Fintec Global – A Deeper Dive leaves more questions than answers

Key topics to explore:

1) Steep NAV discount is an indication for bargain?

Fintec Global Berhad (“Fintec Global”) made a very successive investment in Focus Dynamics that skyrocketed in less than a year with over 300% absolute return. The total value of its quoted investments (including DGB Asia, NetX, etc) had an attractive implied valuation of c. RM350mil (as at Feb 2020) against Fintec Global’s market cap of ~RM35mil. Their wealth accumulation in Focus Dynamics, however, failed to lift the share price. Clearly, the “trickle-down” economics did not work in reality.

2) Suspicious “value-destructing” acquisitions in the past few months.

We would highlight the two key acquisitions into Seacera Group (a PN17 company) and Komarkcorp (at a significant premium) appeared to be value-destructing. As a result, Fintec Global recognised losses between 25% to 40% of the investments (within a space of a few months). Clearly, Fintec Global must have some solid rationale for investing in a PN17 company that we are not aware of. Perhaps we have exaggerated because it could be a long-term investment that could reap a reward for the shareholders. Whether it is value creation or destruction, it remains to be seen.

One thing to highlight is that shortly after the acquisition of Seacera Group, two of Fintec Global’s Non-Executive Directors (NEDs) were also appointed as NEDs at Seacera Group.  

3) One-hit wonder? Luck may be running out…

Tracking of the quoted investments’ one-year performance had us wondering whether Fintec Global can spot another Focus Dynamics. Excluding Focus and NetX, its other investments had declined by 20% to 75% over the past year. Of course, we do not know their actual costs; hence the underlying performance is probably not as bad albeit still alarming.

4) The interest of shareholders and management misaligned?

There appears to be a disconnection between the shareholders’ wealth (in terms of market capitalization) and management’s remuneration. Their so-called performance was supposed to derive from a mix of financial and strategic measures (profitability, shareholder value / market share).

5) One million-ringgit question – how low can it go?

Warren Buffet probably finds it hard to boost the share price despite seeing some value in it. The retail investors perhaps recognised the steep discount and hopeful that it might converge to its asset value one day. Our indicative theoretical valuation for Fintec is RM 0.15 (factoring in the diluting impact).

Do not get us wrong, we see significant value in Fintec Global (at the moment) with a P/B ratio at 0.15x and minimal debt. Their valuation is readily determinable and observable, given the significant value concentrated in Focus Dynamics. However, the management has a huge task ahead to prove themselves, only if that is their priority.

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