- AtozPay asset estimated at $68.4 million private valuation
- Grab Partnering with AtozGo in Co-Marketing Campaign
- Management moves telegraphing major catalyst
- Solid growth in CreateApp
- Higher PaaS valuations in private company’s
Weyland Tech Inc. (WEYL) is at an inflection point and set to explode higher if some potential catalysts materialize in the coming months. The ultimate catalyst would obviously be the outright purchase of the company. However, this is never a good strategy to buy a company based on that rationale alone. There has to be something fundamental backing it. However, there are always exceptions to any rule and we are going to explore why the risk to reward ratio is lopsided and how the company is actually extremely undervalued and should command a $3.10 price target. The fundamental story of WEYL has always been revenue and user growth, but the story is actually being masked by its ownership interest in AtozPay. The company used to give updates about AtozPay but then stopped. Did it stop because they only owned 5%? It’s difficult to speculate, but it could very well be the CEO, or the Lawyer, but it’s always more fun to blame the lawyer. The Occam’s razor theory says sometimes the simplest explanation is probably the most likely answer. Every time WEYL posted an update the stock went down. Those days appear to be over, but the stock remains at depressed valuations despite its war chest of expansion capital and growing sales.
- Jan 31, 2019 Weyland Tech Inc. and ‘Last-Mile’ Delivery Partner, PT Royal Express Indonesia (“REX”) Announce Launch Date of Pilot Program
- Apr 9, 2019 Weyland Tech Inc. Signs Letter of Intent for Strategic Business Alliance in Myanmar
- Jun 13, 2019 Weyland Tech Inc. Begins Pilot Program With Leading Telecom Provider for Indonesian Rollout of Its Platform as a Service Product
- Jul 16, 2019 Weyland Tech Inc. Launches Food Delivery Service in Indonesia with AtozGo
- Sept 4, 2019 Weyland’s AtozPay and Grab Partner for Short-Distance Food Delivery Service in Jakarta
- Oct 3, 2019 Weyland Tech to Acquire 31% Ownership of AtozPay and AtozGo
During the course of 2019, most of the announcements have been AtozPay centric and the only time CreateApp was mentioned was on June 13th and during the earnings and revenue guidance announcements and investor calls. By itself this focus shows most of the excitement has been happening in the privately owned AtozPay business. Investors have to go back to July 11, 2018 for the last written update on AtozPay when they announced “The company hereby restates its previous forecasts for Gross Transaction Volume (GTV) estimates for $30 million in 2018 and $80 million in 2019.” Since then the company hasn’t given any updated guidance $75 million is a conservative assumption for 2019. The key point that they made is that a private business is worth 2.4X GTV. That’s a $180 million valuation assuming the company hit its target $75 million in GTV. This doesn’t factor in any of these partnerships in 2019, and assumes they didn’t contribute to GTV at all, which means there could be an upside beat. After the dividend in 2018 the company owns 5% + the recently acquired 31% option for a total of 36% of AtozPay. This means the private asset sitting in WEYL is worth $64.8 million while WEYL sits at a current $50 million market cap.
Grab Acquisition Spree
Grab made headlines in April 2019 when it announced plans a raise of $2.0 billion with plans to expand to $6.5 billion to fund an acquisition spree in Southeast Asia. Grab has already gobbled up Kudo in 2017 and iKaaz in2018. They are locked in a battle with Go-Jek the other ride hailing company in the region. One of Grabs marquis investors is SoftBank. Grab currently had a cash hoard of $4.5 billion with an estimated private market capitalization of $14 billion. It made its plans public that it’s eying 6 acquisitions this year. It also has embarked on a strategy of developing a ‘super app’ which is planning on increasing the on demand service for it 600 million consumer base. Asia payments startup 2C2P was rumored to be in discussion with Grab earlier this year and was turned down by Grab.
If investors connect the dots, they will see that Grab has a horde of money and have openly stated they are in acquisition mode, they are locked in an intense battle with Go-Jek, and they love the idea of a super app, and have looked at smaller payment apps this year. The latest partnering move with AtozGo seems like the courting gesture before the marriage.
Potential Acquisition Structure
This is all speculation, but it seems obvious that Grab needs to grow big and fast. The key ingredients for AtozPay are the money and the infrastructure for growth. The only missing ingredient is the growth capital. The co-marketing agreement with Grab seems like a beta test before a sizeable investment. Grab has billions at its disposal but $10 – $50 million seems reasonable based on the estimated size of AtozPay. An investment of that size would have a huge multiplier effect. While it would be great to just see Grab do an outright purchase of AtozPay a sizeable investment seems imminent.
What makes this deal so difficult to handicap is that Grab wants to be a ‘super app’ company and it’s almost impossible to ignore the traction of CreateApp. Grab might make an investment in both companies. Grab could ultimately get the liquidity of a NADAQ vehicle through WEYL and still grow privately through AtozPay and possibly have WEYL spin out AtozPay at a future date acting as a mother ship for all of Grab’s future acquisitions. This is an extreme scenario but completely in the realm of possibility. WEYL could be the mother ship for Grab as Grab feeds them investment dollars for acquisitions that benefits the Grab ecosystem of a ‘super app.’
Telegraphing Impending Change
Sculpting the M&A Team
Over the summer some new team members came on board. By looking into their backgrounds investors can surmise a message. Sim Farar was the first to join the advisory board. He has many talents and strong relationships relating to public policy formation. If investors focus on the last goal of the Advisory Board “partnerships and M&A” the recent activity seems to be connected. The next addition was CMA and Investor Relations firm with deep roots in capital formation. Ron Both is the first name on the press releases and his key achievement was the involvement in more than 20 M&A’s. The final addition in August was Andre Peschong a partner at Bridgewater Capital. His highlights include M&A and he is a well authored writer on Forbes, Businessweek, New York Times, US News, The Street, and MarketWatch. The common theme among advisors is M&A and it just make sense when you look at the other pieces of the puzzle.
Brent Suen, the CEO of WEYL, coined the phrase “conviction buying.” In his December 2018 press release he mentioned his recent insider purchases demonstrated his believe that they are on the right strategic pathway. Since then he accomplished 2 more conviction buys in January 2019 at $.62 and as recently at October 15, 2019 at $.38. The most recent one should be an area of focus because 2 months earlier on August 19th he raised $6.4 million at $.15 and he did not participate! The stock over doubled from that price which means something likely happened during this period which was extremely bullish. Perhaps the partnership in Grab announced on Sept 4th had an effect, but when you see an option exercise for 31% of AtozPay and Grab mentioned in the same press release on October 3rd it is equivalent to a bride signing the marriage certificate and walking down the aisle. Do we really believe this isn’t going to happen? Even his insider purchases on this latest round started at $.34 and went as high as $.40 over a two week period indicating a sense of urgency. Brent takes a modest amount from the company, so as an executive with no additional resources this was a very big statement. As we know there are many reasons insiders sell but only one reason insiders buy, but his last round is highly indicative of an imminent catalyst.
NASDAQ Uplisting Preparation
On October 8, 2019 there was a PRE14A proxy statement filed. The essence of the proxy statement indicated a range of a 1 for 5 to a 1 for 20 reverse stock split to get the stock price higher for a potential NASDAQ uplisting. The meeting date is November 15, 2019 which forecasts the uplisting announcement by the end of the year. There are currently about 97 million shares issued and outstanding with a majority of those shares (43 million) restricted until February or under 2 year lock up provisions from the employees and insiders. This move is also designed to attract institutional ownership. Most OTC stocks that announce a reverse stock split come under immediate pressure as investors fear more dilution, but a company with growing revenues like WEYL are doing it to get the price up and graduate to a NASDAQ uplisting where its price should increase to a fair market multiple. The current WEYL market cap of $50 million is nowhere near a fair market multiple with the large ownership in AtozPay and the CreateApp business.
Core Business – CreateApp Valuation
In line with the latest guidance we are projecting $35 million in annual revenue for FY 2019 and are conservatively projecting 35- 40% growth and $50 million in revenue in FY 2020. According to Suen the sales momentum is riven by “greater adoption of CreatApp by SMBs in our existing markets as driven by our highly-productive channel partners.” The company has yet to provide better guidance on its R&D expense and COGS. The current model suggest 18% gross margin, but based on trend analysis the COGS seems to be transitioning from a variable cost to more of a fixed cost which means every incremental increase in revenue drops a much greater percentage to the bottom line. Therefore we see gross margins expanding to at least 20 – 25% in the coming year. These gains may be offset by increased SG&A as the company transitions to increased payroll compensation versus stock based compensation. Investors should not forget the cash hoard accumulated for the NASDAQ listing. As of June 30th they had 5.3 million in cash equivalents BEFORE they did the offering in August for $6.4 million. Assuming a little cash burn they have about $10 million + in cash or about $.10 is pure cash value of the company.
The public markets for PaaS companies are getting valuations 6 times sales assuming Bessemer’s valuations remained constant. With expected sales of $35 million this year the company should have a market capitalization of $210 million on just this portion of the company not factoring the AtozPay business unit. Under the current share structure the price should be valued between $2.20 (2019 revenues) to $3.10 (2019 revenues). This assumes investors assign ZERO value to the $86 million AtozPay asset which gives these values even more upside. In the private market where Grab operates, the valuations are much richer which means at 15.9X assuming the $35 million 2019 target is a $5.90 target price. Additionally, Buffet has been a known consolidator of private companies in this space and AtoZpay might be on its radar if Grab doesn’t snatch it first.
Market Share Translates to Greater Profitability
WEYL’s partnering efforts are moving forward at a relatively feverish pace yet with surgical precision. AtozPay recently expanded its product offering with AtozGo. AtozGo is a short-distance food delivery service like a doordash or Uber eats but located in Jakarta, Indonesia. AtozGo’s partner is Grab which has morphed into Southeast Asia’s largest mobile technology company that does everything from ride hailing, to food delivery, to financing and insurance. Like AtozPay, Grab is capitalizing on the large number of mobile users. If Grab can assimilate AtozPay they could become the dominate player in the region. The less money they have to spend fighting rivals translates into greater profitability. Grab seems to be attracted to players like AtozPay that have seized a first market mover advantage by capturing a sizeable user base in an untapped marketplace.
On a technical basis the stock put in a long term double bottom this year after a massive correction. On good volume the stock has finally perked up in recent weeks and turned the corner of the downtrend. WEYL has a history of explosive upside moves, but nothing in the past two years has been fundamentally backstopping it. The key resistance point it the 50 day moving average sitting at .61. Its only $.08 away so any breach of that level could lead to a serious round of short covering with a very short term upside target of $1.25 where the stock ran into some congestion last year. If any news catalyst mentioned earlier breaks it could take the stock back to test the 200 day moving average which has been flat for the better part of year and just starting to uptick. These technical factors are also in line with the fundamental analysis.
The point of this article is to show how undervalued these assets have become and demonstrate the mechanisms that will correct this gross market inefficiency. A NASDAQ listing is the ultimate arbitrator of inefficiently prices assets as it brings institutional coverage and liquidity that is not easily manipulated. Key partnerships like the one with Grab could lead major institutional coverage or as a minimum a strong financial partner that will eliminate their need to take any toxic financing. WEYL is currently on the QX exchange which means that a majority of the fund and firms are able to buy without being subject to penny stock rules. Any news of a Grab investment would quickly give rise to the price as investors realize there will be a scarcity of sellers.
Investors are completely discounting what a 36% interest in AtozPay means and if this article gets any traction and investors realize the timing and magnitude of an insider purchase, the conversion of an option, and a co-marketing agreement with Grab are not random events! An imminent catalyst is coming and investors should be prepared. Understand that there is a fundamental business that is completely undervalued on many metrics. The company has a $35 million run rate for 2019 which puts its value at $210 million using a 6X sales multiple. Investor should never invest because they think a company is going to be acquired even though every breadcrumb leads them to that conclusion. Focus on the fundamental story of WEYL and investors will see a growing PaaS business, multiple partnership opportunities, and an end to dilutive financing and OTC pricing inefficiency. The 6 – 9 month target price is $2.20 to $3.10 based on greater transparency of the earnings model.
Disclosure: The author of this article was not compensated for mentioning the above company but does hold a long position in the company. For our full disclaimer, click here.