Asia Payment Systems (APYM.ob): Is the stock price justified?

| About: Mezabay Intl (MZBYE)
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Asia Payment Systems (ticker: APYM.ob), a China-based payment processing company, has been on a tear. The stock has risen from a 52-week low of $0.09 to a high today of $2.30. But is its valuation justified? CEO Matt Mecke presented his case today at a NY-Micro Cap conference. Here are some details, and revealing responses to questions from today's panel:

Key points from handouts:

CEO Matt Mecke:

  • Worked in payment processing for 3 years before founding APYM.
  • Worked in Japan and Hong Kong for 5 years.
  • Founder and CEO of Payments Group Limited.
  • Founder and CEO of Japan E-Commerce.
  • Both companies were engaged in transaction payment processing.
  • Co-founder and SVP of First
  • Executive at First Data Corporation (ticker: FDC) in the US and Hong Kong.

Key points from CEO Mecke's presentation.

  • % of merchants accepting credit cards: US (81%), Japan (79%), China (2.3%).
  • APYM's agreement with China Railcom covers 2,000 railway stations.
  • 300 million tickets are sold at these stations each year.
  • 900 million Chinese have no credit history. APYM is forging agreements to form credit bureaus to determine credit worthiness. If people are creditworthy, they will be able to receive credit cards.
  • Beijing Olympics in 2008 and Shanghai World Expo in 2010 are key drivers fueling credit cards and credit card processing.
  • The company has a unique, proprietary IP-based system.
  • Shanghai data center allows China-wide credit card processing across one network.
  • CTO Chris Fox used to work for Steve Balmer at Microsoft (ticker: MSFT) in the early 1980s.
  • One of APYM's directors is a former head of Mastercard China.

Quick thoughts: CEO Mecke admitted that the company's technology is not something that can't be replicated. He anticipates many competitors in the market and pointed out that some Chinese banks already have payment systems. However, he is confident that APYM's team will succeed because of its management and board payment processing experience, and the company's entrenched operations in China.

One of the panelists, Tobin Smith of challenged Mecke on a number of points:

Q: If the prospects of the company are so strong, and they seemingly are, why is APYM raising money from a low-tier investment bank? You would think that top-tier investment banks would be lining up to raise money for them.

A: Mecke appeared stumped, but did say that financing is almost finalized and he is happy with the investor group.

Q: If the company's prospects are so strong, why hasn't Visa or Mastercard made an investment in the company?

A: Mecke believes that the company is a small blip on Visa and Mastercard's radar screen. Once the company grows a bit, the big players will begin to take notice. And maybe then, an investment will occur.

Q: Tobin said that he had attended a Mastercard presentation recently that sounded just like that of APYM. Why won't Mastercard crush them?

A: Mecke claimed that a source within Mastercard told him that the company is only interested in projects above $50 million. So APYM would succeed by winning projects of lesser value.

: What is Mecke most excited about?

: Aside from the partnership with DFS that is running smoothly, APYM is currently in negotiation with Beijing Heat. APYM has a proposal on the table that will allow them to setup a system that will help Beijing Heat sell heat to its 10 million consumers.

Final thoughts: Tobin questioned the company's stock price. With revenue negligible, the current valuation of $40 - 50 million is not justified. He also felt that the company has too many potential revenue streams, and did not seem to have focus. He believes that companies with too many revenue streams are typically bound for failure.

APYM.ob's stock market performance:

Disclosure: I am LONG Asia Payment Systems.