Value Investing

Vladimir Dimitrov, CFA

Equity Bottom-Up

<ul>
<li>Fiserv is valued as a slow-growth and low return on capital legacy business, although this does not appear to be the case.</li>
<li>At present, the expected topline growth rate is far from spectacular, but parts of the business are growing fast and could result in a multiple repricing.</li>
<li>Due to the acquisition of First Data, the company's improving profitability is a better measure of business performance than return on capital is.</li>
</ul>


Fiserv is valued as a slow-growth and low return on capital legacy business, although this does not appear to be the case.
At present, the expected topline growth rate is far from spectacular, but parts of the business are growing fast and could result in a multiple repricing.
Due to the acquisition of First Data, the company's improving profitability is a better measure of business performance than return on capital is.


Fiserv - Investing In Transforming Leaders Rather Than Disruptors

SGX Market Strategist, Equity & Fixed Income, Singapore Exchange Ltd (SGX)

Geoff Howie

SGX Market Strategist, Equity & Fixed Income

Asia’s leading multi-asset exchange

Singapore Exchange Ltd (SGX)

Singapore Exchange is Asia’s leading and trusted market infrastructure, facilitating the exchange of capital and ideas to create value for people, businesses and economies. As a multi-asset exchange operating equity, fixed income and derivatives markets to the highest regulatory standards, SGX is a vertically integrated business that provides listing, trading, clearing, settlement, depository and data services.

With about 40% of listed companies and over 80% of listed bonds originating outside of Singapore as well as established linkages across the region and in Europe, SGX is Asia’s most international and connected exchange. Offering a full suite of derivatives products across Asian equity indices, commodities and currencies, SGX is the world’s most liquid international market for the benchmark equity indices of China, India, Japan and ASEAN.

As Asia’s pioneering central counterparty, SGX is globally recognised for its risk management and clearing capabilities, and was one of the first globally to adopt the Principles for Financial Market Infrastructure.

Headquartered in AAA-rated Singapore, SGX has over 800 employees including offices in Beijing, Chicago, Hong Kong, London, New York, Mumbai, San Francisco, Shanghai and Tokyo.

International Business Machines / Equity Bottom-Up

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<ul>
<li>
Credit Bureau Asia, the largest provider of credit bureau services within Singapore and the sole credit bureau in Cambodia and Myanmar, made its debut on the SGX Mainboard. 
	 </li>
	<li>
Credit Bureau Asia operates two main segments: 1) FI Data Business, providing subscribing members (mainly banks and FIs) with access to credit information on individual consumers and/or registered business entities; and 2) Non-FI Data Business, providing customers with business information and risk management services, sales and marketing solutions, commercial insights and other services. 
	 </li>
	<li>The Group does not have a fixed dividend policy, however, the Board intends to recommend dividends of at least 90% of its net profit after tax attributable to shareholders for FY2021 and FY2022.</li>
</ul>
 

Credit Bureau Asia (CBA) is a leading player in the credit and risk information solutions (CRIS) market in Southeast Asia, providing CRIS to an extensive client base of banks, financial institutions (FIs), multinational companies, telecommunication companies, government bodies and public agencies, local enterprises and individuals across Singapore, Malaysia, Cambodia and Myanmar. In particular, operations in Myanmar recently commenced in the fourth quarter of 2020. 
CBA has two core business segments:

<ol>
<li>
FI Data Business: Provide subscribing members, mainly banks and financial institutions, with access to credit information on individual consumers or registered business entities, or both, all of which are generated from up-to-date credit information contributed by subscribing members.</li>
	<li>
Non-FI Data business: Provide customers with a wide range of business information and risk management services, sales and marketing solutions, commercial insights and other services.</li>
</ol>
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<figure>
 <img src='https://api2.sgx.com/sites/default/files/2020-12/Capture_0.PNG' alt='Revenue Breakdown' />
 </figure>
 <div class='content-caption'>Revenue Breakdown</div>
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Highlights of the IPO

 1. Extensive and high-quality data as a foundation for a wide range of products and services 
 

<ul>
<li>
Long operating history and position as the first-movers in Singapore, Cambodia and Myanmar have allowed CBA to build and maintain an extensive information database which would be difficult for new market entrants to replicate. </li>
	<li>
To ensure the quality of data, CBA conducts data accuracy tests regularly and conduct investigation on any inaccuracies.</li>
	<li>
Leveraging on extensive data, CBA’s credit scores have increased predictiveness and has been endorsed by a high rate of adoption by customers. 
	 </li>
</ul>
2. Unique defensive business model with resilient revenue streams

 

<ul>
<li>
Ability to benefit from increasing volume of credit and trade transactions during an economic boom whilst maintaining resilient revenue streams during periods of economic downturn, as customers are likely to conduct more risk assessments and purchase more credit reports for risk mitigation purposes.</li>
	<li>
Increasing governmental and industry regulation, risk management requirements and the rising importance of data in decision-making, have resulted in an increasing importance and need for credit and risk information solutions. 
	 </li>
</ul>
3. Dominant market leader and well-positioned for growth  
 

<ul>
<li>CBA is the largest provider of credit bureau services within Singapore and the sole credit bureau in Cambodia and Myanmar.</li>
	<li>
CBA sees ample growth opportunities in emerging markets such as Cambodia and Myanmar, which have seen growth in the general population and urban population but generally low banked population and low credit card penetration rates.</li>
	<li>
Within two years of operations, the Cambodia business had generated a positive profit after tax and cash flows from operations. CBA believes that the demand for credit and risk information solutions in Myanmar is likely to grow in line with its growing population of approximately 53.0 million banked population and GDP per capita. 
	 </li>
</ul>
4. Long-standing and captive portfolio of customers, and experienced management team 
 

<ul>
<li>
As at 30 June 2020, the FI Data Business provides products and services to close to 200 FI members across Singapore and Cambodia, which include banks, microfinance institutions, leasing companies and rural credit operators</li>
	<li>
The Non-FI Data Business has over 6,000 customers across Singapore and Malaysia which include established corporations such as Procter &amp; Gamble, IBM, Canon, Hitachi, Samsung and Unilever and FI Data Business customers, such as American Express, Citibank, DBS Bank and Standard Chartered Bank. 
	 </li>
</ul>
5. Proven financial performance and strong cash flows 
 

<ul>
<li>
Revenue and profitability have grown significantly, with combined revenues growing at a 2 year CAGR of 6.7% between FY2017 and FY2019, and combined PATMI growing at a 2 year CAGR of 16.3% between FY2017 and FY2019. The Group recorded combined EBITDA margins ranging from 43.8% to 63.4% and combined PATMI margins ranging from 14.5% to 18.1%, both from FY2017 to HY2020.</li>
	<li>
CBA considers the nature of its business to be highly-cash generative without the need to incur a significant amount of capital expenditure. The Group has a cash conversion ratio ranging from 69.7% to 83.3% from FY2017 to FY2019. 
	 </li>
</ul>
Business Strategies and Future Plans 
 

<ul>
<li>
Continuing to drive growth within its existing market 
	 
	<ul>
<li>
Singapore: Provide corporate credit reporting for commercial bureau operator license, expand membership of credit bureau services to insurance companies, lenders, leasing companies and upcoming digital banking businesses, real-time credit data analysis, risk diligence products and service offerings in Singapore Commercial Credit Bureau platform, and develop, establish and operate the Moneylenders Credit Bureau.</li>
		<li>
Cambodia: Rollout products/services with the growth of Cambodia’s economy and its credit industry, introduce services such as know-your-customer checks, employment verification, fraud detection &amp; prevention and identity verification.  </li>
		<li>
Myanmar: Rollout product/services based on past successful strategies in Singapore and Cambodia, introduce credit reports and monitoring services to licensed FIs and widen membership to include non-bank credit providers. 
		 </li>
	</ul>
</li>
	<li>
Expanding into new markets – Explore opportunities to expand to other territories in ASEAN region and have right of first refusals in respect of certain credit bureau businesses in Indonesia.</li>
	<li>
Advancing technological capabilities – The manager will seek to use an overall risk strategy which balances the level of risk while enhancing business goals. 
	 </li>
</ul>
Key Risks (See Page 29 of the IPO Prospectus for more risk factors)

<ul>
<li>Subject to regulatory requirements and may not be able to successfully retain, renew or obtain licences and approvals required for business and expansion plans.</li>
	<li>May not be able to obtain the licences and approvals under the Credit Bureau Asia of Singapore.</li>
	<li>Products and services rely on licensing and service agreements, joint venture agreements as well as shareholder agreements with our joint venture partners with whom we may encounter difficulties.</li>
	<li>Our Non-FI Data Business depends substantially on one of our key joint venture partners, Dun &amp; Bradstreet, who is both a major customer and major supplier.</li>
</ul>
 

Financials &amp; Valuation 
 

<ul>
<li>Based on its summary combined financial statements, revenue for FY2019 was at S$40.6 million and unaudited revenue for HY2020 was S$20.5 million. Profit attributable to owners of the companies for FY2019 was S$7.0 million while HY2020 (unaudited) was S$3.7 million.</li>
	<li>According to the IPO prospectus, CBA’s adjusted earnings per share (EPS) is at 3.05 Singapore cents for FY2019 and 1.61 Singapore cents for HY2020 (unaudited). The price-to-earnings (P/E) ratio is 30.5x for FY2019 and 28.9x for HY2020 (unaudited), based on the offer price of S$0.93.</li>
	<li>The Group does not have a fixed dividend policy, however, the Board intends to recommend dividends of at least 90% of its net profit after tax attributable to shareholders for FY2021 and FY2022. Based on its FY2019 adjusted EPS of 3.05 Singapore cents, this would imply a dividend yield of 3.0% based on at least 90% of profit after tax attributable to shareholders for FY2019. However, investors should note that this should not be treated as an confirmation of the company’s future dividend payouts.</li>
</ul>
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<figure>
 <img src='https://api2.sgx.com/sites/default/files/2020-12/Capture%201.PNG' alt='Revenue' />
 </figure>
 <div class='content-caption'>Revenue</div>
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Additional Information from Prospectus <a href="https://links.sgx.com/FileOpen/CBA%20prospectus.ashx?App=IPO&amp;FileID=6234">(click here)</a>

 IPO details

·       Offer price at S$0.93 per Offering Share

·       Offered: 30.0 million Offering Shares

<ul>
<li>28.5 million Placement Shares</li>
	<li>1.5 million Public Offering Shares</li>
</ul>
·       Estimated IPO market capitalisation at S$214.3 million

·       Use of gross proceeds (S$27.0 million):

<ul>
<li>S$7.1 million – Organic growth initiatives such as product development, software development, and investments</li>
	<li>S$11.8 million – Strategic investments, regional expansion and acquisitions</li>
	<li>S$4.7 million – General corporate and working capital purposes</li>
	<li>S$3.3 million – Payment of underwriting and placement commissions and offering expenses</li>
</ul>
 

Cornerstone Investors

At the same time as but separate from the Offering, each of the Cornerstone Investors has entered into a cornerstone subscription agreement with our Company to subscribe for an aggregate of 28,000,000 new Shares (approx.. 12.2% of the total number of issued shares) at the Offering Price, conditional upon the Underwriting Agreement having been entered into and not having been terminated pursuant to its terms on or prior to the Listing Date. The Cornerstone Investors are:

<ul>
<li>Aberdeen Standard Investments (Asia) Limited</li>
	<li>Affin Hwang Asset Management Berhad</li>
	<li>Eastspring Investments (Singapore) Limited</li>
	<li>Tokyo Shoko Research Ltd</li>
</ul>
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Credit Bureau Asia, the largest provider of credit bureau services within Singapore and the sole credit bureau in Cambodia and Myanmar, made its debut on the SGX Mainboard. 
	 
	
Credit Bureau Asia operates two main segments: 1) FI Data Business, providing subscribing members (mainly banks and FIs) with access to credit information on individual consumers and/or registered business entities; and 2) Non-FI Data Business, providing customers with business information and risk management services, sales and marketing solutions, commercial insights and other services. 
	 
	The Group does not have a fixed dividend policy, however, the Board intends to recommend dividends of at least 90% of its net profit after tax attributable to shareholders for FY2021 and FY2022.

 

Credit Bureau Asia (CBA) is a leading player in the credit and risk information solutions (CRIS) market in Southeast Asia, providing CRIS to an extensive client base of banks, financial institutions (FIs), multinational companies, telecommunication companies, government bodies and public agencies, local enterprises and individuals across Singapore, Malaysia, Cambodia and Myanmar. In particular, operations in Myanmar recently commenced in the fourth quarter of 2020.  
CBA has two core business segments:



FI Data Business: Provide subscribing members, mainly banks and financial institutions, with access to credit information on individual consumers or registered business entities, or both, all of which are generated from up-to-date credit information contributed by subscribing members.
	
Non-FI Data business: Provide customers with a wide range of business information and risk management services, sales and marketing solutions, commercial insights and other services.




      
    
    Revenue Breakdown


Highlights of the IPO

 1. Extensive and high-quality data as a foundation for a wide range of products and services  
 



Long operating history and position as the first-movers in Singapore, Cambodia and Myanmar have allowed CBA to build and maintain an extensive information database which would be difficult for new market entrants to replicate. 
	
To ensure the quality of data, CBA conducts data accuracy tests regularly and conduct investigation on any inaccuracies.
	
Leveraging on extensive data, CBA’s credit scores have increased predictiveness and has been endorsed by a high rate of adoption by customers. 
	 

2. Unique defensive business model with resilient revenue streams

 



Ability to benefit from increasing volume of credit and trade transactions during an economic boom whilst maintaining resilient revenue streams during periods of economic downturn, as customers are likely to conduct more risk assessments and purchase more credit reports for risk mitigation purposes.
	
Increasing governmental and industry regulation, risk management requirements and the rising importance of data in decision-making, have resulted in an increasing importance and need for credit and risk information solutions. 
	 

3. Dominant market leader and well-positioned for growth   
 


CBA is the largest provider of credit bureau services within Singapore and the sole credit bureau in Cambodia and Myanmar.
	
CBA sees ample growth opportunities in emerging markets such as Cambodia and Myanmar, which have seen growth in the general population and urban population but generally low banked population and low credit card penetration rates.
	
Within two years of operations, the Cambodia business had generated a positive profit after tax and cash flows from operations. CBA believes that the demand for credit and risk information solutions in Myanmar is likely to grow in line with its growing population of approximately 53.0 million banked population and GDP per capita. 
	 

4. Long-standing and captive portfolio of customers, and experienced management team 
 



As at 30 June 2020, the FI Data Business provides products and services to close to 200 FI members across Singapore and Cambodia, which include banks, microfinance institutions, leasing companies and rural credit operators
	
The Non-FI Data Business has over 6,000 customers across Singapore and Malaysia which include established corporations such as Procter &amp; Gamble, IBM, Canon, Hitachi, Samsung and Unilever and FI Data Business customers, such as American Express, Citibank, DBS Bank and Standard Chartered Bank. 
	 

5. Proven financial performance and strong cash flows 
 



Revenue and profitability have grown significantly, with combined revenues growing at a 2 year CAGR of 6.7% between FY2017 and FY2019, and combined PATMI growing at a 2 year CAGR of 16.3% between FY2017 and FY2019. The Group recorded combined EBITDA margins ranging from 43.8% to 63.4% and combined PATMI margins ranging from 14.5% to 18.1%, both from FY2017 to HY2020.
	
CBA considers the nature of its business to be highly-cash generative without the need to incur a significant amount of capital expenditure. The Group has a cash conversion ratio ranging from 69.7% to 83.3% from FY2017 to FY2019. 
	 

Business Strategies and Future Plans 
 



Continuing to drive growth within its existing market 
	 
	

Singapore: Provide corporate credit reporting for commercial bureau operator license, expand membership of credit bureau services to insurance companies, lenders, leasing companies and upcoming digital banking businesses, real-time credit data analysis, risk diligence products and service offerings in Singapore Commercial Credit Bureau platform, and develop, establish and operate the Moneylenders Credit Bureau.
		
Cambodia: Rollout products/services with the growth of Cambodia’s economy and its credit industry, introduce services such as know-your-customer checks, employment verification, fraud detection &amp; prevention and identity verification.  
		
Myanmar: Rollout product/services based on past successful strategies in Singapore and Cambodia, introduce credit reports and monitoring services to licensed FIs and widen membership to include non-bank credit providers. 
		 
	

	
Expanding into new markets – Explore opportunities to expand to other territories in ASEAN region and have right of first refusals in respect of certain credit bureau businesses in Indonesia.
	
Advancing technological capabilities – The manager will seek to use an overall risk strategy which balances the level of risk while enhancing business goals. 
	 

Key Risks (See Page 29 of the IPO Prospectus for more risk factors)


Subject to regulatory requirements and may not be able to successfully retain, renew or obtain licences and approvals required for business and expansion plans.
	May not be able to obtain the licences and approvals under the Credit Bureau Asia of Singapore.
	Products and services rely on licensing and service agreements, joint venture agreements as well as shareholder agreements with our joint venture partners with whom we may encounter difficulties.
	Our Non-FI Data Business depends substantially on one of our key joint venture partners, Dun &amp; Bradstreet, who is both a major customer and major supplier.

 

Financials &amp; Valuation 
 


Based on its summary combined financial statements, revenue for FY2019 was at S$40.6 million and unaudited revenue for HY2020 was S$20.5 million. Profit attributable to owners of the companies for FY2019 was S$7.0 million while HY2020 (unaudited) was S$3.7 million.
	According to the IPO prospectus, CBA’s adjusted earnings per share (EPS) is at 3.05 Singapore cents for FY2019 and 1.61 Singapore cents for HY2020 (unaudited). The price-to-earnings (P/E) ratio is 30.5x for FY2019 and 28.9x for HY2020 (unaudited), based on the offer price of S$0.93.
	The Group does not have a fixed dividend policy, however, the Board intends to recommend dividends of at least 90% of its net profit after tax attributable to shareholders for FY2021 and FY2022. Based on its FY2019 adjusted EPS of 3.05 Singapore cents, this would imply a dividend yield of 3.0% based on at least 90% of profit after tax attributable to shareholders for FY2019. However, investors should note that this should not be treated as an confirmation of the company’s future dividend payouts.




      
    
    Revenue


Additional Information from Prospectus (click here)

 IPO details

·       Offer price at S$0.93 per Offering Share

·       Offered: 30.0 million Offering Shares


28.5 million Placement Shares
	1.5 million Public Offering Shares

·       Estimated IPO market capitalisation at S$214.3 million

·       Use of gross proceeds (S$27.0 million):


S$7.1 million – Organic growth initiatives such as product development, software development, and investments
	S$11.8 million – Strategic investments, regional expansion and acquisitions
	S$4.7 million – General corporate and working capital purposes
	S$3.3 million – Payment of underwriting and placement commissions and offering expenses

 

Cornerstone Investors

At the same time as but separate from the Offering, each of the Cornerstone Investors has entered into a cornerstone subscription agreement with our Company to subscribe for an aggregate of 28,000,000 new Shares (approx.. 12.2% of the total number of issued shares) at the Offering Price, conditional upon the Underwriting Agreement having been entered into and not having been terminated pursuant to its terms on or prior to the Listing Date. The Cornerstone Investors are:


Aberdeen Standard Investments (Asia) Limited
	Affin Hwang Asset Management Berhad
	Eastspring Investments (Singapore) Limited
	Tokyo Shoko Research Ltd




Credit Bureau Asia – SEA’s Leading Credit & Risk Information Solutions Provider – Lists on SGX

United States

Fidelity National Information Services, Inc. is a payment services provider. The Company provides credit and debit card processing, electronic banking services, check risk management, check cashing, and merchant card processing services to financial institutions and merchants.

Fidelity National Info Serv (FIS US)

Fiserv - Investing In Transforming Leaders Rather Than Disruptors

Fiserv is valued as a slow-growth and low return on capital legacy business, although this does not appear to be the case. At present, the...

Vladimir Dimitrov, CFA

Credit Bureau Asia – SEA’s Leading Credit & Risk Information Solutions Provider – Lists on SGX

Credit Bureau Asia, the largest provider of credit bureau services within Singapore and the sole credit bureau in Cambodia and Myanmar, made...

Singapore Exchange Ltd (SGX)