Investment Highlights

• We reiterate our BUY recommendation on N2N Connect (N2N) with a revised fair value of RM1.50/share (vs. RM1.52/share) based on an unchanged FY19F PE of 25x. We have revised our FY18F-FY20F EPS by 1-2% following the announcement of a proposed private placement. While the placement dilutes EPS by 1-2%, we believe exciting developments from a potential strategic alliance are likely to follow – which have not been factored in pending further clarity on the financial impact.

• N2N has proposed to place out approximately 52mil new ordinary shares (10% of total issued shares excluding treasury shares) to SBI Holdings (SBI). The issue price has been fixed at RM1.25/share, which represents a 13% premium to the 5-day VWAP – a testament to N2N’s deep value. The exercise is expected to raise net proceeds of about RM65mil, which would be utilised entirely for business expansions within 2 years.

• SBI, first incorporated under the name of SoftBank Investment Corporation, was the finance arm of technology behemoth SoftBank Group until it was sold in 2006. SBI’s current CEO Kitao Yoshitaka served as the CFO of SoftBank. He is said to have led some of the high-profile investments like Alibaba Group, Yahoo Japan and E*Trade Japan.

• SBI operates multiple businesses including banking services, insurance and securities brokerage. In addition, its asset management arm invests in IT, biotechnology and other finance-related businesses. As of its FY17, SBI had the highest share of individual stock trading value in Japan.

• The proposed exercise is motivated by the intention of forming strategic business alliances between N2N and SBI. The collaboration is aimed at expanding N2N’s regional footprint and expedite the set-up of an “Asia trading hub”. In addition, the collaboration allows N2N to tap into SBI’s large network of brokers and its headway in the financial technology (fintech) such as blockchain.

• According to CNBC, SBI is the most active investor of blockchain, followed by the likes of Google, Goldman Sachs and Citigroup. Blockchain is more than just the technology behind Bitcoin. Globally, corporates are racing to develop the technology for commercial applications such as trade processing/settlement and cross-border payments. It promises more transparent and faster processes. Therefore, the collaboration allows N2N to get its feet wet in a disruptive industry that potentially offers robust multi-year growth.

• We continue to like N2N due to: 1) its leading position in the online trading solutions space; 2) the acquisition of AFE, which offers tremendous earnings accretion; and 3) the affordability of TCPro Global, which could help the group win the market share from global competitors such as Bloomberg and Thomson Reuters.

Source: AmInvest Research - 7 Jun 2018