23 October 2016
Liu Chuanzhi can unlock huge value from Legend Holdings following an array of investments over the years. Photo: Bloomberg
Liu Chuanzhi can unlock huge value from Legend Holdings following an array of investments over the years. Photo: Bloomberg

Is Legend Holdings another Berkshire Hathaway?

The IPO of Legend Holdings (03396.HK), the parent of computer maker Lenovo Group (00992.HK) has been closely watched by market participants.

In the past, many entities grew their subsidiaries to an extent which could facilitate spinoffs for separate listings, while the holding companies themselves remained low profile.

But that has changed now as the holdings firms themselves are recognized for possessing good value.

Legend Holdings is a product of its founder Liu Chuanzhi, who has invested in a number of successful businesses. Liu’s investment portfolio includes China Auto Rental Holdings, Bybo Dental Group, Union Insurance Broker Co. and Joyvio Group.

Fosun International (00656.HK), one of Legend’s cornerstone investors, has a similar business model.

Fosun has copied Warren Buffett’s approach in acquiring insurance companies to obtain low-cost capital which could be deployed for long-term acquisitions. Fosun has invested in health food, healthcare and other businesses related to the lifestyle of the middle-class, adopting a hybrid model of “insurance plus investment”.

Legend has made financial investments as angel investor, venture capital and private-equity player, covering all stages of companies’ growth cycle. And it also makes direct investment in pre-listing and listed companies as well.

It offers one-stop financing services for companies at different stages. The group has enjoyed a high success ratio due to its deep understanding of various companies. To ensure growth for the investment targets, it has set up more than 100 professional teams.

Also, the company has a high-caliber management team. For instance, its president Zhu Limin, senior vice presidents Chen Shaopeng, Ning Min and Tang Xudong all have more than 10 years experience in operation, cross-border M&A, state-owned enterprise reform, emerging markets investment and financial management.

The underlying value of Legend has yet to be fully unlocked as founder Liu is well-known for his conservativeness. The listing will help unleash its intrinsic value and potential, particularly in businesses related to consumption, catering and the internet.

The business model of Legend is less visible than that of Fosun or Buffett’s Berkshire Hathaway. But the great diversity in its investments and business units offer plenty room to unlock further value.

Currently, Berkshire Hathaway is valued at a P/E ratio of about 20, compared with 16 for Fosun. Legend also has a bright future, and investors should hold the stock for long term.

This article appeared in the Hong Kong Economic Journal on June 19.

Translation by Julie Zhu

[Chinese version 中文版]

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Founder and Managing Director of Pegasus Fund Managers Ltd.

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