Since ChatGPT arrived at the end of 2022, Taiwan's stock market has ridden a wave of AI frenzy: the index has kept hitting new highs, share prices of related technology and electronics companies have soared into the clouds, and the benchmark index has doubled and doubled again in just a few years. In the middle of this year, the average price-to-earnings ratio of Taiwan stocks reached 31.78, the highest level in nearly fifteen years. 

 As Taiwan stocks went through a bout of turbulence, the share prices of the AI supply chain that investors had been chasing swung especially sharply, inevitably raising worries about the dangers of being at such heights. Using the Taiwan Economic Journal (TEJ) database and starting from the price-to-earnings ratio, the best yardstick for judging whether a company's share price is undervalued, Business Today screened three kinds of financial data to pick out a number of "hidden-gem stocks" whose prices are still low.

Women love beauty and are always willing to spend on their hair. The value of Taiwan's hair products market grows a steady 3% to 5% a year. A look across channels such as Watsons, Cosmed, Poya, and Costco shows an ever more dazzling array of hair product choices, but look closely and many of the brands come from the same leading Taiwanese hair products company, Maywufa.    

Maywufa, with multiple brands including Maywufa hair color, the fashion color brand COLORFUL, the hair care brand SAHOLEA, and INNEX care products, was founded by Cheng-Chia Lee in 1976 and is now entering its fiftieth year. Yet its revenue and profit have not declined with age. On the contrary, it is growing stronger with the years, with both trending upward over the past five years. Maywufa's revenue last year reached NT$1.58 billion, with EPS of NT$1.36 and a price-to-earnings ratio of around 14.    

However, the key engine that has kept Maywufa growing is not the hair color market it used to specialize in, but the shampoo and hair care segment spearheaded by Cheng-Chia Lee's eldest daughter, current Vice Chairman Yi-Li Lee.    

In 2013, Yi-Li Lee, then 37 and having risen to vice president in the financial sector, came home to take over. Having seen countless corporate transformations on the outside, she carried not only the responsibility of holding on to what her father had built, but also the ambition of leading the Group up another peak.

Lee knew very well that Maywufa was by then the leading brand with about 30% of Taiwan's hair color market, but with the market nearing saturation, the Group had to find its next growth curve. Shampoo and hair care products, a bigger market and an everyday necessity, became the best target in her eyes.

"Taiwan's shampoo market is ten times the size of hair color," she says frankly. Thirty years ago, Maywufa had launched shampoo products, but was held back by the brand's budget positioning and price-cutting by channels, making it hard to turn a profit.   

Lee decided to regroup and go on the offensive again. Bypassing the existing Maywufa brand, she launched a refreshing new brand, SAHOLEA, built on natural ingredients with no additives, and anchored its price in the mid-to-high range of NT$900 and above. 

Although brand power had to start from zero, the R&D power was still there. To break through, the first thing Lee did was dig for treasure in Maywufa's product database, studying the evergreen classics of the past as references for new products.    

However, it is not easy for a new brand to build awareness, so for the first five years Lee laid the foundation online. Through advertising and by engaging well-known host Sandy Wu as spokesperson, she built up the brand's reputation and buzz, and by the second year SAHOLEA had broken into the top five shampoos in online shopping.

By 2019, once the new brand had a certain profile, physical channels began coming to it of their own accord without any special effort, first Costco, followed by Watsons, Cosmed, Poya, and others. Sales through physical channels overtook e-commerce and now account for more than half.   

The second thing Lee did next was to become the channels' best partner. "We have to keep close to the consumer market and meet the channels' needs. We can't be without something others have," she says seriously.    

So the company's sales team has to meet with each channel every year to discuss consumer profiles, new product concepts, and more. "Manufacturing used to be more like working behind closed doors, where we could only imagine the demand ourselves. Now it's the other way around: the channels come to us with requests." Through close exchange with channels, and with its own R&D and manufacturing capabilities, Maywufa can launch thirty to forty new products a year.      

For example, over the past two years Maywufa found from channel feedback that consumer demand for hair nourishing and strengthening was growing, and accordingly launched a product set comprising a scalp cleanser, shampoo, conditioner, and hair tonic, turning consumers who used to buy one product into buyers of four. With a bottle of hair tonic priced at roughly twice that of shampoo, both volume and price have risen.    

By working hand in glove with channels, more than ten years on Maywufa's shampoo and hair care products have reached a 6% share of Taiwan's fiercely competitive market, taking first place in Taiwan and overturning a product mix once dominated by hair color. Today the sales ratio of shampoo and hair care products to hair color products is about six to four.   Maywufa's next plan is to go overseas. A look at Maywufa's financial statements shows that the company's long-term debt ratio has stayed at around 30%, meaning its investments have also been relatively conservative. 

On this point Lee makes no secret: "We have set aside an extra budget for overseas expansion." Maywufa has now made its first entry into the Shanghai market, testing the waters on platforms such as Taobao, and will next move into ASEAN countries such as Vietnam, Singapore, and Malaysia. She is also weighing the feasibility of acquiring overseas brands, with an eye on Japan, where beauty brands have been relatively weak in recent years.    

But brand consultant Lin Shang-Neng cautions that going overseas means being squeezed between powerful Korean brands and low-priced Chinese products, an enormous challenge. Only by finding reliable channel partners locally, or by opening up a separate high-end product track, will there be a chance of breaking through.    

Facing the foreseeable hurdles, Lee is undaunted. "It's been fifty years. It's time to go overseas," she says with conviction. Next, she will lead the Group to take on the next peak.

Original source: Business Today: A Veteran Logistics Firm, a Financial Newcomer, a Hair Care Leader... Value Discovered! 34 Hidden-Gem Stocks Handpicked Amid the AI Frenzy