Monday, 24 July 2017

My first foray into International Market

After 17 years of investing, I finally venture beyond the Singapore shore. What took me so long, I also do not know. Maybe I was too comfortable with Singapore market...maybe I was too lazy to find out more about overseas market...maybe my capital was too little, hence do not see the need for further diversification. It is a pity as due to my procrastination I have missed the growth of many great companies. In any case, I can't change the past and here I am, starting my adventure.

The first company that I decided to invest in is none other than Starbucks Corporation. 

A familiar brand in a familiar industry. Starbucks is a place that I will spend some me time. In fact, some articles in this blog was written while having a cup of coffee at Starbucks. In the past year, it has also become an option for weekend breakfast. I noted the price has gone up from $6.50/$6.90 last year to $7.50 this year. Also, with its partnership with AIA on AIA Vitality Programme, I will visit Starbucks more. Even my father who does not visit Starbucks commended that the store is always filled.

A quick look at the data from Morningstar shows that from 2012 to 2016, its revenue has grown by 12.5%, net income by 19.4% and EPS by 20.5%. Excluding dividend, the share price has more than double for the same period. I am impressed by the numbers and certainly feel a sense of regret again for not venturing into the US market earlier.

Of course the next question is will Starbucks be able to repeat this performance in the next five years. After reading through various reports and their past few years' shareholder letters, I am quite confident that they will be able to pull it off. So what are some of the growth factors.

1. In 2014, the management has set a goal to grow its then revenue of 16.4B to 30B in 5 years. They achieved 21.6B revenue in 2016. So it does look like they are pretty much on track.

2. The launch of Mobile Order and Pay programme in 2015 has gained traction in 2017. I think MOP will represent more of Starbucks' revenue going forward.

3. The success of Starbucks Reserve Roastery in Seattle has prompted the company to open a few more in the next few years, notably Shanghai, New York, Tokyo and Milan. At the back of my mind, I do not think that they might make an impact on the financial but I believe these Roastery will further cement the brand.

4. The success of Teavana in US and its expansion in China/Asia Pacific.

5. The plan to double the 2500 stores in China by 2020. This is huge and if successful, they will definitely hit their goal. Things are looking good with their 2017Q2 comparable store sales up by 7%. Also, recent development such as partnership with Tencent Holdings to launch a social gifting programme known as 用心说 and the launch of critical-illness insurance coverage to the parents of its partners (employee) show how Starbucks is growing in its standing in China.

Beyond the growth factors listed above, I perceived Starbucks as an innovative company with a heart for the community. I am impressed by Starbucks chairman Howard Schultz's opening address during its 2016 AGM and hence feel proud to be a minute shareholder of Starbucks.

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