We did not cover Revenue Group on our IPO Research but decided to subscribe the very last-minute realizing how fundamentally strong the company is. It was announced that the IPO offering was oversubscribed 11 times which make us feel that our chances of getting it had been lowered by a lot.

The opening price would likely be positive on opening day being an oversubscribed IPO but the story continues on asking which price to target for continuous accumulation.

A Brief History

Revenue Group is an back end electronics payment provider where they had been a part of this industry even before the rise of the word ‘Fintech’. According to their IPO Prospectus, AmBank had been their longest financial institution customer since 2004 and the list goes on opting for their services till date.

One thing for sure is that this isn’t a so called modern Internet based fly by night company. The integrity of their systems and credibility of their services plays a huge role in getting more and more customers to adopt their services.

The biggest name so far is China’s UnionPay services which opens up the market for them. China is the biggest market and with the number of Chinese people overseas, UnionPay had been the doorway to RMB based transactions and clearing overseas.

Taobao listed RevPay as one of their partners in their site.

Upcoming Development

With UnionPay services intact, this round’s IPO proceeds will lead the company to frontier markets of Cambodia and Myanmar for growth. Both very close to China and both very under-developed markets especially for online payments will provide a good prospect for Revenue Group’s growth.

Providing these services, it is best to be the market leader rather than 2nd in place because it is pretty clear that these types of companies naturally grow bigger and bigger due to economies of scale. The same infrastructure for services could be replicated easily with small modifications for each unique customer thus, economies of scale could be achieved easily.

This is why front-line services providers in the online transaction and payment industry grows bigger every year. In fact, at the end of the day, bigger actually means higher credibility similar to banks.

Fundamentals

Consistency over the years were shown in terms of profit and loss. The company registered strong margins for gross and even after tax. The revenue growth had been smooth as well and all that proves that the business structure had been successful in Malaysia.

With a strong base locally, the company could undertake new investments into frontier markets Cambodia and Myanmar. Any kinks and bumps along the path of expansion could be buffered with their strong performance locally and possibly seize a few more customer’s in Malaysia along the way.

We think that at times, an IPO could be a marketing campaign for a company where in this case, awareness towards Revenue Group had been created through this IPO. We now know who’s behind those transaction systems. Brand image improves and being a highly known brand automatically improves their credibility. Which points back to the most important thing for provider of these services.

Indeed, the money raised could have been done through private placements where Revenue Group could still be a Sdn Bhd but the effect of listing improves the awareness of the public somewhat similar to Alibaba’s re-listing/US listing not long ago. Alibaba renewed their presence in the world and gain the awareness from the US side ditching Hong Kong listing where they delisted from there earlier.

Valuations

We think that based what’s written on the prospectus, the Post-IPO market capitalization would put the company’s value at RM 82 million.

Although not the best to compare with Revenue Group, we chose Manage Pay (MPAY) as reference and the company is currently valued at RM 113 million. But sadly, MPAY isn’t a performer in terms of profitability. The firm started to make losses and eventually stressed the balance sheet acquiring retained losses as reported in the latest quarter.

Our conservative estimate puts the company’s valuation is only RM 100 million. Meaning we suggest that IPO pricing of RM 0.37 would see a RM 0.45 listing price or a gain of 20% from listing.

We wouldn’t be surprised if Revenue Group trades at a market capitalization of RM 113 million similar to MPAY’s. That would see the share price trading at RM 0.50 per piece or a 37% gain!

Listing Date

Our target buy is to collect on weakness at market capitalization lower than RM 100 million (maybe closer to RM 90 million side). On listing date, if the opening price is way up above 20%, we would take profit first and collect more when the market calms.

That strategy depends on how many shares would be allocated as well. With 11 times oversubscribe, we felt that only 30% of total subscription would be fulfilled.

Would follow up when it’s closer to listing date. Congratulations to those who subscribe, this company is rare to come by for the Malaysian market.