In 1992, Nobel Prize winner Eugene Fama and Ken French published their findings about small cap stocks tending to outperform the market over time. A subset of the category, Small Cap momentum, outperformed literally every other market segment and became the Holy Grail for growth aspirants.
In our local tech space, lesser-known and local listed Accrelist has recently made moves to venture into some new exciting fields. For the micro penny stock, could its growth strategy set it on a path befitting that of the coveted category for investors?
Previously, in November 2017, we interviewed Mr.Terenece Tea to understand more about Accrelist-owned and also local-listed Jubilee Industries Holdings. This time, Shares Investment attended its results briefing in order to find out more about the parent company and investment holding company.
Accrelist was formerly known as WE Holdings, which started out in 1986 as an electronic component distributor and manufacturer. After swapping its electronic component business for equity in the embattled JLJ Holdings (JLJ), Mr. Tea acquired controlling stakes via Accrelist-deemed interest and later renamed JLJ to Jubilee Industries Holdings (Jubilee). Currently, Accrelist owns a 71.89-percent interest in Jubilee.
The group was later restructured, under Mr. Tea’s helm, with Accrelist mainly focusing on the development of Fintech businesses while operations of electronic component distribution and that of mechanical moulding are consolidated under Jubilee.
Effectively, Accrelist has two business segments: Mobile payments and crowdfunding platform. Accrelist operates the WE9Pay payment platform for mobile payments and WE Crowdfunding for its crowdfunding platform. Given that the Fintech foray is in the early stage, Accrelist still derives most of its revenue and income from its stakes in Jubilee.
We9Pay – Driving Cashless Push
In December 2017, Accrelist’s subsidiary We9 Pay Pte Ltd, was granted a remittance license by Monetary Authority of Singapore. It was yet another step, but a defining milestone, in Accrelist’s ambitious foray into Singapore’s cashless push. The strategy is simple, but not easy: Leverage on one of Asia’s largest e-payment providers, WeChat Pay platform – branded under WE9Pay – and establish an extensive network in Singapore.
WeChat Pay is a Tencent-owned e-payment provider that is part of China’s popular WeChat app. Needless to say, WeChat Pay’s adoption rate was accelerated by WeChat’s huge presence in China. The latter was touted to have one billion monthly active users worldwide. More importantly, through the integration with a Chinese technology company, Accrelist is now equipped with the capabilities to develop both intelligent hardware and software applications, enabling it to capitalise on the entire value chain relating to mobile payment technology. This position is truly a unique model for Singapore and Southeast Asian mobile payment industry and hence where the value proposition for investors lies.
Despite WeChat Pay’s proliferation elsewhere, acceptance of the Chinese e-payment system is not huge in Singapore yet. Locals that use the WeChat App are also not getting their local e-wallets yet. This means, as far as initial expansion in Singapore for Accrelist goes, Chinese tourists will still be the main target users to attract.
But that is not something to be worried about; Chinese travellers make up the largest market in the world of e-payments. In a survey by global information and measurement company Nielsen, it was found that up to 65 percent of Chinese travellers use their mobile payments overseas while 91 percent are more motivated to buy if merchants accept mobile payments. This is not in addition to the fact that Chinese tourists make up the largest group of international arrivals in Singapore.
According to Singapore Tourism Board (STB), of the 17.4 million travellers that came to Singapore last year, 3.2 million of them are from China. Notwithstanding that, Chinese travellers are increasingly spending more too. In 2017, Chinese tourists generated a total of $936 million worth of tourism receipts; a 29 percent increase from 2016. The figure would be way higher, had STB included the expenditure on Sightseeing, Entertainment and Gaming.
For a start, Accrelist would roll out WE9Pay with 500 participating merchants in the touristy areas of Singapore that allow Chinese travellers to pay via their WeChat Pay mobile application. In turn, WE9Pay will process the payments and charge a processing fee. To cast its net wide, Accrelist will introduce and entice local merchants with smart Point-Of-Sale (POS) systems. Unlike conventional POS systems, mobile-enabled POS terminals allow payments via mobile applications.
Going forward, Accrelist has plans to work with The Banks Association of Singapore to hasten adoption rate of WeChat Pay amongst locals. While that may all already sound an arduous mission, we believe that, in the bigger scheme of things, Accrelist may push to harness Big Data related to mobile payments in the future. In the information age, that is where the real money lies.
WE Crowdfunding – Matching Sophiscated Investors
In 1H18, Accrelist launched the WE Crowdfunding platform that matches sophisticated investors with companies that need funding. After acquiring Refresh Laser Clinic (Refresh) at the beginning of the year, WE Crowdfunding has solicited 300 high networth investors through its platform to fund the expansion for WE Crowdfunding, in particular the aesthetic medical services industry.
The $4 million acquisition, undertaken in January 2018, was satisfied by $2 million in cash and another $2 million by way of issuance of 250,000,000 shares at S$0.008 per share, representing 4.5 percent of the enlarged share capital. At the onset, Refresh comprises four aesthetic medical clinics. Leveraging on WE Crowdfunding, Mr. Tea hopes to expand the clinic chain to eight clinics by the following year and to 12 clinics by FY20.
Potential investors can participate in the growth via the WE Crowdfunding platform. According to Mr. Tea, the start-up cost of one clinic would be around $0.5 million, of which Accrelist will come up with $0.25 million while the remaining will be funded by investors on its crowdfunding platform. In turn, investors will be paid periodic interest for their investments.
Accrelist’s foray into medical aesthetics stems from the long-term growth potential both in Singapore and in the Asia Pacific region, especially China. Just last year, Novena Global Lifecare Group (NGLG), another Singapore-based medical aesthetics chain showed how the promising the sector is when it announced its intention to seek a listing in Taiwan to raise US$150 million or about $203.7 million. As the largest medical aesthetic chain in Singapore, Novena operates more than 100 clinics globally and has a database of more than two million patients.
Like NGLG, Accrelist’s long-term goal for its medical aesthetic business is to eventually do a spin-off via an IPO as well. Meanwhile, Accrelist would retain ownership of the WE Crowdfunding platform to fund other investment opportunities. That said, the talk is still early and it remains to be seen if Accrelist can walk the talk. After all, venturing into a completely unfamiliar field carries enormous execution risks. Despite that though, Accrelist has signalled confidence that the management of Refresh is equipped with strong knowledge for the business and new outlets will be earnings accretive by the first year of operations.
Valuing A Micro Penny
Trying to ascribe a fair value to a micro penny stock like Accrelist can be daunting. So we make some simple – but conservative – assumptions to get a sensing of Accrelist’s valuation.
Assuming Chinese tourists’ total expenditure (excluding SEG) continues to rise at about 25 percent over the next three years, total receipts generated by Chinese visitors will hit approximately $2.3 billion by 2021. If WE9Pay achieves an adoption rate of just 15 percent by then, it would process roughly $342 million in transaction value. Assuming it charges an average 1.5 percent processing fee (lower than that of typical credit card companies), Accrelist would generate interchange revenue of close to $5.1 million. However, WeChat Pay would get a bulk of the processing fee generated. Given that no further details were shared, it is still unclear of how WE9Pay will contribute to Accrelist’s bottom line.
On the positive side, Accrelist’s financial performance is likely to be supported by the turnaround in Jubilee in the short-term. In 1H18, Jubilee returned to profitability of $0.8 million from a net loss of $2.7 million a year ago. Revenue for Jubilee jumped 83.7 percent to $87.5 million. On the street, other analysts are projecting Jubilee to generate a net profit of about $5 million by FY20. Assuming a growth rate of 20 percent, we extrapolate and project that Jubilee would generate net profit of $6 million in the following year. Contributions to the parent would be $4.3 million.
Excluding any contributions from Refresh Laser Clinics and WE9Pay, Jubilee’s contributions alone would translate to forward-FY21 earnings per share of $0.00082. At the current share price of $0.005, shares of Accrelist would only be trading at only six times forward-FY21 price-to-earnings. For investors with higher risk appetite, Accrelist has much potential to be your next multi-bagger run.