Summary
SEA Limited a market leader in today's e-commerce 'new normal'.
Weyland Tech trading at valuation multiple not offend seen in growing e-commerce companies.
Investment in a volatile market takes extensive due diligence to find undervalued equities before the broader market.
The digital revolution is well underway in Southeast Asia and here’s how to participate.
SEA Limited focused on growth and expansion. The only ‘well-known’ Southeast Asia Fintech/eCommerce/eWallet company that trades in the US is SEA Limited (SE)
In 18 months, SEA Limited's stock price has gone from $10 per share to $120 and its market capitalization has grown to $52 billion trading at 23X revenues.
SEA Limited recently raised more capital for expansion through convertible notes, a billion dollar transaction. SEA Limited intends to use the net proceeds for business expansion and other general corporate purposes, including potential strategic investments and acquisitions.
Q: Why is SEA Limited flying? A: Southeast Asia. Southeast Asia’ attractive investment market, along with an expansive digital environment has led to the emergence of a vibrant start-up ecosystem across the region. According to a Bain & Company report, the rise in venture capitalists and private equity investment in the region has helped produce the region’s first set of unicorns (companies that rapidly achieve market valuations of US$1 billion or more) included in this group is SEA Limited, giant unicorn GRAB and GoJek which made it to top ten of this years CNBC Disruptor 50 list. According to ASEANUP The 6 Tech Unicorns of Southeast Asia - ASEAN UP , 'Southeast Asia is currently experiencing a boom in the technology sector that is led by six unicorn startups. Having become giants in only a few years, these companies are now regional and global leaders in their respective fields: from e-commerce to ride-hailing, from gaming to travel and digital payments.
With more than 300 million internet users across the region, the six unicorns already reach a large part of the population to deliver their services. As the Southeast Asian internet sector, already worth more than $50 Billion, is poised to continue growing in the coming years, they should be among the main beneficiaries of this expansion.'
SEA Limited is one of them and the only one publicly traded in the US.
Excerpt from Zacks June 19, 2020: “Thus far, Sea Limited (SE) shares have exploded in 2020, illustrating astounding returns of 170%. This company has shown seemingly impossible growth figures, and investors are finally starting to see the extraordinary value in SE.
Sea Limited is the leading internet company in Southeast Asia and Taiwan. These economies are digitalizing at an exponential rate, and Sea is well-positioned to take on the quickly expanding addressable market. The company operates two digital market-leading segments, including an e-commerce platform, and a digital entertainment division (Shopee and Garena, respectively).
Pandemic Impact SE has weathered the coronavirus better than most global equities. The pandemic has had positive implications on this company’s long-term growth outlook.
Southeast Asia is in lockdown mode, like the rest of the world, and people are looking to Sea Limited for their boredom-driven digital needs.
Sea’s e-commerce giant, Shopee, has been vital in supporting the people amid the country lockdowns across the region. The online shopping site is presently focused on delivering “stay home essentials” to its customers, to keep people indoors. This move should condition consumers across the region to rely on this site for all their shopping needs, which will strengthen its customer base once the pandemic is controlled. Sea’s digital entertainment group, Garena, should see a sharp uptick in usage as people look to its mobile applications for amusement.
Regional Tailwind Southeast Asia is characterized by rapid economic growth with 5% GDP growth over the past decade, compared to the 2% globally and 2.3% in the US. Economic projections from global financial institutions like the IMF, World Bank, and the Asian Development Bank expect this growth trajectory to remain in place over the coming years. The digital economy in Southeast Asia has tripled in the past 5 years to $100 billion and is expected to triple again by 2025 to $300 billion, according to a Bain & Co report. The digital economy in this rapidly developing region is red hot, and Sea is orchestrating its advancement. Below is a graphic from the Bain & Co report that breaks down the internet economy growth trajectory by country. However, there is another contender albeit smaller yet executing well on their initiatives in Southeast Asia.”
Over the next decade Southeast Asia is being digitally transformed, with almost every community connected to the internet and with almost every person holding a smart phone in their hand. Transactions of buying and selling goods through e-commerce and even greater m-commerce, is the new normal way of business. I believe SEA Limited is well positioned for growth and trades today at a fair market valuation 17X revenues.
Weyland Tech the other Southeast Asia player listed in the US. Weyland Tech (OTCQX:WEYL) is a developer and global provider of mobile business software applications. Investors should realize, Weyland Tech is partnered with Southeast Asia unicorn GRAB and Japan based media company Line Corp (LN). Both companies are strategically aiding Weyland Tech in the launching of their products as noted in this April 2020 corporate presentation. Weyland Tech operates its CreateApp platform-as-a-service (PAAS) across three continents and 10 countries, including some of the fastest-growing emerging markets in Southeast Asia. The platform provides a mobile presence for small-and-medium sized businesses (SMBs) that is supported locally by distributor partnerships. From Weyland Tech's website CreateApp is offered in 14 languages with more than 10 integrated modules, CreateApp enables SMBs to create and deploy native mobile applications for Apple iOS and Google Android without technical knowledge or background. The technology empowers SMBs to increase sales, reach more customers, manage logistics, and promote their products and services in an easy, affordable, and highly efficient way.
Weyland Tech's foundation and business model is very similar to e-commerce Goliath SEA Limited. Investors should realize like SEA Limited, Weyland Tech is also a Southeast Asia Fintech/eCommerce/eWallet company. Weyland Tech the e-commerce Davey if you will, continues to grow and has generated $41 million in trailing twelve month revenues yet has market cap of only $60 million or just 1.2X revenues. Of note, Weyland Tech recently reported it's 6th consecutive quarter of record revenues.
Investors should realize Weyland Tech is growing year over year at ~50%. Company management comprised of US and Southeast Asia industry experts has stated on recent conference calls the Sum-of-the-parts (“SOTP”) valuation is estimated at 8X higher than where currently trading.
Weyland Tech owns 31% of Weyland Indonesia Perkasa "WIP" the Indonesian developer of AtozPay and AtozGo eWallet and delivery APP businesses that is expected to generate $24 million in gross transaction volume this year. Weyland Tech recently expanded AtoZGo in an effort to provide a needed service to residents of Jakarta during the pandemic. Public, private financing and acquisition valuations of similar companies in this space have ranged from 3-4X gross transaction value, suggesting $72-96 million in total value. Weyland Tech's 31% ownership in WIP translates to $22.3 – $30 million in value attributable to Weyland Tech. Investors should realize WIP’s value alone exceeds Weyland Tech's entire market cap value that is not carried on the Weyland Tech's balance sheet.
Weyland Tech's management has publicly stated during it's 5/15/20 conference call that it will sell all or a substantial strategic stake in the business by year-end. Investors should note Weyland Tech's management has continued to invest in company common stock through Form 4 filing's over the past year.
US Business – recent acquisition experiencing strong growth while adding product pipeline Additionally, in January 2020, Weyland Tech acquired Push Interactive, an AdTech company based in Minneapolis, MN for $25mm in stock. Push is on track to post $18 million in revenues for 2020. Companies in the AdTech space, such as The Rubicon Project Inc (RUBI), Cardlytics Inc (CDLX), LiveRamp Holdings, Inc. (RAMP) and QAD Inc. (QADA) trade at an average of 3.5X revenues which, if applied to PUSH’s 2020 revenues, would imply a valuation of $64 million for Push Interactive.
Core Business – stable growth engine trading well below market multiples Investors should realize Weyland Tech's core business is it's small business mobile application platform-as-a-service CreateApp which is expanding globally. CreateAPP was recently launched in Italy were the company forecasts demand during and after the pandemic. The Company expects this business post revenues for 2020 of $30 million (a decline driven by the impact of one time discounts applied to customers due to Covid-19). Business application companies with a Software-as-a-Service (“SaaS”) model typically trade between 4X and 17X revenues. Even taking the low-end of that range or 4X revenues implies a value of $120 million.
Putting this together it appears Weyland Tech offers an attractive sum-of-the-parts (SOTP) valuation.
Sum-of-the-parts (SOTP) Valuation: WIP Indonesia eWallet/Food Delivery app business valued at 3X expected GTV = $72 million x 31% WEYL stake = $22 million Push Interactive $18 million in estimated 2020 revenue valued at 3.5X Price to Sales = $64 million CreateApp $30 million in estimated 2020 revenue 4X Price to Sales = $120 million. The sum of the parts would then be $206 million of attributable value. When applied to Weyland Tech's current shares outstanding of 12.3 million A SOTP would equate to $16.74 per share. Given Weyland Tech’s presence in Southeast Asia and a business model similar to SEA Limited, any actions taken to raise attention to the value of any one Weyland Tech's businesses could pique sufficient investor interest to close the large valuation gap between Weyland Tech's current 1X revenues and the other comparable companies.
Weyland Tech recently announced they have partnered with an NYSE global fintech provider to provide food delivery services. Last week, CEO Suen was interviewed by "The Wallstreet Reporter", watching his candid comments about whom the suitor is, clearly points to SEA Limited. Also, there has been speculation from investors and media sources that this partner is indeed unicorn SEA Limited, and the terms of deal are to be announced shortly.
Game changing Technology Last week, Weyland Tech announced a game changer for it's PAAS the company has implemented "AR" augmented reality into it's CreatApp service. In the press release the company noted;
"Our new module can greatly enhance the mobile shopping experience and drive sales,” said Eddie Foong, Weyland’s chief product officer and founder of CreateApp. “It addresses this growing demand for AR-powered online product discovery and can help overcome today’s limitations with in-person shopping. We will be making it available in 14 languages and expect it to become one of our most popular CreateApp modules.”
As Weyland rolls out the add-on AR module to its distribution partners over the coming weeks, it also plans to offer the solution directly to certain prospective larger clients, including the largest European hypermarket chain with more than 4,000 locations across several countries. According to Foong, this retail chain was the impetus for developing the CreateApp AR module, given their request for a mobile AR solution provided in the way that only CreateApp can deliver."
UPDATE ALERT: Partnership was announced on July 27th between SEA Limited and Weyland Tech investors wait anxiously for more details to emerge.
Recently, Weyland Tech's share price has appreciated 200% from a 5 year low. Investors should note; Weyland Tech announced they have engaged the Benchmark Company, to assist in the exploration and evaluation of strategic alternatives for enhancing shareholder value, including possible sale or merger of the company. With recent developments, I anticipate Weyland Tech's market value to reach an inline alpha valuation as expansion continues and mergers and acquisitions take place.
Disclosure: I am/we are long SE WEYL.