1.9 billion. Connelly passed away at age 85 in July 1990.
= ?

Bamboo nnovator
Global PC sales tank to
lowest since 2008. PC is
disrupted by the twin terrors of
tablet (iPad was launched on
Apr 2010) and smartphone.
Despite industry slowdown,
X has made market gains from
further industry consolidation
in PC peripherals.
Non-PC weighting in sales
has grown from 22% in 2011 to
37% in 2Q13 and targeted at
40-42% in 2013, led by growth
in tablet and consumer
electronics (eg sports DV cam).
28
Example #2: Hidden Global Consolidator With
Underappreciated GoPro Growth & More
Why overlooked and
underappreciated?
Association with PC Decline
Global #1
Sports DV
Cam
Tablet DKB
+ Dual Cam
DKB = Detachable keyboard
Foundation for Cashflow and Growth
Keyboard
Global #1
Market Share
33%
IP Security
Cam
Webcam
Global #1
Market Share
20%
Spinoff
(Listing
Nov13):
Automotive
Camera
#3 Global Player in
Power Supply
(SPS/Adapter, LED
Lighting); X owns
53%
Notebook Cam
Global #1
Market Share
40%
“We are the ‘Red Ocean’ magicians
focusing on three simple low-margin
peripheral products.. Westerners do
not want to do these “Red Ocean”
products; we do them exceedingly
well.. And we are the global #1 in
market share in keyboard, NB
cam/webcam/DV cam.” - CEO
Corporate Motto = No Quality, No Sales
EV/EBIT 12x
EV/EBITDA 9x
Operating
Cashflow
>$200M
Dividend
Yield 5.75%
Deep intangible know-how
in design,
development,
engineering and
manufacture of keyboard
and camera modules
Complete global logistics
system of 44 JIT
warehouses to deliver
flexibility and speed in
customer services and
reduce inventory risk
Wearable Sports DV Cam
Wearable sports
phenomenon pioneered by
GoPro is a niche that has
grown from sports into
multiple areas including
military and defense.

Bamboo nnovator
29
Example #3: The Middleby of Asia In Baking Up Defensive Growth
#1 in Asia in bakery equipment (80-90% of hypermarkets and 50% of bakery chains in China are
X clients) = Strong cashflow foundation to expand to pizza and food service equipment
Why is X
Structural Re-Rating of Niche
Companies With Defensive Growth
Globally, business models with (1)
diversified client base, (2) steady revenue
streams, (3) lean capex requirements that
creates ample free cashflow are
underappreciated. One of such business
models is boring niche FMCG/ food service
equipment companies. They possess
defensive investment characteristics and
high competitive quality due to their
dominant market positions in a niche
which is sought after in the currently still
uncertain macro environment.
Proven Unique Business Model to
Consolidate Fragmented Market
X’s unique business model in finding,
winning and binding new customers with
its innovative bakery intelligence and a
strong and unique distribution/ marketing
network supported by bakers should
protect X to continue to consolidate the
fragmented market and provide ample
opportunities to continue its profitable
growth.
Middleby: Up 100X (1999-2014) to $5.7bn
Bassoul in 2004:
“My biggest
marketing
problem is our
products last
forever”.
EV/EBIT 10.1x
Earnings Yield 7%
(FY13e)
Div 4%
Net Cash
When Selim Bassoul took over Middleby as COO in mid-1999 and as CEO
in Jan 2001, revenue were $132m, which shrank to $100m by the start
of the 2001-03 recession. “We had very limited resources and capital,
we were running out of cash, and we were highly reliant on three
customers that generated more than 60% of our sales. We lacked
innovation, and the products we were generating or creating were very
‘me-too’ kitchen products across a very broad range, including mixers,
refrigerators and ovens. Roughly 30% of the orders were not shipped on
time. You could say we had a case study of a lousy company.”
Middleby’s secret recipe in fueling growth in its kitchen gear even in
recessions by creating and sustaining exceptional value for its
customers: Love the customers, even the smallest ones. “At one time,
McDonald’s was the small customer. This may sound basic but is not
done by all our competitors.”
“Whether you are a hypermarket or big bakery chain or a
small independent artisan bakery shop, you can find the
best equipment that you need at X. We are dedicated to
making the best bakery machines since our establishment
in 1983. We want to let more people eat the bread made
from our bakery equipment. We want to represent Asia to
become a global brand champion.”

Bamboo nnovator
30
Example #4: Velcro Up For Defensive Growth
Global #1 in Velcro fastener and “spec-in” partner to all top 20 sports shoe brands
Dedication to innovation in creating and scaling up new applications
Why is X
Proven Unique Business Model to
Consolidate Fragmented Market
X has emerged from the financial crisis
much stronger than before after investing
in building up its Pan-Asia production
network and creating new product
innovations, improving its margins and
consolidating the fragmented industry
further with its comprehensive array of
patents in materials and manufacturing
technology and 30 years of manufacturing
and R&D experience under its belt.
Globally, niche global champions with
unique scalable business models, recurring
revenue and cashflow from a quality
clientele base and defensive growth
features enjoy a structural re-rating in their
valuation.
Valuable Patent Portfolio and
Potential Takeover Target by
Nike/Adidas/Pou Chen
X’s portfolio of over 110 patents and its
deep know-how and experience over the
past 30 years in manufacturing and R&D
will prove valuable to the giants Nike/
Adidas and Pou Chen who might wish to
acquire niche global champions to
vertically integrate their business model
and this intangible asset is not factored
into the long-term valuation.
ODM with R&D capabilities
and “spec-in” long-term
partnerships with all the top
20 athletic sports shoe
companies to develop new
materials/designs and
provide patented solutions
Broad product offering
protected by over 110
patents and continuous
product innovations to break
out of price competition
Global #1
Market Share
>10%
Stable Margins,
Strong Cashflow
and Div Yield
Pan-Asia production network
(Taiwan, China, Viet, Isia)
with plants near brand clients
to provide rapid delivery and
quality customer service
EV/EBIT 10.6x
EV/EBITDA 7.1x
Div 3.9%
CEO : “Winning in a price
war is a transient race;
continuous innovation in
product quality is like a
marathon and the
sustainable way to win.”
X
X: Growing together with its major
customers Nike and Adidas
BUY Nike or Adidas or UnderArmor/
Lululemon/ Skechers?
X supplies to all the top established
and emerging brands

Bamboo nnovator
Proven Unique Flexible Manufacturing to
Dominate Color Lens
X’s flexible manufacturing system and know-how
enabled it to produce color lens and
complex orders in large scale. X has the
potential to consolidate and dominate color
lens, a product that the Big Four giants are
unable to manufacture large-scale..
The color lens penetration rate in Japan is
only 15-18%, below Taiwan’s and Korea’s 25-
30%, China’s 30-35%. This should provide solid
foundation for X to grow .
Expiry of patents in silicon hydrogel lens
in 2014/15 (US/Worldwide)
With the impending expiry of patents in
silicon hydrogel lens which make up 70% in US,
40% in Europe and below 20% in Asia, X will be
able to better exploit the opportunity to
penetrate deeper into this lucrative market
segment to drive ASP/margin improvement. X
has already shipped its first silicon lens to Italy
in 2013 and 2 of its Japanese clients have
applied for a 2015 launch.
Bausch&Lomb, Essilor, Hoya
X has been regarded as a “thorn in the flesh”
by the Big Four giants for its role in feeding the
hundreds of mid-tier brands competing with
them, particularly in color lens. X’s terminal
value and downside risk will be protected by
giants who wish to swallow it up to possess its
valuable flexible manufacturing system and
know-how to fill their own missing competency
gaps. Non Big Four giants such as Essilor and
Hoya will also be keen to acquire X.
31
Example #5: World’s #1 ODM in Soft Lens (Global #5) and Hidden
Champion in Color Lens That Giants Can’t Do Well
Why is X underappreciated still?
Potential Takeover Target by Valeant-
ODM = Original Design Manufacturing
Q: Why can’t the giants (J&J, CibaVision, Cooper, Bausch & Lomb)
mass-manufacture color lens but X is able to?
Unique flexible production know-how in color lens
and large-scale complex order that giants don’t have
ROE 41% (Why?)
(1) ROE (2) EV/EBIT (2)/(1)
X 41.1% 20.6x 0.50
Largan 31.5% 23.2 0.74
Ginko 17.9% 32.9 1.84
Interojo 16.3% 22.0 1.35
Essilor 14.7% 19.2 1.31
Carl Zeiss M 12.7% 13.6 1.07
Cooper 12.2% 19.8 1.62
Hoya 10.8% 12.7 1.18
Seed 5.5% 17.0 3.06
(2)/(1): Lower = Cheaper
Among optical-related peers, X has the highest ROE at
41%. While its valuation is not cheap with EV/EBIT (FY13)
at 20.6x, when we compare EV/EBIT relative to ROE, X is
the cheapest, by as much as 130-220% when compared to
giants Cooper, Hoya, Essilor.
Comparing EV/EBIT to ROE also makes good common
sense since it is rare for wide-moat companies to sustain
high ROEs and they deserve a valuation premium, while
low EV/EBIT stocks ain’t cheap when their ROEs are even
lower and value traps can be avoided.
Sticky ODM
customer
relationship
Own brand is
#2 in with
30%
domestic
market share

Bamboo nnovator
32
X: Unique Leader In Anti-Malaria & Chronic Pain + Staying Power in Cost Efficiency
= The Next Dr Reddy’s/Lupin (Market Value $1.5 Billion to $6 Billion)?
Why is X
Governance
The pharmaceutical industry is
complex and drug firms typically took
advantage of informational asymmetry
by engaging in aggressive accounting
practices such as capitalizing R&D as
intangibles or booking goodwill in
M&As without proper impairment test
to boost earnings.
Rare are firms with conservative
accounting practices such as X and
they deserve a valuation premium.
Supply Constraints in US Business
X’s Indore (SEZ) plant, built for US
formulation exports, received US FDA
approval on 20 Jun 2012 but X
volunteered to report quality issues in
Nov 2012, resulting in re-inspection in
Apr 2013 and approval in Sep 2013. X
management estimates that the Indore
facility will contribute revenue of INR
4.5bn ($73m) per year (16% of FY13
revenue) at full capacity. This approval
will resolve earlier uncertainty and
pave the way for scaling up the
important US business. X’s export
formulations to US to potentially triple
to $100 million by FY15, a decent size
to trigger the next wave of sharp re-rating
upwards, as had been observed
when Sun Pharma, Lupin, Dr Reddy’s
scaled up their US business and getting
huge jumps in valuation multiples.
Step 1: Accounting Conservatism
to Limit Downside Risk
Goodwill, Intangibles, Long-Term
Asset as % of Total Asset
Torrent
Cipla
GSK
Lupin
Dr Reddy's
Cadila
We used accounting conservatism rather
than a misleading “cheap” PE ratio or
EV/EBIT to limit downside risk in valuation.
We measure “Goodwill + Intangibles + Long-
Term Asset as % of Total Asset”; the lower
the number, the more conservative the
accounting figures.
Glenmark has continued to capitalize a
significant part of R&D costs resulting in high
intangible assets on the balance sheet.
X, Torrent and Cipla stood out; X is the
only Indian drug firm which expenses, and
does not capitalize, all R&D.
EV/EBIT 17.3x
EV/EBITDA 15x
30%
25%
20%
15%
10%
5%
0%
IPCA
Sun
Glenmark
Step 2: Staying Power in Cost
Efficiency & Stability in Earnings
Step 3: Unique Business Model
for Long-Term Upside
145.5
DMFs/ ANDAs filed
95.3
78.4
64.8
44.1
36.5 35.8
160
140
120
100
80
60
40
20
0
IPCA
Dr Reddy's
Lupin
Cadila
Glenmark
Sun
Torrent
Cost efficiency provides the ability to stay
competitive, have better control in the case
of uncertain events like drug price controls
and have stronger cashflow/balance sheet to
strengthen the ability to carry out long-term
R&D in higher value-added activities and
seize inorganic growth opportunities.
DMF/ANDA* is a measure to assess the
extent of fully-integrated capabilities of a
manufacturer, whether the launch of drug
formulation is backed by its own API for cost
efficiency.
X, Dr Reddy’s and Lupin have the highest %
of ANDAs backed by their own DMF filings. X
also has 9 patent rights issued by the US
Patent Office for its novel process of
manufacturing of API, one of the few Indian
drug firms with patents for its manufacturing
process.
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
Institutional business revenue
INR million
FY10 FY11 FY12 FY13
X has dominant market share in anti-malarial
drug in India (~49% market share).
ACT is the most common anti-malarial drug
treatment and the AL drug accounts for 70%
of ACT market.
X has grown the institutional malaria
business from zero 5 years ago to INR 4bn
($65m), a feat made possible due to its fully-integrated
capabilities. X is prequalified by
WHO for six anti-malarial drugs. Of the five
approved WHO players in AL drug segment,
X is the only fully-integrated player, giving it
>30% EBITDA margin, better pricing power
compared to the competition, and significant
advantage over other players in ramping up
the business from the current 30% market
share (vs Novartis 50%). X is also the only
Indian player with substantial sales from
Africa.
X management believes the institutional
business can grow from guided sales of INR
4.6bn ($74m) in FY14 to INR 8bn ($129m)
(28-30% of FY13 sales) over the next three to
four years (FY17-18).
* DMF (Drug Master File) is submitted to US FDA containing
complete information on API (active pharmaceutical
ingredient) or drug formulation. ANDA (Abbreviated New
Drug Application) is an application to US FDA for US generic
drug approval.

Bamboo nnovator
33
Tencent (700 HK, MV $150bn): Biggest Error of Omission!
Market Value Compounded from $900M in 2004 to $150B in 2014
(1) Mental Model: Bamboo Innovator (2) The Idea: Taiwan Microlife (4103 TT) (3) Biggest Mistake
(4) Book Recommendation

Bamboo nnovator
34
Tencent (700 HK, MV $150bn): Biggest Error of Omission!
Just Another Copycat? Tencent Monetized IM When Western Giants Failed;
“Emptiness” in Know-How and Trust from Community
Tencent’s Pony Ma ripped off Instant Messaging (IM) service, QQ, off
Israel’s ICQ in 2000 as a free online download.
After burning US$1.1m, the two investors that Ma found were
anxious to sell their shares. The company was shopped around for
nearly any price to China’s largest portals, but no one wanted to waste
money on a company doing IM. If the mighty AOL couldn’t make money
off IM, who could?
Lucky break? China Mobile decided to share a portion of revenue to
third-party companies who could boost the number of people buying
data plans. Pony Ma offered IM chat messaging at RMB 6c per month
per user. Viola! Tencent started to push anything that a mobile user
would pay: ringtones, wall paper, horoscopes. Pennies over mobile
phones earned Tencent US$6m sales and US$1.2m profits in 2001.
Tipping point came when Tencent offered virtual goods – avatars,
outfits, pets, and emperor-kids spend pennies and hours collecting.
Naspers paid US$30m to buyout 50% of Tencent in 2005 before its
listing and now its 35% stake in Tencent is worth >US$50B.
Tencent monetized IM when western giants failed and built chat not
as a productivity tool but to be a community for bored kids to hang out.
(1) Mental Model: Bamboo Innovator (2) The Idea: Taiwan Microlife (4103 TT) (3) Biggest Mistake
(4) Book Recommendation

Bamboo nnovator
35
“宁可不识字，
不可不识人.”
Assessment of Management Quality
Linguistic/Textual Analysis and More…
“I would rather not be able
to read words than not be
able to read people.”
- Zeng Guofan, Qing statesman, in “Icy
Discernment”, a book ranked alongside
“Three Kingdoms”, “Sun Tzu: Art of War”
and “Water Margins”.
“以冰为镜，能查秋毫。”
“邪正看眼鼻，真假看
嘴唇；功名看气概，富
贵看精神；主意看指爪
，风波看脚筋；若要看
条理，全在语言中。”
梁启超：“五千年历史立德立言立功者只有
两个人：范仲淹，曾国藩。五千年历史中事
业有继衣钵得传者只有一个人：曾国藩。”
Buffett: “Rittenhouse is still
on the side of the angels.”

Bamboo nnovator
36
Two Little Stories from Decade-Plus Journey
Resilient
Compounders
Bamboo Innovators
bend, not break, even
in the most terrifying
storm that snap the
mighty resisting oak
tree. It survives,
therefore it conquers.
(2) Detecting
Accounting
Frauds
Ahead of the
Curve
(3) Tipping
Point
Analysis
(1)
“Emptiness”
in Business
Model &
Wide Moat
Analysis
Inner
Compass:
Bamboo
Innovator,
Values, Self-
Awareness
(4) Icy
Discernment
(冰鉴) of
Management
Quality
(1) Temasek invest S$500 million in
services company with largest
domestic market share in May
2007, followed by another S$30
million in Feb 2008. Darling
stock, cannot go wrong?
[Detecting Accounting Frauds
Ahead of the Curve]
(2) The small-built Chinese
entrepreneur. Can anyone name
an “old” S-Chip that is untainted?
[Icy Discernment]

Bamboo nnovator
Up Close & Personal With ABC Learning’s “Fast Eddy”
Fast Eddy: Education is a real sexy business in Australia and globally. Our govt supports education and especially us. There are also many cheap and good M&A
targets lined up everywhere. Many of these centres are not well-run and the owners are not financially-savvy. But if they become part of our magic ABC brand
and unique business system, they will be much more profitable. Also, after designing/ developing and refurbishing the centres (inc the acquired old haggard ones),
they will be bright and sparkling, and parents will queue up for ABC – where else can they go? We have one-quarter of the market and that number can only go up
and up., with or without your help, but together we can go faster and stronger.
Billions of dollars from
bankers and investors go to
paying “developers” (largely
related-party) for
questionable contracts in
designing/ developing and
refurbishing the centres, and
to fund M&As
Developers pay back quietly
the funds to ABC and the
RMCs to boost their revenue
and profits and help them to
achieve their “budgeted”
numbers
37
M&As,
via 123
R M C
Lease
cost
Parents Govt
Questionable property owners,
“special purpose vehicles” and trust
fund eg AET
Developers eg
123, QMC
Bankers and investors buy the story and
lend/ invest billions of dollars in ABC via
massive loans (many with market-based
covenant terms) and new shares. ABC raised
AUD 3.5b over 3.5 years
After “some time” when payments run into
problems, the panicky bankers and investors
cry: Where is our money?? ABC runs into
cashflow problems in its periodic payments,
and its going-concern status is threatened
Regional Management Companies (RMC) are
“independent” entities employed by ABC to
run the child care centres, inc collecting the
fees from parents and government, and
paying off the wages and other costs. RMC
then pays back ABC license fees which ABC
books as revenue.
Parents are not enrolling their kids in ABC
due to poor service as costs are cut
Wages & other costs.
Eddy says “Cut, cut, cut
– we need to show
them we make money
fast”
Day care fees is AUD 62 a day. Childcare
rebate on family’s put-of-pocket expenses is
50% up to AUD 7,500 a year which will be
paid quarterly in arrears
2
6
7
8
Bankers,
Investors
9
5
3
4
1
Until FY07, ABC submitted accounts that
were net of RMC expenses. Things became
shaky for Eddy after reporting standards
changed and ABC reports gross revenue and
breaks out the costs incurred by RMCs –
Eddy sweats, a bit

Bamboo nnovator
38
“Resilience: Why Things Bounce Back” by Andrew Zolli
“This model posits moderate disruptions as a necessary, if painful mechanism by which systems are
tempered, adapt, learn and reorganize. A resilient system isn’t one in which failures never occur; it’s one
in which disruptions engender a healthy response— one which enables a system to “bounce forward” as
much as bounce back. It is further assumed that there are epistemic constraints – limits to what we can
know and prepare for in advance – and that surprises are inevitable, and that we’ll make mistakes.”

Bamboo nnovator
39
All Books by Robert Greene
“The fools in life want things fast and easy – money, success, attention. Boredom is their great enemy
and fear. Whatever they manage to get slips through their hands as fast as it comes in. You, on the
other hand, want to outlast your rivals. You are building the foundation for something that can
continue to expand. To make this happen, you will have to serve an apprenticeship. You must learn
early on to endure the hours of practice and drudgery, knowing that in the end all of that time will
translate into a higher pleasure – mastery of a craft and of yourself. Your goal is to reach the ultimate
skill level – an intuitive feel for what must come next.”

Bamboo nnovator
40
Appendix

Bamboo nnovator
Microlife: Boring Global #1/#2 in Patient Monitoring Device
(Digital Thermometer/Blood Pressure Monitor)
ROE 21% with a unique solution-services business model protected by innovative worldwide patents
Durable Franchise Value in Boring and
Resilient Patient Monitoring Device –
and a Quiet, Powerful Cost Consolidator
Microlife’s manufacturing technology
platform has enabled it to build a global
durable franchise in the niche patient
monitoring device market that has stable
resilient growth and yet is experiencing
potential disruptions led by Microlife’s new
innovation in blood pressure monitoring
protected by worldwide patents. Microlife has
the potential to consolidate the market further.
Technology in Afib and MAM blood
pressure measurement
Microlife’s worldwide patents in algorithm-technology
in blood pressure measurement has
been commercialized into the WatchBP product
series that is at the heart of its total solution
service business model. This valuable intangible
asset is not factored into long-term valuation.
Potential Takeover Target by Omron, J&J
Microlife’s long-term terminal value and
downside risk will be protected by giants such
as Omron, J&J (LifeScan), Bayer, Abbott etc who
wish to swallow it up to possess its valuable
manufacturing technology platform and
worldwide patents.
41
Why is Microlife
(LifeScan), Bayer, Abbott
(Digital Thermometer)
50%
Technology in Afib and MAM
The innovative WatchBP with the Afib
detection and MAM technology are not
merely additional features; it “forces”
the clinical community to adopt them as
the standard, which in turn helps drive
home-use penetration. It transforms the
BPM product into a unique strategy.
Worldwide Patents
in Afib and MAM
Total Solution Service
Business Model
Incorporates software
development to create
value-added services for
health monitoring and
collaborating with hospitals
and governments on tele-healthcare
Microlife’s ROE 21% (Why?)
projects.
(Digital Blood Pressure
Monitor)
17-18%
Quiet, Powerful Cost Consolidator
Reliable manufacturing platform for
over 30 years with in-house capabilities
to combine Swiss design, high-precision
electronics with clinical healthcare to
produce world-class products with cost
competitiveness.
Sticky ODM Partner to
Reputable Customers
Diversified customer base to
customers such as Wal-
Mart, Costco, CVS,
Walgreen’s; none accounts
for >10% of sales.
US #1 Market Share
(Electric Flexible
Heating Blankets)
50%
91% of Sales in
Developed Markets
(54% US, 37% Europe)
EV/EBIT 9.7x
EV/EBITDA 8.8x
Dividend 5.6%
Net Cash 23% MV

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42
Table of Contents
Executive Summary
Price Chart, Market Statistics and Financial Summary
Part 1: The Business Model
Patient-monitoring device (PMD) industry
Microlife’s major products
Microlife: Background and tipping point
Microlife: Revenue breakdown
Microlife’s electrical flexible heating blanket business in America
Microlife: Why wide moat? The fundamental dynamics behind it s21% ROE
(1) Powerful cost consolidator; (2) Steady ODM partner; (3) Total solution-service
(4) WatchBP as the potential disruptive technology
Corporate developments and future roadmap
Microlife Might Strike Potential Partnerships in Unconventional Channels
Part 2: The Context: Why Now?
Part 3: The Management
Conversation with founder and chairman KY Lin
Part 4: Valuation & Potential Risks
Appendix
“Alarm fatigue” from inaccurate blood pressure measurements
Atrial fibrillation and stroke prevention
WatchBP formally recommended by leading healthcare authority NICE
Microlife’s other products
Snapshot of Omron’s Healthcare Business
Taiwan Bamboo Innovators 79
3-4
5-6
7-18
19-21
22-34
35-37
38-44
“There’s big knowledge even in this
seeming simple and boring digital
and infrared thermometer products…
As these techniques involve
specialized knowledge and industry
secrets, they are protected by
patents. Microlife is one of the rare
few in the whole world to have the
capability to produce models with
read time of 1 to 60 seconds. This is
something that the rest of our rivals
can never match… For infrared…It
involves high-precision parts and
complicated configuration and
calculations before reaching an
accurate standard. Thus, the barrier
to entry is not low.”

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43
Executive Summary
Microlife (GTSM: 4103 TT) is the world’s largest manufacturer of digital thermometer with 50% global market share (20% under its own brand
Microlife), the world’s #2 maker of blood pressure monitors with 17-18% market share (60% under its own brand Microlife) and the largest maker of
electric flexible heating blankets in US with 50% market share. Founded in 1981, Microlife was listed on the GTSM (GreTai Securities Market) on Mar
2001 and it has 2,400 employees. Key rivals include Japan’s Omron (6645 JP, MV $9.6bn), Germany’s medium-sized family-owned Beurer GmbH.
1) What Makes It a Wide-Moat Business?
Quiet, Powerful Cost Consolidator: It’s not easy to manufacture quality digital thermometers and blood pressure monitors with cost
competitiveness. There’s big knowledge even in these boring and seemingly simple patient monitoring devices. Microlife’s reliable manufacturing
technology platform for over 30 years has enabled it to build a global durable franchise in the niche patient monitoring device market that has stable
resilient growth and yet is experiencing potential disruptions led by Microlife’s new innovation. A secret to Microlife’s success is its in-house
capabilities to combine Swiss design, high-precision electronics and sensors components with clinical healthcare to produce world-class products with
cost competitiveness. Microlife has competitive technology and patents especially its core competence of having an algorithm to allow fast
reading/filtering of signals and outputting the accurate results in a short period of time. Microlife has the potential to consolidate the market further.
Sticky ODM Partner to Reputable Customers, Yet Is Able to Build Its Own Brand, Demonstrating Bargaining Power: Microlife has a diversified
customer base as the ODM partner to reputable companies including Wal-Mart, Costco, CVS and none of the customers account for more than 10%
of Microlife’s sales. Microlife has demonstrated that it has bargaining power over its powerful customers with the ability to build its own brand since
1998 (44% of sales in DT/BPM, 62% of overall sales).
Worldwide Patents in Algorithm-Technology in Afib and MAM to Support the Total Solution Service Business Model: Microlife’s worldwide patents
in algorithm-technology in blood pressure measurement has been commercialized into the WatchBP product series that is at the heart of its total
solution service business model. This valuable intangible asset is not factored into long-term valuation. The innovative WatchBP with the Afib
detection and MAM technology are not merely additional features; it “forces” the clinical community to adopt them as the standard, which in turn
helps drive home-use penetration. It transforms the BPM product into a unique strategy that incorporates software development to create value-added
services for health monitoring and collaborating with hospitals and governments on tele-healthcare projects.
2) Genesis of the Idea – and Why It’s Featured This Month
Long-term correlation with Omron: Microlife share price performance was closely correlated to Omron over the long-term until Abenomics in 4Q13
resulted in Omron to outperform Microlife by over 50% despite Microlife gaining stronger growth momentum in its patented WatchBP Afib
technology. The New Taiwan Dollar did not appreciate much against the Japanese Yen, with the range between TWDJPY 3.3-3.4 since Abenomics.
Seasonality kicker: Microlife’s sales is traditionally the strongest during 3Q. The peak season for digital thermometers and blood pressure monitors
is July-Oct and Aug-Oct for electric flexible heating technology blankets.
Recent correction: Microlife is down nearly 20% from its recent high in end March 2014 on profit-taking by short-term investors. Share price is back
to May 2013 level, representing an attractive opportunity to take position in this long-term durable franchise which has wide-moat from its
manufacturing technology platform and know-how developed for over 30 years and is now seeking to disrupt the industry with its new algorithm-based
innovation in blood pressure measurement that’s protected by worldwide patents.

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44
Executive Summary
3) Why Is It Undervalued? Why Can It Double Over 4-5 Years?
Microlife Vs Omron: In terms of EV/EBIT, Microlife is trading at 9.7x which is about 28% lower than Omron which is more diversified in industrial
automation and electronic components. Omron’s lucrative healthcare business contributes around 11.5% to group sales and operating income. Both
Microlife and Omron are attractive in their valuations given their resilient business model and growth profile. Microlife, however, has a far superior
ROE at 20.9% that is nearly double that of Omron at 10.7%. When we compare EV/EBIT relative to ROE and ROA, Microlife is cheaper by as much as
120-150% when compared to Omron.
Short-term downside protection with 5.6% dividend yield and healthy net-cash balance sheet to provide fillip to share reduction program: Microlife
has an attractive dividend yield at 5.6% and a strong balance sheet with net cash as percentage of book equity at 47%. Note that net cash in FY13 has
grown from $47M to $65M in 1Q14. Microlife has undertaken the unusual capital management program to retire 12.2m shares (10% of its shares
outstanding) in Sep 2012 to boost capital efficiency by utilizing the comfortable net cash position. Share price has since spiked up over 25%. The
proactive shareholder-friendly stance backed by its strong net cash position should limit any downside in share price.
Long-term downside protection in terminal value as takeover target: Microlife’s long-term terminal value and downside risk will be protected by
giants such as Omron, J&J (LifeScan), Bayer, Abbott etc who wish to swallow it up to possess its valuable manufacturing technology platform and
worldwide patents in algorithm-technology in Afib and MAM blood pressure measurement.
4) Summary Investment Thesis
The stable long-term shareholdings and patient capital by the founder KY Lin and the management team who together own around 48% of the
equity has enabled Microlife to adopt a very long-term approach to building its business and cultivating new growth areas. While KY may sometimes
be slightly over-optimistic and thinking too far ahead with his long-term opinions, this idealistic engineer-visionary-philosopher has done a fantastic
job in continuously defying the odds of many skeptics by growing Microlife from a small startup into one of the world’s leading patient monitoring
equipment company. KY is the rare Asian entrepreneur who was persistent in building his own brand despite the threat of offending his ODM
customers. KY was also early in cultivating and coordinating a global network with high-tech component, R&D and manufacturing in Taiwan,
manufacturing, assembly and packaging in Shenzhen, China and medical R&D and clinical testing and accreditation lab center in Europe, including
making the difficult decision to establish a direct marketing sales force in Europe and North America given the high cost. Unlike most Asian business
owners whose interest and focus in the core business starts to wane due to complacency from growing personal wealth and the inability to scale the
core business, KY is genuinely passionate in the company’s ability to add value to the patients and society. The idea of the innovative WatchBP
actually came from an in-depth conversation between European hypertension specialist Professor George Stergiou and KY. Microlife can effectively
run without KY with the long-term corporate culture and management system in place, yet KY can inject great value as the steward in new
innovations; we believe that this combination is rare for an Asian company and deserves a valuation premium.
Patient monitoring device (PMD) will be a niche resilient growth segment with the rise in aging population and chronic malady. Patients are
increasingly aware of the need to manage their own health and home-use of BPM will be a long-term growth trend. Nearly half of hypertensive
patients are inaccurately diagnosed and accurate blood pressure measurement is increasingly difficult due to the complexities of modern diseases.
Standard BPM are increasingly not effective. Microlife’s unique WatchBP has the potential to disrupt the market with the adoption led by the clinical
community and possibility to spread to home-use as patients seek a consistent and integrated healthcare experience.

Bamboo nnovator
45
Microlife 10-Year Price Chart
Microlife breaks into
Wal-Mart
Tipping Point:
WatchBP soft-launched
in
Switzerland and
Europe
Sep: Reduce share capital by
10% to boost capital efficiency
Oct: New MAM series in blood
Anti-dumping saga in US against
Chinese imports. Sales of Microlife’s
Made-in-China Biddeford was affected
and Microlife shifted its production
facilities to Philippines.
Sales from Microlife
brand exceeded
OEM/ODM business
Microlife is listed in GTSM (GreTai Securities Market) on Mar 29, 2001.
Source: http://investing.businessweek.com/research/stocks/charts/charts.asp?ticker=4103:TT
pressure monitors
WatchBP to be used in
hospitals; 10th
consecutive A award
for Most Transparent,
Best Disclosure listed
company; Frost &
Sullivan award.
WatchBP sales growth
accelerated from
50,000 in 2011,
100,000 in 2012 to
250,000 in 2013.

Bamboo nnovator
46
Market Statistics and Financial Summary:
PE 13x, EV/EBIT 9.7x, EV/EBITDA 8.8x, Dividend Yield 5.6%
Financial Summary
YE Dec, TWD mil 2010 2011 2012 2013 US$M
Sales 5,622.9 5,124.4 5,367.8 5,896.7 196.7
GP 2,067.8 1,794.9 2,005.9 2,201.5 73.4
EBIT 582.3 464.1 676.0 705.9 23.5
EBITDA 636.4 507.5 721.5 778.0 26.0
Net Income 430.2 468.8 557.2 633.6 21.1
CFO (Op Cashflow) 230.1 321.0 769.0 677.0 22.6
Capex -92.9 -74.3 -41.0 -60.6 -2.0
Profitability
GP Margin 36.8% 35.0% 37.4% 37.3%
EBIT Margin 10.4% 9.1% 12.6% 12.0%
EBITDA Margin 11.3% 9.9% 13.4% 13.2%
Net Margin 7.7% 9.1% 10.4% 10.7%
GP/TA 46.4% 41.0% 44.4% 42.2%
ROA 9.6% 10.7% 12.3% 12.1%
CFO/Total Asset 5.2% 7.3% 17.0% 13.0%
ROE 16.3% 16.9% 19.9% 20.9%
Market Stats
Date: Jun 24, 2014
Share Price: TWD 74.2
Market Cap: US$272m
Shares Outstanding: 110m
FX Rate: USDTWD 30.0
Daily Liquidity: $0.3m
52 Week: TWD 73.4-91.9
Valuation Summary
P/E (FY13): 13.1x
P/Book (FY13): 2.73x
P/Sales (FY13): 1.40x
P/CFO (FY13): 12.2x
EV/EBIT (FY13): 9.7x
EV/EBITDA (FY13): 8.8x
ROA (FY13): 12.1%
ROE (FY13): 20.9%
Div Yield: 5.66%
Cash vs Accruals 2010 2011 2012 2013
Capex% Sales -1.7% -1.4% -0.8% -1.0%
AR Day 77 100 99 112
Inventory Day 48 55 49 59
AP Day 74 68 62 80
CCC 51 87 86 91
Leverage
Mkt Value (TWD mil) 7,211 6,111 6,490 8,943
Shares Outstanding 122.2 122.2 110.0 110.0
Net Debt -1,424 -1,268 -1,371 -1,405
Debt/Book Equity -53.9% -45.8% -49.0% -46.3%
R.E.S.-ilence Factors in Value Creation
R = “Rootedness” in innovative culture?
E = “Emptiness” in business model durability & scalability?
(1) Indestructible intangibles in know-how and trust and support from community?
(2) Core-periphery business model via technology and empowerment?
(3) Open innovation business model?
S = “Sheath” leadership/ management quality?
Ownership
Management & family 46.9%
Foreign investors 14.4%
(Franklin Resource 11.1%)
Domestic funds & fin 12.5%
Risk Factors
Industry dynamics
Business transparency
Accounting quality
Corporate governance
Catalysts/ Tipping point
Valuations
Liquidity
 Microlife’s ROE has been steadily increasing
from 16.3% to 20.9% due partly to better
profit margin contribution from its
innovative WatchBP products and rising net
cash position.
 Microlife has undertaken the unusual capital
management program to retire 12.2m
shares (10% of its shares outstanding) in Sep
2012 to boost capital efficiency by utilizing
the comfortable net cash position. Share
price has since spiked up over 25%. The
proactive shareholder-friendly stance
backed by its strong net cash position should
limit any downside in share price.
 Note that net cash in FY13 has grown from
$47M to $65M in 1Q14
 1Q04 sales +4.6% but OP -1.2% with GP
margin maintained at 37.7-37.9%, mainly
due to a 8.6% increase in selling and
marketing expenses. During 1Q14, Microlife
forex gain has fallen to $0.5m from $16m in
FY13. It also suffered a hedging loss of
$0.9m as opposed to a gain of $0.3m in
FY13. Overall, other income has dropped
from $2m profit in FY13 to -$0.2m in 1Q14
http://emops.twse.com.tw/server-java/t16sn02_e1?TYPEK=otc&step=current&co_id=4103

Bamboo nnovator
47
Part 1: The Business Model

Bamboo nnovator
The global patient monitoring device (PMD) market is expected to grow
from nearly $14.7 billion in 2013 to reach nearly $21.0 billion in 2018, a
compound annual growth rate (CAGR) of 7.4% for the period of 2013 to 2018.
Factors behind the resilient growth of PMD: A decrease in the physical size
of monitoring devices; enhanced utility, performance and sensitivity; usability
and portability of devices; and increasing availability of remote/ wireless
patient monitoring equipment and systems are factors leading to the growth
of PMD. Other contributing factors include growth of aging population and
that chronic malady has replaced infectious disease as the most common
ailment faced by the populous.
Digital thermometers: 55m digital thermometers are sold, of which 7m are
infrared. The continued threat of SARS/MERS, malaria and dengue fever
makes the boring and seemingly simple digital thermometers a critical must-have
product in a stable-yet-growing market. Environmental initiatives such as
the decision of the US Environmental Protection Agency (EPA) and the
American Hospital Association (AHA) to phase out the use of mercury
diagnostic equipment by 2005 have resulted in a growing demand for infrared
ear and pen-type digital thermometers. Infrared thermometers are
increasingly popular due to their quick response, accuracy, safety and easy use
as they are less invasive as compared to oral or anal procedures and are
widely used by doctors and hospitals.
Blood pressure monitors (BPM): In 2013, 45m BPM are sold (N America
16m, Europe 15m, Asia 14m). ISH estimates that the CAGR of BPM is 6.7% as
the number of people with hypertension will keep rising and home-use of
BPM will be a long-term growth trend. Accurate blood pressure
measurement is increasingly difficult due to the complexities of modern
diseases. Standard BPM are increasingly not effective.
48
Patient-Monitoring Device (PMD) Industry
Nearly half of hypertensive patients are incorrectly diagnosed!
Market for Blood Pressure Monitors
Types of PMD
Blood pressure monitors; Digital thermometer
Asthma monitoring device; Cardio monitoring device
COPD device (chronic obstructive pulmonary disease)
Blood gas analyzers; Glucose monitoring devices
Respiratory and sleep disorder monitoring devices
Fetal monitors; Neonatal monitors;
Neuromonitors; Anaesthesia monitors
“Over 70m adults are affected by hypertension or
obesity, costing the U.S. economy an estimated $170bn
in lost productivity and medical expenditures. Less than
40% of hypertensive patients are under control and
nearly 30m hypertensive patients are incorrectly
diagnosed and are either over or under medicated.”

Bamboo nnovator
49
Microlife: Major Products
OBM = Own Brand Manufacturing = 44% of sales in DT/BPM, 62% of overall sales
Sales
36.6%
Sales
24.4%
Global #2
(17% m/s)
Global #1
(50% m/s)
Sales
34.2%
US #1
(50% m/s)
OBM
20%
OBM
60%

Bamboo nnovator
Microlife’s 30-Years Journey to Become Global #1 in Digital Thermometer and #2 in Blood Pressure Monitor
1981 1985 1995 2000 2008/10
Founded by
KY Lin
Digital
thermometer;
US FDA
1998 2001 2005 2012 2013
Microlife
brand; BP
received US
FDA approval
Digital blood
pressure
monitor
began and
received CE
Mark
Infrared ear
thermometer
gets FDA; 1-
second
infrared ear
gun
ERP
system;
IPO on
GTSM
2002
Acquires
electric flexible
heating blanket
Biddeford in
US; launched
asthma
monitoring
device
Obtain
certification to
manufacture
blood pressure
monitors in
Japan, the first
non-Jap firm.
Launch of iCare
WatchBP
soft-launched
in
Switzerland
Sep: Reduce
share capital
to boost
efficiency
Oct: New
MAM series
in blood
pressure
monitors
WatchBP to be used
in hospitals; 10th
consecutive A award
for Most
Transparent, Best
Disclosure listed
company; Frost &
Sullivan award
2004
Sales from
Microlife
brand
exceeded
OEM/ODM
business
2006
Microlife
breaks
into Wal-
Mart
Microlife is the world’s largest manufacturer of digital thermometer with 50% global market share (20% under its own brand Microlife),
the world’s #2 maker of blood pressure monitors with 17-18% market share (60% under its own brand Microlife) and the largest electric
flexible heating blanket company in US with 50% market share (Microlife competes with Sunbeam which used to have 80% market share).
Founded in 1981 by KY Lin, Microlife was listed on the GTSM (GreTai Securities Market) on Mar 2001 and it has 2,400 employees. Key rivals
include Japan’s Omron (6645 JP, MV $9.6bn) whose healthcare business has FY13 sales of $810m and operating profit $68m, and
Germany’s medium-sized family-owned Beurer GmbH (FY12 sales $208m) founded in 1919.
Tipping Point in 2008/10 in launching the innovative WatchBP: The WatchBP is the world’s first blood pressure monitor that is able to
detect atrial fibrillation (Afib) based on an embedded algorithm that calculates the irregularity index depending on the intervals between
heartbeats, with the diagnosis further confirmed by performing an ECG. Hypertension with Afib is shown to be the most important risk
factors of stroke development and heart disease. Microlife owns the worldwide patent for WatchBP and Afib detection. Microlife has
managed to penetrate deeper into the institutional clients in hospitals, clinics and pharmaceutical companies such as Germany’s BI
(Boehringer Ingelheim) and Bayer, Spain’s Lacer, Japan’s DS (Daiichi Sankyo), and France’s Servier, etc., who use the devices for improving
clinical services. WatchBP was soft-launched in Switzerland in 2008 and the initial years were slow in sales with 50,000 units sold in 2011.
With continued educational push and endorsement by reputable organizations to add credibility to the product and enhance its band value,
sales have climbed to 100,000 units in 2012 and 250,000 units in 2013. Microlife’s “goal is like Intel to have ‘Powered by Microlife’ WatchBP
solutions developed in partnership with the healthcare providers and regulators.”
50
Microlife: Background and Tipping Point

Bamboo nnovator
51
Digital
Blood
Pressure
Monitor,
36.58%
Others,
4.80%
Digital
Thermome
ter, 24.43%
Electric
Flexible
Heating
Blankets,
34.19%
US, 54%
Other
Countries,
7%
Europe,
37%
Taiwan,
1%
Microlife: Revenue Breakdown
Revenue (by product segment and geography)
Sales GP Market Share OBM Share OBM
Digital Blood Pressure Monitor 36.6% 40% 17% 60% Microlife
Electric Flexible Heating Blankets and
Green Products 34.2% 40% 40% (US) >90% Biddeford
Digital Thermometer 24.4% 25-30% 50% 20% Microlife
Others 4.8%
Overall 37.3%
- Product segment: Blood pressure monitor (BPM) contributes the most to revenue and
profits at 36.6% of group sales with a GP margin of around 40% and its own brand Microlife
accounts for 60% of BPM sales. The electric flexible heating blankets business, sold mainly
in America under the brand name of Biddeford, accounts for 34% of sales with comparable
GP margin of 40% (more on this later). Digital thermometers contributes 24% of sales with
GP margin of 25-30%. With the rising sales of the innovative and higher-margin WatchBP
series of products, overall margin is expected to be maintained or rise. OBM = Own Brand
Manufacturing = 44% of sales in DT/BPM, 62% of overall sales
- Geography: 91% of sales are in developed markets – US 54%, Europe 37%. Sales to other
countries such as Asia and Middle East is 7%; Taiwan 1%. Microlife has been strong in the
developed markets where the penetration rate of home-monitoring devices are higher due
to higher health-consciousness and greater self-care. More importantly, Microlife has been
successful in penetrating as the ODM partner for top retailers in America such as Wal-Mart,
Costco, CVS, Walgreen’s etc. In Europe, Microlife sells its products both under ODM and
their own brand. In contrast, Microlife is weak in emerging markets where Omron
dominates, particularly in the vast China market in which Omron is very aggressive in
offering high rebates to their customers. In the developed markets, Microlife is comparable
to Omron: Omron’s sales in US and Europe are $127m and $177m vs Microlife’s $106m and
$73m respectively.

Bamboo nnovator
52
Microlife’s Electric Flexible Heating Blanket Business in America
The steady demand: In America, the demand for electric blankets is estimated at 3.6-4.2m units every
year; in Europe, 2m pieces; in China, 10m.
Background on how Microlife break Sunbeam’s dominance: Microlife entered the electric flexible
heating blanket market in 2002 after acquiring its bankrupt customer Biddeford Blankets for $2.5m and
invested a further $5.7m in plants and equipment. However, the business lost $7.8m in 2002 with a $1.5m
inventory write-off plus a $6.3m operation loss and another $5m loss in 2003. Microlife changed the cost
structure of the company by shifting its production base from US to China in 2004 and competed head-on
with Sunbeam whose market share plunged from 80% to 40%. Sunbeam is owned by Jarden Corp (JAH US,
MV $7.8bn). Biddeford now has the #1 brand in US with 50% market share and sales of $67m and gross
profit of $27m.
The anti-dumping saga in 2010 and the shift in manufacturing facilities to Philippines: An anti-dumping
saga on China imports in 2010 hit Biddeford. Microlife made the bold decision to relocate the
plant to Philippines, registering losses in 2010. The first year of operations in 2011 was modest. Since then,
things are back on track with two good years of performance. Biddeford has plans to grow in Europe and
China after achieving stable growth.
Why this simple small business has high barriers to entry: Biddeford is promoted as an energy saving
alternative and supplement to the heater. They are designed with users’ safety in mind and have built-in
temperature controllers that shuts off the heating coil and sensor wire automatically when a certain heat
level is achieved. The key components in temperature controllers and sensor wire are manufactured in-house
by Microlife and they are protected by patents, representing high barriers-to-entry and a wide
moat. Even if one possesses the technology and cost efficiency, it’s not easy to penetrate into the supply
chain of Wal-Mart and Costco and customer trust in the brand and safety is critical.
Seasonal risk: Note that the sales are highly seasonal and geared towards the autumn months in US
(Sep to Nov) in order for customers to receive their inventory in winter.

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