Monday, February 6, 2012

We Should Examine Some Announcements More Closely - Nextnation

Investors can get lost with the flurry of corporate announcements and run ups by many penny stocks. However, the Heads of Agreement between Nextnation and PT Inovisi Infracom deserves to be looked at more closely. The more I asked around, the more I inquired, it seems this is a highly significant potential deal because of the smallish size of Nextnation and the reputation of PT Inovisi Infracom. The latter has a paid up 2.56bn shares and trades around 6,000 rp. That makes their market cap at US$1.7bn. Thats a RM5.3bn market cap company. Hence Nextnation may have snared a big fish here. Thats like an ACE company doing a deal with the size and heft of Gamuda, IJM or UEM Land.
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The share price did not move when the HOA was announced, rightly so, because its an HOA. However, investors should take heart if they see significant activity in price and volume of Nextnation as that may indicate some concrete agreement being finalised.

Potential Impact: For the six months ended October 2011, Nextnation recorded a revenue of RM29.3m and net profit of RM3.6m, or an EPS of 0.84 sen. Annualised that you are looking at 1.68 sen EPS. Thus the current share price is about fair at around 11-12 sen as its NTA is around 15 sen a share.

The proposed project is expected to generate US$22.5m revenue over 3 years. Assuming a net margin of 20%, thats US$4.5m to the bottom line over 3 years, or RM4.5m net each year, around 50%-60% jump from 2011 earnings. I believe thats a minimum deal size considering the size and reach of PT Inovisi. This deal, if eventuate, could very well elevate Nextnation's fortunes up a few levels.

Why Do The Need Nextnation's Expertise?: Nextnation has its own proprietary platform called MINDCEP, which connects to leading mobile services providers. Looking further to their three core products: SMSJET is in mobile messaging gateway and a micro payment developer; SOHOMOBILE allows for content development tools, billing system and DRM tools; and mCOMMERCE SUIT has ready made modules for mAlert, mCRM, mERP and mLogistics. If you consider the above with what PT Inovisi is doing, there are a lot of synergies potentially.
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Announcement Details/Table Section :


      The Board of Directors of NCB wishes to announce that NCB had on 16 January 2012 entered into a Heads of Agreement (“HOA”) with INVS (NCB and INVS shall hereinafter collectively be referred to as the "Parties" and individually as a "Party").


      2.1 Objective
          The purpose of the HOA is to establish the basis of cooperation and collaboration between NCB and INVS on the supply of InoConnect IP Interconnection, a service platform serving telecommunication operators to deliver IP services, and InoConnect Bandwidth Optimizer, a system that reduces large data packets into smaller ones allowing data to be sent out via faster and more consistent IP networks. INVS has been actively seeking out for this supply due to the increasing volume and expansion of its businesses within the regional markets in Asia Pacific (“the said Project”).
      The Parties have engaged in discussions in relation to the said Project with the intention to enter into negotiations and finalisation of definitive agreements ("Formal Agreement") to govern the detailed business relationships between both Parties. 2.2 Background information on NCB NCB was incorporated in Malaysia on 20 July 2004 under the Companies Act, 1965 and was listed on the ACE Market of Bursa Malaysia Securities Berhad (“Bursa Securities”) on 24 August 2005. The authorised share capital of NCB is RM200,000,000/- comprising 2,000,000,000 ordinary shares of RM0.10 each, of which RM41,580,000/- comprising 415,800,000 ordinary shares of RM0.10 each are issued and fully paid up. The principal activities of NCB are the leading end-to-end mobile multimedia Application Services Provider (ASP), providing one-stop mobile and wireless solutions to telecommunication companies, corporate and consumer markets. Its proprietary MINDCEP platform connected to global leading telecommunication companies and operators support thousands of developers and distributors globally.  2.3 Background information on INVS
          INVS was incorporated in Indonesia on 11 May 2007 and listed on the Indonesian Stock Exchange on 3 July 2009. The authorised share capital of INVS is IDR1,000,000,000,000, comprising 10,000,000,000 ordinary shares of IDR100 each, of which IDR256,892,180,900 comprising 2,568,921,809 ordinary shares of IDR100 each are issued and fully paid up.  The principal activities of INVS include the provision of mobile telecommunication infrastructure services, advertising and other related services. The services include telecommunication software and platforms, broadband and network applications, and enterprise productivity and mobility solutions.


3.1 The salient terms of the HOA are as follows:-
          (a) the Parties will jointly form a working group to undertake such actions as may reasonably be deemed necessary or relevant for the purposes of evaluating the feasibility of the said Project, possibly with a view of setting up a joint venture company, if necessary;
          (b) to procure that the Project's proprietary technology be selected and utilised by INVS, and eventually be installed and implemented in its supply and distribution channel to INVS’ clients in Indonesia and ultimately to local telecommunication companies such as Telkomsel, Indosat, Excelcomindo, and Axis;
          (c) both INVS and NCB may participate in the equity and management of the proposed joint venture company, with the quantum and nature of such participation to be agreed upon between the Parties under the provisions of the Formal Agreement to be finalised; (d) NCB shall manage the technical operations and distribution channel of the supply of both InoConnect IP Interconnection service platform and InoConnect Bandwidth Optimizer system through the various regional IP networks that are connected to INVS;  (e) where appropriate, both Parties may invite the equity participation of a large Indonesian telecommunication company to ensure the ultimate success of the said Project;  (f) INVS will provide a minimum revenue guarantee of USD22.50 million to NCB over an initial period of three (3) years, with an option to extend for another three years subject to overall performance review; and,  (g) NCB's services to INVS shall include dedicated handling in order to meet INVS' competitive procurement requirements in relation to the high speed mobile internet space, especially in the Asia Pacific cloud services market.

More On PT Inovisi Infracom (from its annual report)

PT Inovisi Infracom Tbk is an integrated mobile IT infrastructure provider and the holding a diversified investment company with businesses which include telecommunications, mobile internet, media and e-commerce business. PT Inovisi Infracom Tbk is a local company engaged in mobile telecommunications infrastructure,  which focuses its services and products range on telecommunication software and platforms, broadband and network applications and enterprise productivity and mobility to enhance mobile telecommunications networks. Inovisi also provides high capacity bandwidth infrastructure, cellular telephone operator service, business solutions, internet service provider, advertising and marketing.

Inovisi investment portfolio includes telecommunications infrastructure, social communication network, e-payment solution and online market. The Company’s e-commerce Division recently expanded to oil & gas, minerals, and industrial products and services. Investment Division handles project financing, seed capital and investment facilities, and corporate M & A activity Inovisi was initially established under PT Cipta Media Rekatama. In 2008, a restructuring has taken place and according to decision of Extraordinary General Meeting of Shareholders (EGMS) held on April 11, 2008, the company name was changed to PT Inovisi Infracom.
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Having its shares listed on the Indonesia Stock Exchange since July 3, 2009, Inovisi has carried out some corporate actions including: Rights Issue I in May 2010 whereby the Company issued 782 million new shares, along with the issuance of 312.8 million Warrants Series I, raising a total proceeds of Rp97.75
billion, from which 100% were allocated for the acquisition of Code Wireless Group, a Singapore based investment company engaging in IT solutions and services. 

In December 2010, Inovisi decided to increase capital without rights issue, which amounted to Rp580.5 billion. After this strategic corporate action, the company has gained two more subsidiaries namely Abundant Global Group and Great World Group.Abundant Global Group (which now changed its name to Petrol One Group) is a business group originated in BVI and is also the holding company of Talent Global Limited, a B2B e-commerce provider focusing on logistics and storage specifically for the oil and gas industry. Great World is a business entity incorporated in Anguilla, an investment company which consists of various background subsidiaries, among others, Ozura World Limited, an investment firm in HongKong designing social games for internet and mobile internet users.

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By the end of 2010, Inovisi has owned 7 (seven) direct subsidiaries, namely, PT Chiron Max, PT Graha Tunas Makmur, PT Andaman Lestari Multikreasi, Fastlane Limited, Code Wireless Group, Abundant Global Group and Great World Group. In coping with the shifting in demand and the dynamic market movement, Inovisi continues to develop new business strategies to strive to become the leading diversified investment firm and mobile information technology infrastructure provider in Indonesia and beyond, by offering convergence infrastructure, architecture and cutting edge technology to drive business opportunities to all clients and partners.