Kina Securities Limited

KSL Details

Kina Securities Limited (ASX: KSL) operates as a financial services company providing stockbroking and financial advice, small business loans, investments to mortgages, investment management and fund administration services. The company operates in three segments, namely, Banking & Finance, Wealth Management and Corporate.

Update on Acquisition: On September 22, 2021, KSL and Westpac Banking Corp (WBC) mutually decided to terminate the agreement for the purchase of Westpac’s Pacific businesses by KSL. The Pacific business represents Westpac Fiji and Westpac Bank PNG Limited (89.91% held by WBC). This was after the regulatory body of Papua New Guinea, Independent Consumer and Competition Commission, denied the authorization of the proposed acquisition by KSL on September 14, 2021.

H1FY21 Result Summary:

• Launched a new online payment platform, Pei Beta, and X-Change, a forex payment platform during the period. Accelerated growth in internet payment gateway services through strategic tie-ups with Niupay. Launched a new services model for advisory services catered to SME and commercial segments.
• KSL witnessed digital services revenues spike 66% over the last year and 9% offtake in gross loans and advances to PGK 1.8 billion. Deposits reached a growth of 8% to PGK 2.8 billion in H1FY21.
• It had clocked net interest income growth of 6% to reach PGK 85.4 million over PcP. And overall revenues went up 4% to reach PGK 155.7.
• New client wins in the commodities trade business translated to forex income growth of 3%.
• On the portfolio health, gross non-performing loans to advances inclined from 4.5% in H1FY20 to 6.4% in H1FY21. While non-performing loans and loans in arrears plunged to 9.0% in H1FY21 from 10.7% in PcP.
• The bank’s capital adequacy ratio remains healthy at 23.3%.
• KSL announced an interim dividend of AUD 3 cps in H1FY21.

Fairly Stable Capital Adequacy Ratio (Source: Analysis by Kalkine Group)

Key Risks: KSL’s banking business is highly regulated. It had experienced a rating downgrade by Moody’s to B2 rating, which may affect the financing of projects. Change in interest rates, rising inflation may adversely affect lending and deposit growth.

Outlook: KSL continues to invest in digital banking for online and mobile retail banking. Even after the termination of the proposed acquisition of Westpac’s Pacific businesses, KSL is optimistic about growth with FY21 results to be in line with FY20.  The launch of forex payment platform to augur its forex segment and the company’s advisory services to SME to unlock new revenue streams.  

Valuation Methodology: Price/Book Value Multiple Based Relative Valuation (Illustrative)

Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: Over the last six months, the stock has corrected by ~23.47%, and it is trading lower than the average of the 52-week low price of $0.795 and the 52-week high price of $1.200. The stock has been valued using a Price/Book Value multiple-based illustrative relative valuation and arrived at a target price with an upside of low double-digit (in percentage terms). The company can trade at a slight premium to its peers, considering its accelerated digital push, new product launches and foray into SME advisory services. For the valuation purpose, peers such as Westpac Banking Corp. (ASX: WBC), Australia and New Zealand Banking Group Ltd. (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA), and others have been considered. Considering the healthy loan growth, adequate capital ratios, expansion in net interest margin in H1FY21, various partnership tie-ups, upside indicated by the valuation, and key associated business risks, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.810 as on 24 December 2021, 10:45 AM (GMT+10), Sydney, Eastern Australia.

KSL Daily Technical Chart, Data Source: REFINITIV 

QuickFee Ltd.

QFE Details

QuickFee Ltd. (ASX: QFE) operates an online payment portal that helps to pay invoices upfront. QFE also provides lending solutions. It caters to customers in Australia. QFE was listed in ASX on July 11, 2019. 

Key Strategic Developments:

• QFE to operate Jim’s Buy Now product, Jim’s Pay Plan through the acquisition of franchise rights. The plan was widely sold to 4,400 Jim’s franchisees covering entire Australia. The services will provide customers with four, six, nine, and 12-month instalment options. The franchise option has a life of 20 years with an option to renew.
• QFE inked a deal with Northleaf Capital Partners for a new US$70 million asset-backed receivable funding facility that helps QFE in funding US and Australia growth plans. The facility also has an option to provide an additional US$30 million funding. The new four-year facility will replace the existing A$25 million facility.

Q1FY22 Review:

• US Pay Now transaction values inclined 42% to reach US$180.1 million in Q1FY22 over PcP.
• Australia showed strong recovery with lending under Pay Later plans surged 28% to reach A$8.2 million.
• It had launched QuickFee Connect and cloud-based accounting software Xero during the period and signed the BlueSnap partnership.
• QFE clocked active merchant growth of 44% to 580 in the US market.
• Government stimulus plans and increased demand for lending saw expansion in active customers to 13,200 in Q1FY22 over the last year in Australia.
• During the quarter, QFE appointed Aubrey Amatelli as Chief Revenue Officer for the US market.

The Trend in Lending under Pay Later Plans (Source: Analysis by Kalkine Group)

Key Risks: BNPL business is under regulatory scrutiny in recent periods given the higher asset impairment levels and losses. QFE lacks scalability when compared to established financial service providers in the US and Australian markets. Market risk, inflation risk, and monetary policy decisions have a direct correlation to profitability and growth in lending. 

Outlook: With the growing adaption of online payments, the company believes that its QuickFee platform has strong growth potential. It had launched an automated merchant application platform that increases conversion rate and decreases cost per lead and cost of merchant acquisition. QFE onboarded over 50 third-party resellers to boost revenue from Independent Sales Organization Channel.

Stock Recommendation: Over the last six months, the stock has corrected by ~40.74%. QFE just recovered from its 52-week low price of A$0.150. On a TTM basis, the stock has been valued at 1.5x using the Price/Book Value multiple as compared to the industry median of 2.3x (Industrials). This signifies that the stock is undervalued at current levels. Considering the strong traction in Pay Later lending platform, strategic tie-ups, new product launches, valuation on a TTM basis, and key associated business risks, we recommend a “Speculative Buy” rating on the stock at the closing market price of $0.160, down by ~5.883% as on 24 December 2021.

QFE Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors' appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and is subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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