Cycling 1,400 km across Malaysia: A new fit and eco-friendly way to invest
Burton Flynn, Ivan Nechunaev, Yannik Dobler
February 2024
We showed up two hours late to a country club 100 km south of the capital, two intrepid investors with nothing but our muddy bikes and a few bags clipped on our racks. We looked like we had come straight out of a survival expedition. One hour earlier one of us was hysterically yelling: “we’re going to get eaten by that crocodile!” (fortunately it turned out to be just a large iguana). Google Maps had taken us on a path which slowly disintegrated into the depths of the Malaysian wilderness and we were totally lost. A scenario that probably no company would ever have thought its investors would end up in.
But here's the twist – we are not just chasing adventure; we are on a mission to uncover the world's 'green zones,' areas with untapped reservoirs of huge investment potential. Inspired by the three-time Guiness endurance cycling record holder Dan Buettner’s study of the world’s ‘blue zones’ which contain the largest populations of people who live beyond 100, we define ‘green zones’ as the areas that have been home to the most stocks which have at least doubled in the first 12 months of our investment.
Over the past decade, Malaysia has stood tall as the heavyweight champion of our investment portfolio. With the largest average weight and largest contribution to our return over the first 10 years of the fund, and a staggering six stocks that at least doubled in the first 12 months, it's been a land of opportunity and profits. Interestingly, four of these golden nuggets were nestled far outside of the investor hub of Kuala Lumpur. Our goal: to unearth more of these hidden gems, focusing on the unbeaten path as we cycle almost 1,400 kilometers from south to north across six states from Johor Bahru to Penang, and meet with 26 CEOs along the way.
For us, cycling wasn’t just a means of transportation, it was a window into Malaysia’s soul. Embracing the sights, sounds, and smells of the country at a speed of 20 km/hr with many stops along the way to interact with locals allowed us to get a feeling for the country and its market like no Bloomberg terminal, investor conference, or roadshow can provide. When people see foreigners traveling by bicycle, they are super eager to interact, providing a completely different experience than traveling by car.
Our bikes and cycling attire were not always up to the usual industry standards – even some security guides wouldn’t believe that we were finance guys. We certainly caused a lot of local discussions. Improvising our way through, we visited local car washes which usually alleviated our problems. As a result, people were only surprised when investors turned up on a bike in cycling gear and not in a suit and a limousine.
Our 1,380 km bike path from Singapore Changi Airport to Penang International Airport
Singapore: The wisdom of a legend to commence the journey
Touching down at Singapore Changi Airport, we embarked on an adventure filled with unexpected twists and eye-opening experiences. Assembling our bikes amidst the bustle of the airport, we were eager to hit the road and pedaled out of the airport, unaware of the intricacies of Singaporean traffic. Accidentally finding ourselves on the fast lane of a highway, surrounded by honking vehicles and bewildered shouts, we realized our first mistake: cars drive on the left-hand side here. Unfortunately, this was not the last time we would find ourselves on the wrong side of the road.
Right along our route from the airport to the southern Malaysian border was our first meeting – a rendezvous with none other than Jim Rogers, the O.G. of ‘investment biking’. This legendary investor famously rode his motorcycle through 52 countries for two years in the early 1990’s, investing in companies along the way. Upon our arrival we were welcomed into his home, a realm adorned with 72 globes, a testament to his status as a true citizen of the world, and escorted through the sunroom where the 81-year-old man was perusing the Financial Times while finishing his lunch.
The meeting provided invaluable insights into his views of the current state of the world. Despite refraining from short selling, he disclosed his strategic decision to maintain a substantial cash reserve, preparing for what he perceives as an inevitable crash looming on the horizon. With bonds and property markets teetering on the edge of a colossal bubble, Rogers emphasized the enduring prominence of the U.S. Dollar as the premier safe haven currency in times of economic turmoil. While acknowledging the theoretical potential of the Yuan as a competitor, he underscored the practical constraints that impede its ascension to a world currency. Jim, who is known by many as the world’s biggest China bull, clarified that his persistent optimism about China should not be mistaken for a bullish stock market sentiment, yet he remains convinced of China's trajectory as the next dominant economic global superpower. However, he did say that at current valuations, he thinks Chinese stocks are becoming interesting.
Meeting with Jim Rogers, the O.G. of “investment biking”
Johor Bahru: An omen for royal returns
The wisdom of an experienced investor like Jim Rogers provided us with plenty of topics to discuss on the rest of the 70 km ride to Johor Bahru, Malaysia’s southern-most city which sits adjacent to Singapore. At the border we found ourselves in the middle of several hundred motorbikes returning back to Malaysia, an immersive experience that demonstrated the variety and the power of the Malaysian labor force. Overheard snippets of conversation revealed that Johor’s own Sultan Ibrahim Iskandar took the oath as the 17th king of Malaysia on the very day of our arrival – if that isn't a great omen for royal returns!
In discussions within Malaysia's business community, optimism resonated with the announcement of the new king being in office for five years. Several CEOs emphasized the significance of stability under the new monarch's reign, signaling a halt to government changes and instilling confidence that this steadfastness will spur economic activity. In addition to emphasizing stability, this new appointment bodes especially well for the king’s home state of Johor with an array of infrastructure projects in the region now on the horizon.
As we entered the parking lot of our first meeting, the security guard seemed unphased by our mode of transportation and instructed us to park in the bike lot which was filled with dozens, if not hundreds, of bicycles. During the meeting, the CEO, who started as an intern at the firm 35 years ago and worked his way up, revealed his passion for cycling, a statement which instantly approved our sweaty bike outfits. His fascination for the sport is not only demonstrated through management’s weekly ride, but also by the fact that employees are encouraged to commute to work by bike and are provided with one in case they chose to do so – hence the large number of bikes parked out front. He sheepishly admitted that even though it is an environmentally friendly policy, his primary motivation is the physical health benefits to his employees.
We learned that the company maintains a competitive edge over its semiconductor counterparts as it faces very little competition for skilled labor unlike most of its competitors which are located in the country’s semiconductor hub Penang and have to bid higher and higher salaries each year to retain talent. Skilled workers who prefer to remain in their hometown Johor Bahru have far lower employment turnover because there are very few other options. This competitive advantage reduces migration of corporate knowledge as well as wage costs.
Bidding farewell to the CEO of $100m precision-machined components manufacturer in his bicycle parking lot
Amidst our business engagements, we stumbled upon the warmth of Malaysian hospitality during our first days in the country. At lunch at a roadside food stall for instance, a friendly stranger generously treated us without exchanging any words in advance. Shortly after, we found ourselves further immersed in the hospitality of the locals, enjoying refreshing coconut water courtesy of another new friend at his insistence. Along the streets, the reception from locals was overwhelmingly positive, many expressed curiosity about our journey, cheered us on, and extended their well wishes for our travels ahead, and some even supplied us with local fruit and snacks. These motivating encounters were the only explanation we could come up with when we passed an ultramarathoner who was diligently running the same 70 km stretch we were biking that day, a humbling encounter which made our efforts seem like a piece of cake. Inspired by this ultramarathoner, we finished off the day with a challenging 1.5 km jungle trek featuring a 400 meter vertical ascension at Gunung Lambak near the city of Kluang.
An ultramarathoner running the same 70 km stretch from Kulai to Klaung as our ride for the day
Malacca: Persistence and networking help us get meetings
When we find a company that appears to be a potential gem, it can be quite frustrating to not receive a response. After stopping at an oil palm fruit bunches company in Kluang and a plastic fabricator in Batu Pahat, we decided to simply show up at the door of an industrial precision parts producer in Muar. We were directed to a conference room and soon attended to by a mid-level manager who apologized for the lack of response to our first five emails and simply advised us to send another message to the same generic email address. We explained that we had traveled hundreds of kilometers by bicycle, and that we would appreciate the opportunity to speak with management. After it became clear that her only interest was getting rid of us, we told her we weren’t leaving until we were at least provided a phone number or email address of a real live person. Once she realized we were serious she finally capitulated and called the CEO who was actually more than happy to share his direct phone number with us to arrange a meeting. Our takeaway: effort and persistence pay off, and just because we don’t get a response doesn’t mean management is unwilling to meet. We might just have to pass a few pesky gatekeepers.
Our visit to a manufacturer of LEDs for automobiles proved to be an unforgettable experience. The CEO, who owns 10 bicycles and so just happens to be an avid bikepacker like us, told about his thrilling bike journeys through places like Pakistan, Taiwan, and Xinjiang (where a military checkpoint stood in the way of his spirit of adventure). He also loves to use cycling adventures as a way to accomplish team building – prominently displayed on a wall we passed was a giant photo of 16 of his colleagues fording a river with their bicycles during a company retreat.
After the meeting he eagerly invited us to join him for an evening bike ride through the historic city of Malacca which not only offered us a glimpse into his world beyond the boardroom, but also proved to be an informative tour guided by a CEO whose enthusiasm for his city’s historic heritage almost matched his passion for cycling. During our subsequent dinner at a local gem which features DIY music for those who want to join jam sessions, the CEO asked us about our interest in the local software industry. After we explained that we had unsuccessfully attempted to meet an interesting recent IPO, the CEO revealed that his brother was the founder. He pulled out his phone at 11pm to arrange a meeting for us the next day. Sometimes business can only get done with boots on the ground.
Meeting with the CEO of a $1b LED manufacturer who is an avid bikepacker in front of a photo taken at a company cycling retreat
Negeri Sembilan: How a successful business started from a drinking problem
Little did we know that this rescheduling would turn out to be a major stress test for our coolness. After heading out at 5am, two hours before sunrise, we faced several issues which ultimately led us into a forest which seemed far away from any civilization. As our so-called path disintegrated into a swamp we fought our way through the mud and even had to awkwardly step through a stream by foot with bicycles in hand. There appeared to be no way back nor forward, monkeys overhead seemed to be laughing at us, and iguanas started to circle us like hungry sharks. Maybe it was pure luck that we ultimately made it through, or maybe the Malaysian wildlife was simply intimidated by the hysteria of a foreign investor in a dark mental state who used cuss words in a cadence that would even shock high-frequency traders.
Fast forward a couple hours, we rushed through a beautifully developed neighborhood. It turned out that it was constructed by the very real estate developer we were about to meet, two hours late, in their country club. Covered in mud, the local cleaning staff instantly followed us on every step we took to make sure the dirt trace we left behind was only a bad memory. Although we missed our scheduled tour with investor relations, we were fortunately right on time to meet the chairman and CEO for an informative lunch discussion where we learned that their newly purchased land will accommodate the city's only high speed train station to central Kuala Lumpur.
Since we were unable to stay an extra day in Malacca for the meeting with the software company’s founder, he and the CEO graciously offered to meet us at the same country club. The story of this startup unfolded like a captivating narrative. Returning to the family business, the CEO's initial project centered on revolutionizing the cash register system. Dissatisfied with the solutions available he joined forces with the brother of our dinner date from the night before, a technology-savvy guy with a talent for coding. Gathered at a bar for their customary after-work cold beer ritual, the pair encountered a third individual, a guy earning his money in the oil industry. Entrepreneurs at the time, the two had little financial means which meant their new friend usually took care of the bill. One day, when the evening lasted longer than normal and the three of them were “very drunk”, they formed a partnership and started their business on a large scale. Together, they embarked on creating an internal solution that transcended local business needs, eventually evolving into a sought-after resource within the retail industry. What began as a boozy passion project soon burgeoned into a thriving enterprise, with brands seeking their expertise to enhance and optimize their operations.
Meeting with the founders and CEO of a $40m recent software IPO at the d'Tempat Country Club owned by a $500m listed regional real estate developer
Kuala Lumpur: Celebrating ESG and a successful first half of the trip
In the nation’s capital, Kuala Lumpur, we witnessed how an investment trip on a bicycle can serve as a door opener. The sentiment of the meeting that began with a rather unemotional management changed when they learned about our mission. After an interesting discussion about the business of the Malaysian conglomerate with interests in the environment and power sector, the CEO invited us to the company's “20 Million Safe Hours” festivities in the afternoon. An event that celebrated the continuous accident-free operations of the company. Entering a massive ball room filled with one thousand employees, we were immediately seated at the CEO's table, getting introduced to the key figures of the organization. After almost feeling like part of the team, the CEO offered us his driver to take us out of the city so we could avoid biking on the highways. We declined with gratitude, as our intention is to travel from airport to airport by bike and any non-human powered means of transportation would be cheating.
On our way north we stopped at a newly built solar farm operated by this company’s power business. During a tour of the plant we learned that 121,000 solar panels were installed on an area equivalent to almost 100 football fields. This massive project generates clean electricity for over 30,000 households. Operations only started in 2024, but the site has already cumulatively saved more than 7,000 tons of coal for which about 100,000 trees would have been cleared. With a pay back period of six years, this is not only a great investment into the company’s energy transition strategy. Fortunately, this ESG investment only marks the beginning, with plans to expand in Johor, which as we noted before, will be more attractive with the new king haling from that state.
Attending the “20 Million Safe Hours” celebration and touring the solar farm of a $300m conglomerate with interests in the environment and power sectors
It was evident that ESG efforts are clearly becoming more present in the boardrooms of Kuala Lumpur than compared to our previous visits. This was well demonstrated by our discussion with another company which told us that the proprietary 84-question ESG questionnaire we asked them to complete in 2019 had initiated and motivated their whole ESG endeavors: “Credit to Burton and Ivan, they made us think and ultimately triggered our actions back in the days.” Today we learned that the energy infrastructure company has become the number one player in the industry in terms of sustainability. We're happy to see our investment process make such a real world impact on sustainability.
Meeting with the CEO and Chief Strategy Officer of a $2b energy infrastructure company
Selangor: Testing condoms of every size
To the east of Kuala Lumpur, we came across a company that deals with a topic that is traditionally less broadly discussed in society: condom manufacturing. It was fascinating to see how different types of condoms are produced and especially how every single one of them is electronically hand tested for pinholes. On top of that, batch testing is conducted where samples are examined for water leakage, air bursting, and dimensions. We saw that their products can be blown up to reach the size of a huge one-meter balloon – so if someone ever tells you it doesn't fit, you know you can’t trust him.
We learned from the largest condom manufacturer in the world that brand is the decisive factor in selling condoms. For example, people trust the name Durex more than an Asian brand. We are sure many would be surprised to learn that Karex sells a large portion of its products in a white label business model to its competitors such as Durex, who then market the condoms as their own. So check it out next time – chances are high that you are using one fabricated in Malaysia.
Furthermore, we also learned about the company's impressive ESG efforts. During the Aids pandemic on the African and South American continents, Karex donated millions of condoms to the WHO to fight the disease. Their commitment to diversity and inclusion became apparent as we toured through their offices: gender diverse toilets are offered so that every employee feels comfortable at work. Truly remarkable for a company that operates on margins as thin as their synthetic bestsellers.
Meeting with the CEO, Chief Strategy Officer, and investor relations officer of the $200m world’s largest condom manufacturer
Perak: Filling up our water bottles after an Asian escort service
Our 200 km journey from Kuala Lumpur up north to Ipoh was not exactly a relaxed weekend ride. Increasing heat and sunshine started giving us a hard time, as the Malaysian climate is rapidly moving from the rainy season towards summer. Nevertheless we were hit by two strong thunderstorms on the way, which, in addition to one additional detour due to a broken bridge, slowed down our progress on the map (at least our bikes were reasonably clean afterwards).
As we were short on time, we had to make use of the sophisticated highway system of Malaysia. It wasn't 10 kilometers before the police stopped us to inform us that bicycles are not allowed on the highway. After we explained that we had an important meeting, they asked us for “a personal souvenir, which is certainly not meant as any form of corruption”. After we made it 'daaamn' clear that we would not give the bribe, they kindly volunteered to escort us to our next meeting.
As temperatures rise, so does our water consumption. After two early morning meetings followed by 80 km of biking, fortunately for us our next meeting was with the largest water producer in Malaysia which saw earnings grow 40% last year, partially driven by an increase in demand from people ditching sodas in favor of a healthier lifestyle. As we wandered through their factory halls, we were reminded once again of the privilege we enjoy in the western world: the simple act of drinking tapped water. After a great meeting we happily accepted the offer to refill our water bottles with the local spring water which fueled our tanks for the final 60 km stretch of the day to Penang.
Meeting the CEO of a $100m bottled water manufacturer
Penang: Revisiting our biggest winner on treasure island
After nearly 1,400 kilometers of biking and an incredible crossing of the new 24-kilometer bridge, we finally made it to Malaysia’s technology hub in Penang (or “Treasure Island” as we wrote about five years ago). On the menu for this district: several companies with a distinct focus on the design and development of systems and components for the semiconductor industry. Two companies in totally different stages of their life cycles especially stood out. With one just having IPOed last year and the other already being an established player in the industry, they both had one thing in common: meticulous cleanliness. While visiting both companies we were kindly asked to take off our shoes and continue with slippers, an impressive demonstration of their precise attention to detail and adherence to high standards in an industry where even tiny particles can cause significant issues.
Our next meeting was with an automation systems company which is no stranger to us. We first invested in the company back in 2016 when earnings had been growing over 100% partially due to increased market demand for sensor testing equipment in the mobile device and semiconductor industries which boasted higher margins, but the stock was trading at only 7x LTM earnings – talk about an inefficient market! Two years later we sold after growth started to decelerate and P/E rose to 22x. Not only did this stock double in the first 12 months, it returned 600% over the two years we owned it, our third all-time highest returning stock pick.
During our month in Malaysia in 2019 we discovered that this company’s earnings growth resumed to very healthy levels, but valuation still wasn’t cheap. However, we also learned that since the time we exited, the company created what was essentially a dual listing in Hong Kong – a company with the same underlying earnings but trading at only 9x P/E. Fast forward five years to today and the company still trades at the same multiple while its identical twin now trades even higher at nearly 35x. Several notable investors have since joined the ranks – including the legendary Mark Mobius – in hopes the value can be unlocked, perhaps through a liquidation of the Hong Kong listing. This remains one of the biggest stock market inefficiencies of which we are aware.
Meeting with the Chairman and CEO of a $600m automation systems portfolio company
For our final meeting of this investment trip, we visited a company which has been our single most successful stock pick over the past 10 years returning 1,400% in under five years. Talking about our first meeting together back in 2016 management commented that up until today, they have never faced interview questions like the ones we ask. While most investors use meetings with management to understand the business model – who their customers are, distribution channels, supply chains, working capital requirements – we focus on the critical questions which can actually help us determine the future stock price returns – competitive advantages which will enable the company to earn high returns on capital, growth drivers, how the company is misunderstood by investors, catalysts to unlock value, and current management sentiment. As we got to the part of the interview where we asked about the new CEO's story, hobbies, and normal daily routine, it turned out that he had been warned about our rather alternative approach. Having just cycled through the whole of Malaysia in search of hidden gems, this was a perfect confirmation that if you want to achieve extraordinary investment returns, you can't do the same thing as everyone else.
Meeting with the CEO and CFO of a $200m hard drive disk spacer manufacturer – our biggest winner with a 1,400% return in under five years
The last (and extra) mile
As we were slowly approaching the airport it felt like people were standing in line to cheer us on and bid us farewell as we crossed the finish line. At one of the very last pitches, an old couple was slowing down in their car and handed us 10 ringgits (two euros). Not entirely fluent in English they shouted: “Go, go, drink, drink!”. On literally the last kilometer another motorbike passed us and screamed: Great job “Supermen!”
And so, after pedaling a total of 1,380 km, our mission of biking across Malaysia from south to north to learn more about this fruitful ‘green zone’, came to a close – an epic 18 day journey, on which we biked through six Malaysian states, interviewed 26 CEOs, interacted with the police three times, encountered two flat tires, dodged a few close calls with dogs, withstood thunderstorms and extreme heat, all in pursuit of a handful of promising opportunities.
We’ve always believed it is necessary to go off the beaten path to achieve superior investment performance, but this time we pedaled the extra mile in a testament to our commitment to health, the environment, and innovation.