Koon Boon Kee, managing editor of The Moat Report Asia, presented on Korea-listed company Golfzon Co Ltd (KOSDAQ:121440) at Wide-Moat Investing Summit 2013. In Part One of the presentation, KB Kee discusses the “bamboo innovator” approach to identifying competitively advantaged businesses in Asia and delves into opportunities in Korea. In Part Two, KB introduces Golfzon and presents his investment thesis.

Golfzon: Hit 10th-year milestone and “Mission”:

“To make golf enjoyable and accessible to everyone, no matter where they live or how privileged they are”

golfzon

Golfzon: Dominant Golf Simulator Company in Korea

  • Established in May 2000, Golfzon Co Ltd (KOSDAQ:121440) is the dominant 3D virtual reality golf simulator company with over 84% domestic market share, an increase from 42% in 2007 and 61% in 2008. The remaining 15-16% market share are split quite evenly amongst four other companies
  • Extensive customer base: Golfzon membership is around 1.2 million, doubled from 2010, and accounting for more than 50% of the golfing population in Korea, or more than 70% if golfers with no Golfzon membership are included.
  • Distribution reach of 5,000 Golfzon stores with over 20,000 simulator installations. Golfzon also operates 20 Golfzon Academy Golf Driving Range (GDR) (directly-owned and franchise), 17 Golfzon Market (offline retail market) and 5 Golf Factory (collaboration with US Golfsmith) and Golping (online golf shopping mall)
  • Golfzon satisfied a critical market gap: Lack of golf courses in Korea and esp Seoul to accommodate its growing golfer population. Actual golf courses are located in provincial rural areas which are 2-3 hours drive away from Seoul

golfzon market cap

“Emptiness” in Virtual Reality technology to continually introduce innovative products and services

Golfzon core tech

  • Golfzon Co Ltd (KOSDAQ:121440) rolled out its first golf simulator (P-model) in 2002 and introduced upgraded versions S-model (2004), Live Tournament (2006), N-model (2008), the important R-model (Jan 2011) and VISION model (Feb 2012). Advanced golfers stay away from screen golf due to lack of accuracy but VISION model was a breakthrough to capture all three segments from basic to intermediate to advanced. VISION sells for W45m (US$40,000), 60% higher in ASP than the older version W28m
  • “Emptiness” in business model lies in leveraging advanced virtual reality technology and accurate golf ball trajectory to create the same experience as playing on a real course, including a “Digital Caddie”, first offered as a free beta service online and now a paid item
  • Nearly half of its 474 workforce are in R&D and employee stock ownership is 2.3%

Golfzon MAU

  • SBSgolf.com used to be the most popular local golf portal site until 2008 when it was disrupted by Golfzon
  • Golfzon Co Ltd (KOSDAQ:121440) has started in 4Q12 a public field booking business by capitalizing on its loyal online customer base with a nationwide country club database at its fingertips too
  • The growing customer data will become an important asset to utilize in various golf-related businesses such as golf course management and golf product sales
  • Golfzon also runs an online golf shopping mall Golping (www.golfzon.com/golping)

Why cheap despite world-class tech and market dominance?

Risk: Fear of market saturation and new hardware sales growth to decline

golfzon roundings

  • Golfzon Co Ltd (KOSDAQ:121440) screen golf sites have doubled from 2,400 in 2009 to the current 5,000, while membership have tripled from 379,000 to 1.2 million. New store openings will grow at a slower pace to 5,800 to 6,000 by 2015
  • This means that new hardware sales growth will decline
  • Members per site are still increasing and the number of rounds they play (“roundings”) per site is also increasing
  • Key question: Possible for the business model to monetize loyal membership beyond hardware sales based on the number of rounds they play? If not, stock will stay cheap!

Setting the Stage: Wide-Moat Investing in Korea

Download the audio (mp3). Download the video (mp4). Download the slides (pdf).

Wide-Moat Investment Idea: Golfzon (Korea: 121440)

Download the audio (mp3). Download the video (mp4). Download the slides (pdf).

via moatreport