Asia is home to a wealth of innovative businesses generating valuable intellectual property. This often translates to defensible economic moats and higher profitability. At Cerno Capital, we look for companies in structurally growing industries providing critical products or essential services that cannot be easily substituted. The spectrum is wide and the opportunity set is deep.
Denso: a vehicle-parts powerhouse
Japan’s Denso (Tokyo: 6902) is one of the world’s largest vehicle component suppliers. It manufactures a diverse portfolio of products, including thermal systems, powertrain systems, mobility electronics and electrification systems.
Denso’s economic moat is supported by innovation. It owns a deep portfolio of core intellectual property. Historically a powerhouse in traditional vehicle-parts, it is increasingly orientating its business towards the electric-vehicle supply chain with products such as inverters, sensors and micro-electro mechanical systems (MEMS). Its traditional business is also well positioned, given its focus on making engines more efficient. Despite the shift to electric vehicles, internal combustion engines will still be necessary, and where they are they will need to make significant fuel efficiency gains to meet tightening standards.
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Wuxi Biologics: follow the molecule
Wuxi Biologics (Hong Kong: 2269) is a leading China-based contract development and manufacturing organisation (CDMO). It is benefiting from the outsourcing trend in global healthcare research and the rise in prominence of the biotech industry (versus traditional large pharma), where China is quickly developing its own capabilities. The company conducts high-quality clinical research and drug manufacturing for its biotech and biopharma customers, helping them expedite the process of bringing their drugs to market at a lower cost.
Its unique “follow the molecule” approach helps it secure customers at the early discovery stage, enabling them to gain trust and prove credibility to later obtain manufacturing contracts at the commercial stage. A flexible manufacturing methodology is suited to the small-batch productions that are typical of novel biologic drugs. Wuxi Biologics has a global customer base, with over 60% overseas sales, while the domestic market is also growing at a rapid pace, supported by a large talent pool of science graduates.
Nanofilm Technologies: getting on top of things
Nanofilm Technologies (Singapore: MZH) is an advanced materials specialist. This company is a classic example of intellectual property creation, developed entirely in-house. It offers surface solutions that improve the functionality and aesthetics of customer products, as well as extending the lifespan, all with a lower environmental footprint.
Nanofilm is the only company to have commercialised filtered cathodic vacuum arc (FCVA) coating technology. FCVA allows coating on previously unworkable surface materials such as plastics, rubber, and ceramics, which affords it more opportunities as there is demand to supplant existing coating processes. Currently, two thirds of group revenues come from smartphones, laptops and wearables, but the company is working to carve out opportunities in other promising sectors such as automotive and bio-medical devices.
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