The Underdog

13 min readMay 19, 2023

Hajime no Ippo (はじめの一歩, lit. “The First Step”) is a Japanese boxing-themed manga series written and illustrated by George Morikawa.

The story is about a young high school student named Ippo Makunouchi which is extremely shy and unable to make friends due to always being busy helping his mother run their family fishing charter business. Because he kept to himself, a group of bullies led by Umezawa got into the habit of picking on him. One day, when these bullies gave him a rather serious beating, a middleweight professional boxer who was passing by stopped them and took the injured Ippo to the Kamogawa Gym, owned by retired boxer Genji Kamogawa, to treat his wounds. After Ippo awoke to the sounds of boxers training, the boxer who saved him, Mamoru Takamura, tried to cheer Ippo up by letting him vent his frustrations on a sandbag. Surprisingly, Ippo punched the sandbag so hard that everyone in shocked. It was then that they had their first glimpse into Ippo’s talent for boxing, a hidden gem emerged at Kamogawa Gym that day.

I really recommend the anime, and this is one of my favorite comic-books of all time because of some reasons:

I love 90s anime and comics even though they have bad quality animations, but the storytelling was on point.
The main narrative always tries to convey an overall message of inspiration.
And it’s a great example of a story about an Underdog.

The third reason will be the main theme in this story.

David vs Goliath

In the story of David vs Goliath, surely most of the Philistine soldiers or even the reader of the story will think Goliath is the winner. Turns out David hurls a stone from his sling and hits Goliath in the center of his forehead, Goliath falls on his face to the ground, and David cuts off his head.

This concept can be applied in stock investment.

For every beginner (I used to be as well), we will tend to buy ‘big’ companies or usually called as the ‘Blue-chips’. Some mainstream reasons of buying those companies are:

Blue-chip stocks have stable earnings.
Larger in size and leader in the sector
Wishing for their good dividends

Don’t be mistaken; I’m not trying to say that blue-chips are bad investments. Those really can provide stability in your portfolio.

The thing that I’d like to highlight is:

Why is everyone looking for Goliaths? While there’re bunch of Davids out there?

Why pick Ippos or Davids?

Let me give 2 examples of company:

BBCA: has market cap of 1100 trillion Rupiah (largest market cap in Indonesia), stable growth, and has high level of earnings compared to peers.

ADES: has a market cap of 5 trillion Rupiah, fast growth, and has fair earnings level compared to peers.

Which one will you pick?

After you think of it, what kind of value and reward do you expect from each company?

Stock investment may give 2 types of rewards:

1. Capital Gains: return which you get from selling an asset higher than what you paid before.

2. Dividends: return that you get from profit sharing by the company to their shareholders.

Let’s start with BBCA.

BBCA is the king of banks in Indonesia. With the current size, BBCA has the power to challenge other countries in the world which means there’s still some room for improvement.

Did you know BBCA is in the top 23 of the largest banking market caps in the world?

That amounted to USD 73.7 billion. While in the first place there’s JP Morgan Chase with USD 400 billion, around 5.4 times of BBCA.

Assume that BBCA has finally conquered the first place, which means market cap has jumped 5.4 times than previous. Because Market Cap indicates Stock Price times number of shares, assuming BBCA never done any right issues, the price also gains 540%!

The real question is, do you think it’s possible in a short period of time?

And if BBCA succeeds, how do they continue to grow their company in the future? Unless humans can expand their business to another planet.

Now the turn for ADES.

ADES is a growth company.

Imagine startups, which they currently expanding rapidly. This indicates:

1. Growth company has a lot of spaces to explore.

2. They spend a lot of funds to expand.

Comparing the company size and type:

If you decide to invest in BBCA, this company may give some return on capital gain. But the key is the dividend! BBCA has a solid and stable cashflow, which the level of dividend is stable compared to smaller companies. This kind of company may survive in economic crisis and crashes.

If you decide to invest in ADES, this company focuses on growing their company which requires capital expenditure that generated from cashflows. This is why growth companies seldom paid dividends. Instead, they might have a chance to scale up their companies, which add value to shareholders. The growth potential can accelerate stock price due to investors feeling that the company is a good growth prospect.

Therefore,

If you aim for dividends, you might search for stable companies.
But if you prefer multi-bagger from capital gains, smaller companies offer better chances.

Do not mix it up!

The Hidden Power

In the comic, Ippo is a pure in-fighter which possesses extraordinary muscular strength and punching power, typical anime main character.

But the interesting part is, no one realized it at first! Until Takamura saved him from bullies.

Small companies are underrated; no one really cares unless you’re Zara or Apple, at least. This is exactly where you can discover a hidden gem.

This is a story of a company which I’m currently invested in (Note: My Analysis might be biased, so better to observe on your own).

Mark Dynamics Indonesia (IDX: MARK)

Mark Dynamics Indonesia is a company in the manufacturing industry of rubber gloves (hand former) made of ceramic. This product supports the health sector. The Company was founded on 10 April 2002, and started production in 2003. At the start of production in 2003, the Company had a production capacity of 50,000 units per month.

The Company is gradually increasing its production capacity by adding its facilities in North Sumatra. Until 2021, its production capacity will increase to two million units per month. The Company’s main factory is in Medan, North Sumatra, with an area of 15,000 m2. Then, to meet the ever-increasing world market demand and build diversified products, the Company operates its new factory located on Deli Serdang, North Sumatra with an area of ±10 ha which was purchased in 2018.

Hand former acts as mold for production process of latex and nitrile type gloves. I found this company through a friend of my dad, which he mentioned that MARK is a growing company. My dad works in a glove-production company which understands the business well. I’m curious and started to learn about gloves and hand formers. That was in 2020.

After some time of investigation, I found lots of interesting insights:

Turns out MARK supplied the entire 40% of Global Hand Former demand. I never expected this.

“The Company is the largest producer of nitrile glove molds globally, with a production capacity of 16.8 million pieces per year. The Company controls the global market share of nitrile glove molds of up to 40%.”

The correlation between Hand Former and Gloves is highly positive. That’s logical because demand for hand formers depends on the rate of production of gloves companies.
Key consumers of MARK consist of respected glove companies in the industry and bunch of them even have done IPO, for example: Malaysia (Hartalega, Kossan, Smart Glove, Top Glove), China (Kingfa, Intco, Blue Sail, Zhonghong Pulin), Thailand (Sri Trang, Halyard, W.A. Rubbermate), Vietnam (Vietglove, PM Group), Indonesia (Medisafe, Shamrock, Universal), and USA (Rhino, American Nitrile).
The largest hand former producer in the World with 21 million unit annually per 2022.

MARK has long term relationship with their customers especially from Malaysia. Some factors are:

The setup cost to develop hand former production facilities requires high capital.
To produce high quality hand former, experience and good technique are required.
For glove producers, they outsource rather than producing hand former due to lack of technical knowledge.

MARK gain prospect because of rising demand from Chinese consumers since 2019.
MARK also managed to build relations with new customers from the USA, which resulted from increasing domestic demand for latex gloves in the US.

Year-on-Year Sales Breakdown Based on Consumer’s Country Origin

To be honest, I didn’t expect to see all of that at first.

How can a 5 trillion Rupiah market cap with 1 trillion Rupiah assets be able to capture 40% of world supply?

This indicates hand former industry has few players which shows a lot of potential to grow. Another insight? Hand former industry has a huge barrier to entry for new competitors.

More interesting part is the strategy. I’ll list down some:

I noticed some interesting accounting post at description of Operational Expenses:

Notice there are Entertainment and Travel costs?

Some people might think, “Oh wow, the management spends their cash on drinks and clubs. Probably right now they’re partying in Vegas or Macao as I read this article.”

But I see different things.

These costs have something to do with business culture. Remember that most of MARK’s customers are from Malaysia and China? Try to check each company directors:

Do you see a pattern?

Most of the directors are Chinese descents!

In the business world, negotiation is a strategic discussion intended to resolve an issue in a way that both parties find acceptable. Negotiations involve give and take, which means one or both parties will usually need to make some concessions.

The critical point in cross-culture negotiation is cultural differences such as language, differing values, philosophies, and perceptions remain indisputable factors. An example is American and Japanese business negotiations. The Japanese view negotiations as the creation of a relationship and the written contract is just an expression of the newly formed relationship while American businesses insist on adherence to the original contract terms which builds distrust in the Japanese.

But what about China?

According to an article by Cultural Atlas, Chinese negotiation style is relationship-oriented:

The Chinese term for negotiation, tan pan, combines two characters that mean ‘to discuss’ and ‘to judge’. From a Chinese point of view, negotiations are mechanisms for building trust and harmony so that both parties can work towards reciprocal benefit. In Chinese business culture, negotiation depends on creating long-term relationships. For example, final negotiations and deals are frequently reached outside of meetings in casual settings, such as restaurants and bars.
For many Chinese, this interpersonal style of negotiating is preferred over contract-based negotiations. They prefer to cultivate partnerships that will last as opposed to making timely and efficient negotiations. For example, they favour continuing correspondence over time and sending gifts and seasonal greeting cards to maintain relationships. As a part of this long-term approach in business relationships, they generally want to know a great deal about their partners to build the trust and loyalty needed to support business in the future. You may consider many of the details and questions asked to be unrelated to the point at hand but try to be patient and provide answers for the sake of the business relationship.

This is called as Guanxi/ 關係 or Kongsi in Hokkian dialect. Guanxi often refers to ‘networking’,

which is reflected in the Chinese saying, “nei wai you bie” (“insiders are different from outsiders”). Mutual trust is essential to guanxi. In turn, many Chinese will prioritise relationship building, particularly in a business context.

The principle of guanxi commits friends, family and, at times, business colleagues to assist one another. Guanxi plays a large role in business interactions and relations. Good Guanxi can sometimes be necessary to create opportunities that otherwise would not be accessible. Guanxi can manifest in nepotism, whereby family members or friends may be hired for jobs. In Chinese business culture, nepotism is common and is considered to guarantee employee trust and security.

And don’t forget MARK’s directors are based in Medan, one of biggest business cities in Indonesia and home for Chinese-descent entrepreneurs and businessman/businesswoman. Current MARK’s CEO, Ridwan Goh, has an interesting background of International Marketing. He might be the one that become the ‘bridge’ to MARK’s long-term customers. Also Chin Kien Ping, MARK’s President Commissioner, is a Malaysian and reside in Kuala Lumpur with long background of family-business.

Lucky me, the influence of my Chinese family background and environment do give an interesting knowledge and understanding about the Guanxi culture.

In one of Fisher’s Scuttlebutt question lists, He often asked:

“Does the company have an above-average sales organization?”

I believe that company with outstanding sales structure indicate a good moat. Good products won’t sell without good sales formation.

The Ippo’s Challenge

If you read the comic, you will see how Ippo faced the ‘stuck moment’ every time encountering new opponents.

Let’s not be too biased, I will also describe the current condition of the company.

Currently, MARK is struggling with the sales. What’s wrong?

Before we try to answer that question, try to check the following image:

MARK has a good constant growth before COVID, and the pandemic boost the level of demand which gives MARK a huge advantage. The rising of demand push MARK into adding more production capacity.

But the problem is, Covid slowly ending which also correlates to the demand of gloves from hospitals. Due to the recovery, industry’s average selling price (ASP) is returning to the pre-pandemic level, following the upward revision of selling prices of gloves. The unbalance between upgraded production level and declining demand has led to an oversupply of gloves.

Here are some articles that describe impacts to Malaysian companies which happened to be MARK’s customers as well:

Kossan: https://www.freemalaysiatoday.com/category/highlight/2023/02/16/glove-oversupply-devastates-kossan-as-net-profit-plummets-95-in-fy2022/

Hartalega: https://www.theedgemarkets.com/node/654232

Top Glove: https://sbr.com.sg/manufacturing/news/top-glove-struggles-make-profit-due-oversupply-and-destocking

This phenomenon also impacted MARK, as decreasing production of glove companies means declining demand of hand formers. The impact can be observed since Q2 2022:

The oversupply won’t be stable in a short time, probably 2023 will be a tough year for MARK and its clients.

For small companies, this kind of problem sometimes gives ‘harder punches’ compared to bigger companies.

The Conclusion

So, how do I react with this kind of situation as a MARK’s investor?

In my opinion, 2022 performance should be excluded from growth projection due to abnormal conditions which give MARK the upper hand. You can’t assume that MARK will grow rapidly from 2022, do not be hyper optimistic! I see a lot of new investors show what’s called anchoring bias. This comes from a premise which says, “Due to Covid, new habit such as glove usage will increase and cause a huge demand for gloves in the future; new normal!”

Yes, there will be a new habit for sure. But how can you be so sure to predict the future demand with that shallow-backed of data? The best you can do is observe the current conditions.

In my eyes, what makes MARK interesting is the organic growth during pre-Covid. The current condition of oversupply is not actually surprising; if you wish the demand to keep increasing, you need to question the quality of our health industry. I’m agree MARK rapid expansion during Covid will lead to under utilization of current new production capacity. At least, they don’t make reckless action by using over-leveraging tactic to boost production; its debt is still on a good level.

Investors need conviction to give them confidence in long-term investment. My conviction is built upon the analysis that I described in previous paragraphs. Another factor is MARK strategy in product diversification.

MARK expand their business through 2 subsidiaries: PT Berjaya Dynamics Indonesia (BDI) and PT Agro Dynamics Indonesia (ADI). Production of hand formers will leave scraps of ceramics material (hand formers are made of ceramics), which are usually unusable and ready to be processed as industrial waste. Due to incorporation of BDI, the scraps from hand former production are used to produce other products such as sanitary wares and toilet seats. This is an interesting aspect that shows management attempt to maximize production efficiency.

I like how the management thinks, which is the main reason for the conviction. Just like football managers, some love to focus more on attacks and some more on defense. You too have personal preference on which manager’s play makes you interested.

But what if I’m wrong?

Well, it’s simply the consequence of Investment; even the best investors also faced loss in their investment journey. The main keys are:

I understand the potential risk, and I can apprehend the incoming possibility of loss.
I will gain experience, either it will be a gain or loss in the investment.
I can learn and review my investment thesis and improve my mental framework.

I have my own satisfaction betting on dark horses or even listening to stories of underdogs.

Let’s see if I manage to ride one in the future.