Goldpac
had announced its six months results for period ended 30 June 2017. Its revenue had a rather flattish growth of 1.4%. While this growth rate
may seem to be negligible, it represented a stabilization of the revenue after
suffering a 17% last year decline due to the issues mentioned in the initial write-up here.
However,
the net profitable attributable to shareholders decreased by 15% compared to
the corresponding period last year. This was mainly due to the exchange loss of
RMB20.3M resulted from the currency translation of its huge cash balance in USD as RMB strengthened
against USD. Excluding the effect of exchange loss, the net profit
would have improved by 21.5% to RMB101.5M. The
company has been maintaining large cash balances in USD for potential M&A
and overseas investments.
BUSINESS RESULTS 
While
the revenue remained flat, it is notable that the expenses had reduced by 17%
due to higher marketing channel development expenses
for new products and solution business in same period last year. Management of cost structure improved
this year and there were rental savings after acquiring a property for office
use in HK instead of leasing it. Other income had been boasted by an
increase in VAT refund in China. Overall, its operating results improved by 16.3% against same period last year.
Balance Sheet:
Goldpac
remained debt free and had a significant amount of cash that is more than 79%
of its market capitalisation at the current share price.
Key Financial
Ratios:
The
company maintained healthy current ratio and cash ratio and the cash conversion
cycle improved significantly.
Dividend
An
interim dividend of 4.0 HK cents per share for the six months ended 30 June
2017, which is the same as last year.
BUSINESS COMMENTARIES
Compared
to the interim results in 2016, the performance of the Group’s two operating
segments for the period was relatively stable.
Embedded Software
and Secure Payment Products
-
Turnover
of was RMB561.0 million, representing an increase of approximately 2.0%. The
Group witnessed an increase of 11% payment card shipments and a surge in credit
card shipments of 38% in the first half of 2017.
-
Shipments
for overseas banking card organizations increased by approximately 15.0%
-
While
card shipments had increased, the turnover value had raised by a slower pace
mainly due to the competitive pricing strategy adopted by the Group to win
market share as it was able to maintain its GP% by having economies of scales
and greater automation in manufacturing.
Platform and
Service
-
Turnover
was about RMB130.0 million, representing a slight decrease of approximately
1.3%
In
the first half of 2017, the Group realized a notable achievement with regards
to the diversification of payment product range:
-
Luxury
GPS payment watch achieved a turnover of nearly RMB10.0 million
-
Stylish
LED card saw a turnover of over RMB10 million
-
Smartphone
case with an embedded payment chip was delivered for an internationally
recognized non-banking brand client. The stylish while practical smartphone
case enables this client to set up its own payment ecosystem. Since the launch
of the case as a seasonal gift, it has received widespread recognition.
MANAGEMENT’S
VIEW ON BANKING CARD INDUSTRY & COMPANY’S PROSPECTS FOR 2017
-
At
present, the diversification of payment methods is mainly limited to the small payment amount domain, and does
not pose a challenge to the current banking card system. Third-party payment
platforms (such as AliPay and WeChat Pay) should play a complementary role with
banks in the small amount payment domain. The synergies between banking card
payments and third-party payments, both online and offline, will boost the robust
development of China’s financial payment industry.
-
According
to Nilson Report published in January 2017, global card transaction volumes in
2025 are projected to increase by 2.7 times compared with that of 2015 while
the increase in the Asia-Pacific region will be even higher at 3.9 times. This
suggests a steady and sustainable growth potential for the banking card payment
segment.
-
At
the end of the first quarter of 2017, the credit card per capita in China was
approximately 0.32, which was only 1/10 of that of developed countries and
regions. The continuous development of the consumer credit system in China
contributes to fast-growth phase of China’s credit card segment. In the first
quarter of 2017, total amount of credits on credit cards in China amounted to
approximately RMB9.85 trillion, an increase of 32.2% compared to same period
last year. Based on these observations, the diversification of payment methods
did not bring major changes to payment system, which remains dominated by
banking card.
-
At
present, China UnionPay (“CUP”) is accelerating its development within China’s
“Belt and Road Initiative” countries. The Chinese government, adhering to its
WTO commitments, is gradually opening up the banking card clearing market.
Consequently, overseas organisations start to build their banking card business
in China independently with VISA being the first applicant to apply for
establishing a banking card clearing organisation in China. It is anticipated
that crossover expansion of CUP and overseas card organisations internationally
and domestically will create more business opportunities for the Group.
The
Group is very confident of its future developments. The China Government has
increased its emphasis on financial security and will further improve its
financial monitoring and control systems. This will provide more opportunities
for the Group. Credit card business is expected to sustain its steady growth.
The Group will provide innovative and customized solutions to its customers in
the banking sector to create enhance value for them.
COMPANY’S EFFORT IN
DRIVING GROWTH
1.
Driving growth
through innovative Research and Development
-
The
Group achieved major breakthrough in the R&D of its national security
chip by successfully passing the 2016 annual review by Ministry of
Industry and Information Technology of China and it outperformed the 2016
objective of this national project. The Group is currently entering into
strategic cooperation with China’s leading domestic secure chip manufacturers
to further enhance the R&D and application of the national financial IC
chip, but will also accelerate the pace of overseas expansion.
-
Strong
R&D capabilities of the Wuhan University - Goldpac Joint Laboratory, the
Group made significant progress in the development of IoT
(Internet of Things) secure chip. The Group’s proprietary SuperCOS secure chip
can be deployed in a number of segments including wearables, machine authentication, ID authentication, smart home and smart city. It is expected to attract favorable
and expansive business opportunities with the rapid rise of the IoT industry,
laying the cornerstone for the development of the Group in the future.
-
The
Group will accelerate its application in intelligent manufacturing
and cloud technology to strengthen and expand its
leading advantage in the smart secure payment. Integration with operating
systems of financial institutions, government and other organisations through
its cloud platform will be speed up in order to form a strong bond to
strengthen customer viscosity and provide wider range of service. Intelligent
operation will be implemented to reduce the use of manpower, increase operation
efficiency and decrease operating cost through the systematic and digital
integration of operation facilities.
Capitalizing on its cloud platform, the Group will
establish its financial data personalization center in the northern China to
improve the Group’s geographical presence as well as the Group’s support and deliver
capabilities.
2.
Focusing
on developing overseas markets
-
Goldpac
will accelerate its overseas expansion efforts in sync with CUP’s expansion
plans. Currently, the Group is providing products and services to 23 countries
and areas. It has currently has presence in Philippines and Singapore.
(Source:
www.emvco.com)
-
South
Asia region provides vast market potential given the large population of the
area and the slow card migration rate to EMV (Europay, MasterCard and Visa)
according to the EMVCo statistics. The migration is expected to pick up as deadline
approaches. In Philippines, BSP, the Central Bank of Philippines has issued an order on 16 June 2017 that all banks there have to issue EMV compliant card by
Jun 2018 or face a fine.
-
Goldpac
is setting up a representative office in Mongolia, which allows the Group to be
closer to Central Asian markets which is still largely untapped.
3.
Developing Goldpac
Fintech Innovation Hub
-
Goldpac
is actively driving Fintech innovation,
exploring creative financial service models and accelerating mergers and
acquisitions. The Group believes that Fintech has become one of the mainstream
drivers for the financial industry. More financial institutions are embracing
Fintech actively and integrating cutting-edge technologies such as the
Internet, Big Data and Cloud Tech.
In
2016, the group acquired a piece of land in Zhuhai City, located at the heart
of the Guangdong-Hong Kong-Macau Greater Bay area, to develop Goldpac Fintech Innovation Hub (“Hub”).
Construction of the Hub has commenced and is expected to start operation in
2020. With this Hub, the Group will build up the following three innovative
centers:
(a)
Smart Secure
Payment Industry Chain Center
To
develop strategic cooperation and integration among the upstream and downstream
industry along the value chain, in order to put forward the innovation of the
smart secure payment industry and to build a regional industry center.
(b) Fintech Center
To
focus on new development in Fintech innovation and the integration of creative models
in the financial industry, the Group will leverage modern technologies, such as
Artificial Intelligence and Big Data, to establish new models for data
platforms, data processing and creative services, and to create synergies
within the Group.
(c) Guangdong-Hong
Kong-Macau Greater Bay Innovative Talents Center
The
Group will leverage the geographical advantages of the Guangdong-Hong Kong-
Macau
Greater Bay and capitalize on the governmental support to attract creative
talents from all over the world to the Guangdong-Hong Kong-Macau Greater Bay Innovative
Talent Center.
OTHER DEVELOPMENTS
SUBSEQUENT TO JUNE 2017
(i)
In
August, JD.com announced the cooperation with Industrial Bank to issue bank
debit cards. This marked the first move by a major e-commerce player to issue
payment cards for off-line use. Goldpac was awarded as a major provider of
solution for this first-ever internet savings bank card in China, which offers
comprehensive financial services inclusive of savings, wealth management and
commerce for cardholders. Could other
internet banking giants like Alibaba and WeChat follow the suit to issue bank
cards as well?
(ii)
On
13th September, Goldpac announced strategic cooperation with
Infineon Technologies help to further elevate the smart operation capabilities
of Goldpac through the leveraging of their experience and knowledge of
Germany’s implementation of industry 4.0.
VALUATION
* Inclusive of 6 cts HK special dividends paid. Dividend yield will be
about 4.8% excluding special dividends
(RMB/HKD exchange rate: 1.19)
Based on the Discounted Cashflow Model (DCM),
assuming an ultra-conservative growth rate project of ZERO percent based on TTM (which includes RMB20.3M exchange
loss) and a discount rate of 4% over the 10 year period, the IV is worked out
as follows.
Given its long working relationships with
many major banks and Financial Institutions, it should be watched closely if
Goldpac’s Fintech initiatives, such as its award winning GCaaS Cloud platform
which offers one-stop-shop integrated business management, centralized data
task processing as well as smart card application services, could be adopted by
them and if so, this would propel the company into the next phase of growth and
business domain.
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30 September 2017 Goldpac: Scored Double First As Selected Provider for New OTO Initiatives To Improve the Banking And Payment Ecosystem