Night Watch Investment Management Q2 2025 Position Updates

Night Watch Investment Management's Q2 2025 letter details key portfolio positions and recent activity. Haypp, the largest e-commerce platform for nicotine pouches, is highlighted for its defensible moat, rapid demand growth, and a new high-margin consumer insights business, with management targeting 18-25% organic top-line growth. X-FAB Silicon Foundries, an analog semiconductor manufacturer heavily exposed to automotive, is seeing signs of recovery, with a recently concluded $1 billion capacity expansion expected to materially boost 2026 earnings and a new dividend planned for H2 2025. Separately, Night Watch exited its Dream International position for a 160% return after an unexpected catalyst, its involvement in manufacturing the popular Labubu figurine, significantly re-rated its valuation.

Analysis

Night Watch Investment Management's letter outlines a thesis centered on companies with strong fundamentals and clear catalysts. For Haypp Haypp (HAYPP SS), the largest e-commerce platform for nicotine pouches, the investment case is built on a defensible moat created by advertising restrictions and rapid growth driven by new markets and a shift to online. Management's mid-term targets of 18-25% organic top-line growth and a 4-7% EBIT margin are supported by a new high-margin business selling consumer behavior insights to suppliers, a unique asset in a regulated industry. The firm's analysis of X-FAB Silicon Foundries (XFAB FP) highlights a cyclical recovery play with significant upside potential. With 67% of revenue from the automotive sector, X-FAB is positioned to benefit from a gradual recovery in automotive semiconductor demand. More critically, the recent conclusion of a $1 billion capex program—a substantial figure for a company with a market cap below $900 million—is expected to materially boost earnings in 2026. This, combined with the initiation of a dividend in H2 2025 and a CEO who owns over 25% of the company, presents two near-term catalysts. Finally, the fund's exit from Dream International (1126 HK) for a 160% return demonstrates a disciplined strategy; the position was sold after a rumor about its involvement in manufacturing the popular 'Labubu' figurine caused its P/E multiple to expand from 4x to 10x, invalidating the original deep-value thesis.

Key Decisions for Investors

• Investors should assess Haypp's significant growth potential and unique data-driven moat against the persistent regulatory risks inherent in the nicotine industry.
• Consider X-FAB's potential for a valuation re-rating driven by two distinct catalysts: material earnings growth expected in 2026 from its new manufacturing capacity and the initiation of a dividend in H2 2025.
• The high insider ownership and recent share purchases by X-FAB's CEO serve as a strong signal of management confidence and should be weighted heavily in any analysis.
• The Dream International exit serves as a reminder to re-evaluate and potentially divest from value positions after a rapid, catalyst-driven price appreciation erodes the margin of safety.