iCar Asia Limited

ICQ Details

Trading Halt & Acquisition Proposal Obtained: iCar Asia Limited (ASX: ICQ) is developing and operating internet-based automotive portals in South-East Asia. ICQ operates in Malaysia, Indonesia, and Thailand. As of 13 July 2021, the market capitalisation of ICQ stood at ~$132.59 million.  On 13 July 2021, ICQ announced that it has received an acquisition proposal from Carsome Group Pte Limited (“Carsome”). As per the proposal, Carsome and its associates would purchase all those ordinary shares in ICQ, which Carsome does not currently own. The purchase price estimated would be $0.055 cash per share.

Carsome has also signed contracts with Catcha Group Pte Limited (“Catcha”). Under the sale agreement, Carsome will purchase 89.45 million (~19.9%) ICQ shares from Catcha and one of Catcha’s entities and issue (Carsome) shares in exchange.

In another “Joint Bid Agreement”, Catcha and Carsome will engage cordially for the proposal wherein Catcha would acquire the balance shareholding in ICQ and Carsome would issue shares in exchange.  

The acquisition proposal is subject to the fulfilment of due diligence by Carsome, court and ICQ’s shareholder approval and others. The acquisition of the ICQ shares under the two Agreements is subject to Catcha and Carsome’s receipt of joint bid relief from ASIC. The acquisition of the ICQ shares as per the “Joint Bid Agreement” is also subject to the “proposal” becoming operative.

Key Takeaways From FY20 Results:

• Decline in Revenue: The company posted $14.05 million of revenue in FY20, down by 5% on pcp. The dip in revenue was due to the COVID-19 lockdown situation in the operating geographies. ICQ undertook online car bookings and automotive events, held customer interactions, and exercised cost control to address the adverse impact of the COVID-19.
• Reduced Opex: As a result of cost control measures, ICQ reported a decline in the operating expenses by 9% YoY to $19.23 million in FY20. The Pro-forma EBITDA losses also reduced by 13% YoY to $4.82 million in FY20 due to the reorganisation of costs.
• Improved Net Cash Flows: The company reported a 13% YoY reduction in the net cash used in operating activities in FY20 due to lower operating expenses and renegotiated payment period with major suppliers. ICQ held $2.16 million of cash, cash equivalents and investments as of 31 December 2020.

 Revenue & Loss After Income Tax Trend from FY16-FY20; (Analysis by Kalkine Group)

 Key Risks: The company faces the risk of lockdown disruptions in the operating markets affecting the demand for cars on its portal. ICQ also faces a slowdown in demand due to an increase in oil prices.

Outlook: The firm is focusing on cost rationalisation resulting in declining EBITDA losses. ICQ aims to cut down on costs and losses further due to recovery in demand, automotive industry, and increased marketing spend. As a result, the company expects businesses in all the operating markets to resume a growth track in future.

Stock Details: The stock of ICQ gave a positive return of 71.42% in the past nine months and a positive return of 62.71% in the past year. In October 2020 also, ICQ received an acquisition offer from the Chinese e-commerce firm, Autohome, for a 100% purchase of ICQ’s issued share capital and at $0.50 per share. ICQ is still in talks with Autohome. We would suggest investors wait for the upcoming developments with regards to the proposed takeover and probable price appreciation. Because of the agreements entered with Catcha, Carsome is now an initial substantial shareholder with 28.24% voting rights in ICQ. The stock has closed at the current market price of $0.480, up by 60.0% as on 13 July 2021, owing to the news of acquisition proposal by Carsome.

ICQ Daily Technical Chart, Data Source: REFINITIV  

Esports Mogul Limited

ESH Details

Partnership with Inclusion Companies: Esports Mogul Limited (ASX: ESH) is an eSports media and software firm. As of 13 July 2021, the market capitalisation of ESH stood at ~$25.94 million. On 26 May 2021, ESH announced that Director Gernot Abl purchased 25.0 million performance rights with shareholders' approval in the Annual General Meeting on the same date. On 18 May 2021, the company announced that ReWired Fest, a company powered by Walmart, has chosen ESH as the eSports tournament provider for the former’s “ReWired Festival” series. With this selection, ESH has entered a partnership with Inclusion Companies, founder of ReWired Fest. The alliance is expected to bring a new revenue stream for ESH the festival is for multiple events and years. The partnership is of strategic value to foster ESH’s presence in North America. This event is also an opportunity for ESH to present its platform technology and build a sales pipeline.

Q1FY21 (March Quarter) Highlights:

• Increase in Revenue: ESH reported revenue of $32,000, up by 39% YoY due to slow down in the esports activities during this time of the year. The big brands contributed 99.5% of the revenue in Q1FY21.
• Expanded in North America: In Q3FY21, ESH expanded into North America to deliver online Halo 5 tournament series for Kellogg’s brand. ESH deployed Martech products in partnership with Esport Arena.
• Well-Funded: The company holds $7.01 million of cash and cash equivalents as of 31 March 2021 and has reported being well-funded for at least more than 20 months.

Revenue & Net Loss After Tax from FY18-FY20; (Analysis by Kalkine Group)

Key Risks: The company faces COVID-19 disruptions to prevent people from gathering and attending games events in person. ESH also faces the risk of technological advancements and technical glitches in operating the platform.

Outlook: In the March 2021 quarter, ESH has introduced solutions engineering and estimates these services to generate 50% incremental revenue per engagement in 2021. Mogul is in final discussions with more brands in Asia, North America, Europe, Oceania to offer platform and solutions engineering. Mogul is experiencing significant traction across sectors such as global retail, telcos, consumer packaged goods, and electronics. ESH plans to update once the engagement pricing and scope is finalised.

Stock Recommendation: The stock of ESH gave a negative return of 27.27% in the past three months and a positive return of 60% in the past year. The stock is currently trading lower than the 52-weeks’ average price level band of $0.004 - $0.031. On a TTM basis, the stock of ESH is trading at a price to book value multiple of 6.1x lower than the industry (Technology) average of 7.6x, thus seems undervalued. Considering the current trading levels, increase in revenue, additional revenue generation expected from the new solutions engineering services over and above the platform access fees, valuation on a TTM basis, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.008, down by 11.112% on 13 July 2021.

ESH Daily Technical Chart, Data Source: REFINITIV  

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

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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 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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