- Exponential growth in AtoZPay
- Solid growth in CreateApp
- Higher PaaS valuations in private company’s
- Spinout and dividend outside DTCC
- 100% of float naked short going into ex-dividend on 9/26/18
Weyland Tech Inc. (WEYL) really isn’t a household name because the stock is thinly traded and might have a float close to 4.8 million shares and it core business is located overseas. Its average daily volume is 54,538 and the market cap of the company is $88.5 million. The crux of its business is located overseas so investors rarely encounter the Platform as a Service (PaaS) company and as such have not given it due in regards to valuation. This however may change in the coming days and likely to grow to great multiples as investors scramble to own shares in the new spin-off.” There is a twist in this story revealed at the end of this article which could result in exponential valuation by 4PM September 26, 2018. The fundamentals of WEYL and the marketplace for its services are positioned for phenomenal growth.
Solid Management Team and Celebrity Director
Brent Suen is the CEO is and started in November 2014. He has 27 years of experience in the investment banking industry. He attended Westminster receiving his BA in Finance. He began his career in merger arbitrage at Bear Stearns in 1988, at the age of 20, as the firms’ youngest hire. In 1993, he founded Axis Trading Corp., one of the first online platforms for stock trading and subsequently sold it to a division of Softbank in 1996. In 1997, he co-founded Elevation Capital which invested in and advised Silicon Valley based companies on IPO’s, mergers and acquisitions, strategic partnerships and fund raising. In 2003 Brent moved to Hong Kong and China where he established Bay2Peak S.A. Bay2Peak has invested in and advised over fifty companies which include Internet, software, renewable energy and life science companies. From 2006 to 2008 he also advised IRG TMT Asia Fund on private and public investments. In 2012 Brent served as advisor to McLarty Group and Citibank Venture Capital on a sale/leaseback program valued at $160 million leading to the eventual sale of the company for $630 million. For the past six years, Brent led the start-up and management of Empirica S.A., a security/intelligence and frontier markets focused advisory firm operating in Asia, the Middle East, Africa and Central Asia. He has a modest salary of only $60K/yr and seems well suited and incentivized to increase shareholder value. The precision and structuring of this spin-off was likely a derivative of his vast Wall Street experience.
In order to be taken seriously as a company many company’s resort to recruiting well experienced names to their boards. On February 12, 2018 Jon Najarian, a staple commentator on CNBC was appointed as a director. Jon has many endeavors and enjoys a high celebrity profile and as such he would be reticent to put his name behind anything that was suspect. Jon’s defacto endorsement of WEYL speaks volumes in terms of the credibility and future business prospects. Jon started out trading on the Chicago Board Options Exchange. Eventually he became a member of the CBOE, NYSE, CME and CBOT and worked as a floor trader for some 25 years. In 1990 he founded Mercury Trading, a market-making firm at the Chicago Board Options Exchange (CBOE), which he sold in 2004 to Citadel, one of the world’s largest hedge funds. In 2005 Jon co-founded optionMONSTER and tradeMONSTER – both were acquired in 2014 by private equity firm General Atlantic Partners. Today, he is a professional investor, money manager and media analyst. Jon can be seen weekly on CNBC, where he is cast member of the “Halftime Report” and the “Fast Money” show. He is also the feature of the “DRJ Report” on CBOE-TV, the exchange’s popular webcast.
|Name||Age||Positions and Offices Held|
|Brent Suen||51||President, Chief Executive Officer, Director and Secretary|
|Lionel Choong||56||Acting Chief Financial Officer and Director|
|Eddie Foong||45||Chief Operating Officer and Director|
|Thet Twe Aung||32||Chief Technology Officer|
|Matthew Burlage||55||Independent Non-Executive Board Member|
|Ross O’Brien||50||Independent Non-Executive Board Member|
|Brett Lay||56||Independent Non-Executive Board Member|
|Jon Najarian||54||Independent Non-Executive Board Member|
Insider Stock Purchases
On May 17 , May 31, and June 27, the Company reported via Form 4 filing that “certain insiders and management members, purchased shares in the open market.” The CEO, Suen Brent bought close to 61,000 shares worth $105,040 over the period which works out to a $1.72 basis. In addition, insider John Francis MacNeil also acquired stock. Insiders only purchase for one reason and the timing of the purchases after the launch of the AtoZpay platform should be a huge confidence booster for investors.
E-commerce in Southeast Asia
An article on the digital transition happening in Southeast Asia did an excellent job explaining the trends in the marketplace. Here is an excerpt
“On the face of it, Southeast Asia would seem like an e-commerce wonderland. No place on Earth matches this region in digital adoption. The people in the Philippines send more texts than any other country. Jakarta is the world’s No. 1 city for tweets. Indeed, Southeast Asia’s population of 620 million may be diverse, but its inhabitants have one important thing in common: an eagerness to use mobile technology. The region is home to more than 250 million smartphone users.”
After reading this investors would think this is probably a very mature market with widespread e-commerce bigger than the United States, but the surprising fact is that only 1 in 4 consumers over 16 has ever made an online purchase. Here’s how the numbers stack up. They only have a 3% online retail penetration representing $6 billion in sales where as both the US and China enjoy a 14% market penetration of online sales representing almost $300 billion each.
Delving deeper into consumer behavior we can look at the Philippines as a case study. The online market penetration rate is 1.2% but 34% of consumers said they were influenced by online content prior to purchase. So, what is the disconnect? Simply put it’s the payment and logistics infrastructure. This is the wild west of E-commerce. There is going to be a land grab for a payment mechanism and it doesn’t take too much imagination to see that the preferred device is the smartphone. With the right marketing team this will go viral. Look at the team in Tidung Philippines which is a 50 Hectare Tourist destination Island with only 4000 inhabitants. From the picture below it looks like they have captured the island.
Tidung 2018 Team – Tiny Island located North of Jakarta – Going Viral
Indian Market Brings Rise to Large Valuation Increases
The consolidation happening in the Indian market is sure to spread to Indonesia next. The central issue driving consolidation is the structural problem in the banking system. The key players in the market are Alibaba Group, Apple (APPL) Citrus Payment Solutions, Google (GOOG), Mastercard, Paypal, Samsung Electronics, and Visa. They are all scrambling and to get a piece of the emerging e-commerce market of India. The eWallet allows multiple payment options such as bank, credit card, and in some cases cryptocurrency. New chips in mobile phones will soon allow for Near Field Communication (NFC) which would allow payment within 4 inches of a contact reader. Key eWallets are paytm and PayU. Citrus pay was acquired by PayU for US$130 million. Naspers in the parent company of Naspers.
The technology they are using open and closed eWallets and Semi Closed eWallets. Many eWallets are free to use and work as a smart phone app. Closed e-wallets are the most restrictive and only allows the purchase or sale of goods from the network it’s connected to. Semi closed eWallets are similar to Close but the user can get service at financial offices and merchants on their system. An open system would allow a user to go out to and ATM and withdraw cash.
Mobile Payment Company Emerges
Jakarta Team – Main Office
WEYL has an Indonesian business called PT Weyland Indonesia Perkasa (WIP). It’s very real, expanding rapidly and very lucrative. One of the key business lines of WEYL is the AtoZPay eWallet business. In the Great South East Asia (GSEA) region the masses do not have bank accounts, credit, or debit cards but what they do have are e-wallets which is essentially money stored on a cell phone. This eWallet market in the GSEA region is growing faster than online banking and credit cards and within 5 years expected to be the largest and fastest growing because of the structural divide in coverage between internet in the home vs the cellular network. The consumer’s first e-commerce device is a cellphone not a laptop. Electronic payments can be made directly to prepaid, utilities, phone credits, or for mass transportation. Many of these services are referred to as “top-up” services. Top-ups need to be performed at a grocery store or convenience store where consumers give the merchant cash and then the merchant credits that cash to a mobile number. Last month the company announced a major strategic initiative with Finnet which expands their geographic footprint to 13,477 Alfamart convenience stores. In addition the Finnet partnership also has 81 bank and a network of 80,000 ATM where AtoZpay consumers can make payments on household and business utilities. Merchants are poised to embrace the use of AtoZpay for high ticket items using a QR code as shown in their promo video.
Partnership Acquisition Binge
This month the company continued on the partnership acquisition binge and announced more major banks, telecom providers, and other unicorn type companies. Telkomsel is Indonesia’s largest telecom service provider. BRI Bank is one of the oldest banks in Indonesia with UD$62 billion in assets and Bank Mandiri is one of the largest banks in Indonesia with US$81 billion in assets. They also have partnerships with Grab Taxi which is the number one ride sharing and delivery service in Southeast Asia funded by investor stalwarts like HSBC, Toyota Motor Company, Paul Allen (Co-founder of Microsoft), Oppenheimer, and Softbank. Grab Taxi is currently valued at US$9 billion. Indonesia is famous for it’s motorcycle transportation and Go-Jek is the largest motorcycle and scooter based taxi service which was funded by Tencent, Sequoia Capital, KKR and Temasek. The partnerships they have forged just this month is a potpourri of multibillion dollar corporations owned by even bigger investors looking for that land grab opportunity. As a private company it might not be long before AtoZPay is rolled up into a bigger play with a hefty private valuation. This is the main reason investors will want to hold on to the stock through the dividend.
Another segment of their company is the CreateApp. This tool allows business to create their own customized app for their business. It has a user friendly interface that allows ease of use and functionality without having to hire a specialized developer. This allows businesses to react quickly and make the changes on the go. The dashboard has up to 30 business friendly features such as a E-store, Form Wizard, promotions, loyalty rewards, reservations, and push messages.
Financial Performance – Exceeding Expectations
In the last quarter shareholder update the company had 6 months revenue of $8,838,686 which puts them on a $16 -18 million dollar revenue trajectory assuming linear growth. This represents the CreateApp business which they have a perpetual license. The Gross Margins in this business are extremely lucrative as any Platform as a Service (PaaS) company would attest. The company commented in the shareholder update that the “gross margin remained healthy.” It needs to be emphasized that last quarterly gross margin was 87.7%. The company is still growing and investing heavily in R&D expenses to bring more product offering to maintain its competitive growth in the marketplace.
Since WEYL own 49% of WAI there is no reporting requirement to consolidate the revenues upstream. Only a majority own subsidiary but consolidate upstream. In the shareholder update, guidance was given that the subsidiary seemed to be growing in an exponential fashion. The gross transaction value (GTV) run-rate in May 2018 was 5 million and at the end of August, just 15 weeks later they hit the 7 million. That’s 40% growth in run-rate in just 3 months. The company estimates $25-$35 million GTV run-rate for 2018. The company doubled down and said they “anticipate meeting or exceeding our target of approximately $100 million in GTV within 18 months of launch.” The strategic initiative with Finnet was quite transformative for the company and went virtually unnoticed by shareholders.
Dividend Strategy – Gross Undervaluation
Here is a quote from the 10-Q. “In order to maximize the independent growth of AtoZPay and consequently shareholder value, management has begun the process to spin-off the e-wallet business via a special dividend.” This needs to be translated to investor language. In other words management is saying in the public markets PaaS companies are getting valuations 6 times sales. With expected sales of $25 million this year the company should have a market capitalization of $150 million on just this portion of the company not factoring the CreateApp business unit. Under the current share structure the price should be valued between $5.15 (2018 revenues) to $20.50 (2019 revenues). In the private market the valuations are much richer which means at 15.9X assuming the $25 million 2018 target is a $13.70 target price. This is why investors must have this dividend of shares. This graphic encompasses their strategy. Warren Buffet has been a very big consolidator of private companies in this space and AtoZpay might be on its radar.
Valuation Gap Driven by Naked Short
All one has to do is look at the trading behavior of the stock for about 15 – 20 min and then it is readily apparent that ALL buying will be followed by a low offer giving the appearance of a big seller because there is actually a big seller. The seller is a naked short seller that got into a lot of trouble selling stock off of a hypothecated certificate that is no longer exists. This issue was litigated. It started off as 1.5 million share cert and has grown to 5.0 million shares. According to OTC markets there are 4.8 million shares in the float. This represents an epic short squeeze opportunity when 100% of the float is short. The question is what will be the catalyst. The catalyst is in 3 trading day but could come as early as Monday when FINRA announces to the broker dealers how this special dividend is to be paid. It will be paid via a stock certificate.
Breaking Down the Pending Distribution
The company announced a “spin-off” of the shares of a private entity called PT Weyland Indonesia Perkasa (WIP). This is the AtoZPay company that is growing like gangbusters is located in Indonesia. The language “spin-off” usually suggests that there is another public vehicle that the shares will go into allowing any shorts the opportunity to arbitrage the deal. This is commonly referred to as a Form 10-12B filing. Normally the purpose for a spinoff is to separate the growth and the core business in order to maximize valuation of the growth business which would get a better valuation on its own.
If this was in fact a spin-off which is it is NOT, here is what would happen from the short’s perspective. If someone was short shares of WEYL on the dividend date they owe shares in the “imaginary public vehicle” called WIP. So they would be able to buy “imaginary” shares of WIP to satisfy the dividend they were short in WEYL. This however is not the typical “spin-off” which really complicates matters for the short players. The shorts ONLY way to comply with the dividend instruction which will be released by FINRA on their UPC Advisory site as soon as Monday September 24, 2018 is to buy the stock.
Here’s the memo that the shorts likely missed from the 8-K filing on August 16, 2018. The shorts still think it’s a “spin-off” that will allow covering via a Form 10-12B Filing when in fact it’s a distribution of shares outside of DTCC. That distribution of shares “outside DTCC” forces the reconciliation of share ownership with respect to who is entitled to a dividend likely to be in the form of a paper certificate mailed to your address.
“As the Spin-Off will be processed outside of DTCC, the Company will provide further instructions to brokers, banks and shareholders regarding the procedures for receiving the distribution.”
Further details regarding WAI and its eWallet business will be provided in a Current Report on Form 8-K and an Information Statement, which will be filed on the SEC’s EDGAR reporting system prior to the distribution date for the Spin-Off.”
Once FINRA instructions to the brokerage houses are released a reconciliation of the shares will begin between the brokerage houses and DTCC. The UPC advisory for instructions forces the settlement of all accounts. So if there is a naked short in the stock all fail to delivers must be cleared by 4PM Wednesday. This means any brokerage house with a Fail-to-Deliver or Naked Short position on the books will force a buy-in on the position. Brokerage houses do not have the luxury of saying to their clients they can’t have the dividend because FINRA the governing body would shut them down immediately. With so many investors confident in the future prospects of the company it may take great price appreciation to get them to part with their shares.
Assume NITE has a position of 250,000 shares and then calls DTC and they only have 50,000 shares. In this scenario NITE is short 200,000 share. It doesn’t matter how NITE got into this position but they have to rectify it and do a buy in if needed. Only 3 days left on the clock so imagine all these firms running to buy back at the same time. It could be an epic short squeeze.
Genesis of the Naked Short Position
No one wakes up on day and says hey I want to naked short the entire float of the company. There has to be a story and some sort of rationale. It all started on May 28, 2015 when the company announced the definitive acquisition agreement with Singapore base mobile applications company, Technoprenuers Resource Centre Private Limited (TRC). On April 8, 2017 the original Purchase Agreement was rescinded which means a total of 8.352 million shares was to be returned. In conducting due diligence operating liabilities were uncovered and that affected the value of the company. Two certs have not been returned. One certificate was for 3.55 million shares and other was for 1.5 million shares. The certificate representing 1.5 million shares was contested, but the holder sold 800,000 restricted shares for $100,000 cash. On May 2016 they were transferred to another party on the basis that another party was to invest $800,000 in the business. This third party attempted to register the shares and now all restricted shares are frozen until the Singapore litigation is settled.
WEYL mentioned in the latest 10-Q that they have “settled a suit against another shareholder in Singapore, in a confidential settlement that is favorable and non-dilutive to the Company.” While the details are sparse the pieces of the puzzle fit. The 1.5 million cert seems like it was sold twice and split once. A likely buyer of these restricted shares would be a hedge fund who would then sell the shares in a short the box type transaction. After the litigation came to light and the hedge fund realized that they couldn’t clear the stock instead of taking the loss and buying the now uncovered short position back they continued to drive the price lower and increase their short position. In March 2018 the fund appeared to be shorting the stock into oblivion and evidence of that made its way onto the Investors Hub chat board.
The two primary actors in this soap opera are Train999 who is trying to clear the stock so he can sell it and then the short hedge fund Hongkongkingkong. If you click either one of their profiles the only stock they talk about is WEYL and their diction indicates they are foreigners. Hongkongkingkong and his posts are also one sided and reminds all about the litigation hoping this will depress the price and allow him to exit the short position.
If there is a massive naked short position investors will start to see price movement in the next two days on significant trading volume over 1.0 million shares a day. A buy-in from multiple trading desks will creates a frenzy. If this doesn’t happen then there are many reasons to like the stock on a fundamental basis. It’s in a hot region of the world and sales growth is exponential. They have the right product for the consumers. The dividend will allow the company to recognize a better valuation of the PaaS business without the drama of a potential naked short player. There are approximately 8 million shares still factored in the outstanding share count that could be retired on a favorable ruling. They have networked with many institutional investors who could simply purchase the whole company as part of a larger consolidation play once they gain critical mass. No matter which way you look at WEYL it’s grossly undervalued with a Long Term $20.00 price target.
Disclaimer: PSInvestor has NOT been compensated by the above mentioned company, nor by a 3rd party for this article. PSInvestor or persons associated with PSInvestor do have a LONG position in the company and may add or reduce this position at any time. For more about our disclaimer, please click here.