Huawei, a great company for value investors

I put Huawei as first Chinese company analysis in my blog, not only because I am familiar with this company, but also for my deeply respect for this company. The only problem is Huawei is not IPO in any public market, however, I believe Huawei is good bench mark company for other Chinese companies to learn. Huawei has developed very successfully since it’s been found in 1988 by Ren Zhengfei. After 29 years development, the revenue of 2016 is 520 billion RMB (around 80 billion USD), the same level of IBM. The growth is very astounding, and since all the shares of Huawei is owned by all employees, the employees who own the shares have enjoyed the fast wealth growth created by Huawei, especially the ones who worked long time in company.

I always would like to analyze a company from several aspects to see if this is a great company which you want to hold for a long time, just as what attributes you are considering for the girl who you want to marry with.

The first one is about financial health. You need to know if the company has large debt or not? is it suffer from profit loss? is there enough money to cover the debt? Is the operating earning and intrinsic value growing each year? Actually, from my analysis, Huawei is a financial heath company, it rarely lend money from outside, Huawei can generate enough cash flow by itself for its expense. I will explain this in another post based on the recent annual reports.

The second one is related to the business the company operates. Is the Company operates complex business? Is these businesses hard to understand? or within your circle of competence? Has the business operated in the top 1 or 2 in the industry? Huawei has strictly stick to the network pipe strategy from beginning, and invest 10% of revenue each year into the R&D of network related business. A detailed Huawei business post will also be shared in future.

The third one is about moat. What’s the company unique competitive advantage? Will it easily be challenged by other companies? or can it stay the advantage for long time and enjoy the large market share for in a long future. The moat of Huawei is widen every year, since there are less competitors which can afford large R&D expense to win the fast changing market now. Huawei have unique advantages in R&D capabilities, low labor cost, human resource policies, etc. The black swan is mainly the disruptive technology in CT and IT field, the competitors will not only the traditional telco vendors like Cisco, Nokia, Ericssion anymore, but also involved Internet companies, such as Google, Amazon, Alibaba, and numerous companies which eagerly to provide disruptive technology to invade Huawei market share.

The last one is about management. Does the management have clear vision for the company business development? Has the management proved success in the past year and is still stable enough to stay for the long time in future? Most importantly, is the management shareholder oriented? Huawei has 29 years history, the founder Ren Zhengfei is 72 years old, but Ren Zhengfei has created a young and strong management team which worked very well in past years. I will also analyze the management of Huawei in the future.

I believe every one has different perspectives to analyze each company, but I think for value investor, the key part is to find enough reasons to support your confidence in your investments.

1 Comment

  1. Pingback: Some thoughts on vision, business, and investment – Xueqiu Xia 雪球侠

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