This interview is also available on my website at www.evranic.com/2016/01/pkk-investor-interview.html
Hopefully everyone who is reading this article is familiar with the investment opportunity of Peak Positioning Technologies Inc. (OTCPK:PKKFF) (PKK.C). If not, please have a look at my article "To Be Valued Beyond A Penny Stock, A Company Must Behave Like A Large Cap" for an introduction.
This interview involved four people:
1. Myself, the financial reporter.
2. Johnson Joseph, CEO of Peak, acting as the moderator to the call.
3. Liang "Golden" Qiu, CTO of LongKey (but there on his own behalf, not as part of LongKey), acting as the translator.
4. Jiang Wang, pictured above, Owner of ZHWY Enterprises and the strategic investor behind the "Banlan" deal, who was the subject of the interview.
The purpose of this interview was to introduce Mr. Wang to the North American investment community. It will help to clarify Mr. Wang's vision to Peak investors. Peak has previously reported that this deal was involving Banlan, however, it has morphed into something much greater than that (as such, going forward, Peak will disassociate the investment and the "plastic bank" initiative from the Banlan name). I have a 20-cent target on PKK and will keep that target until the stock reaches that price and at that time I will re-evaluate. However, the other three participants in the call all believe the stock price will be much higher than that in a year's time, and have provided substantial evidence and a grand vision to support that belief.
This interview was held over Skype starting at 9am Eastern Standard Time on January 13th, which means it was held at 10pm local time for Mr. Qiu and Mr. Wang. The video conferencing lasted only the first few minutes before connectivity issues made us migrate to a voice-only Skype call, but I was able to see employees in the office on standby to take pictures of the two while in the office. This should be an indication of how important this deal is to Mr. Wang. He stayed in the office along with several other employees and invited Mr. Qiu until 11pm just to conduct an interview with me during North American business hours so that Canadian (and U.S.) investors got to know him. This is not some one-off "fun money" speculative investment by some overseas billionaire. This is an investment made by a man who is actively and seriously trying to grow his business internationally and has decided to use Peak as a method to achieve his goals. This will be the prime focus of his time going forward.
This will be a "paraphrased" interview as Mr. Qiu had to translate everything Mr. Wang said into English. Although it's not reported on a word-for-word basis, I can confirm that Mr Qiu, Mr. Wang and Mr. Joseph have reviewed the content of this article before publishing and they can reassure you that the spirit of what I have written is accurate.
I asked 15 questions which can be broadly divided into four sections. About Mr. Wang, his vision for his business, his views around Peak and the partnership and ways to reassure North American investors about this venture. I will occasionally add my own comments in, prefaced with an E.
About Mr. Wang
Q. What is your background (where you grew up, your educational and professional background)?
A. Mr. Wang graduated from the Central University of Finance and Economics [CUFE], and as the name implies, it's an institution that specializes in finance and economics. He has been employed by various banks and worked his way up to becoming a Vice-President. Fifteen years ago he started his own investments in finance, at a time when the economic and political atmosphere in China was very lucrative to do so. A couple of years ago he decided to group his investments, including Banlan, into ZHWY (Zhonghai Wanyue) Enterprises, of which he is a near-100% owner. It is a conglomerate that focuses on financing and investing in the logistics of bulk goods like plastic and steel, eCommerce, new energy and environmental initiatives.
Pictured: The reception area of Zhonghai Wanyue Group
Q. How have you built yourself into the successful businessman you are today?
A. While working in the banking industry, he made many valuable contacts. China was booming economically at the turn of the century, but the notion of private investment was fairly new. The existing model at the time for a government-run project was one where it bought the equipment and outsourced the labour. Mr. Wang was a proponent of the EEPC Business Model, a process chain whereby he offered project managers turnkey solutions. His company would help the owner raise financing, lead the project's design and operate it. This model proved to be a huge success in China and Mr. Wang was able to procure a lot of business.
Q. We know about you because of your investment in Banlan. But we now understand that you have many other companies and projects. Can you give us a summary of them?
A. ZHWY is a conglomerate of 29 different companies. In addition, Mr. Wang has an investment in eight other businesses. His companies focus on his areas of expertise - offering financing and supply chain solutions - for a variety of industries. He is an 85% owner in JP Syndicate Ltd., a company which operates nearly all the environment-related projects in Shanghai. For instance, it procured the waste water processing center contract for the city from the government. The company is in charge of the design, financing and operations of the project. He has also recently partnered with German interests to develop an electric car company called Dedian Electric Auto Ltd.
Q. How have your companies fared recently as China is going through a rough patch economically?
A. Challenges and opportunities exist in all sorts of economic climates. For instance, the price of oil dropping has led to substantial cost savings for Banlan. But the trading of bulk goods is tighter. Companies always have financial service needs, during good and bad economic times. He believes that modernizing the process by which he is able to provide financial services to companies will be an outstanding growth business in boom times and bust.
Q. What would you say is the estimated combined value of all of your businesses?
A. In 2015, ZHWY was worth an estimated 50 billion RMB. (E. this converts to over $10 billion Canadian)
About Mr. Wang's Vision
Q. What specific opportunities do you see for the plastic bank?
A. The plastic bank is a trial run for a much larger initiative. In China, the movement of bulk products through the supply chain is done entirely offline. This ranges from plastic raw materials like and steel to food like rice and corn. Mr. Wang's vision is to use the internet and his specific expertise in financial and supply chain management to modernize these transactions across a broad range of industries. (E. I envision that this business would be like the Alibaba for bulk goods)
Q. You've been very successful as a business man in China, what is your motivation for desiring to list in North America with Peak? Do you intend to expand your businesses internationally?
A. Mr. Wang intends to use offline assets such as factories, buildings and inventory to create a foundation for his business plan. These assets will be used to build the online platform and expand the financial services of the target industries. He eventually wants to settle on one platform in the future (E. reminds me of Alibaba again) that evolves into a few verticals and includes international trade. He stressed that getting international and younger people (E. I assume as employees, management and investors) with an interest in eCommerce involved in the business was a key part of this vision.
Mr. Wang specifically partnered with Peak because it is an investment holding company. He called Peak a "mini-me" that has a deep understanding of the business model that he has with ZHWY Enterprises and wishes to expand upon with his vision. He stressed that Peak management is a very important ally for him to go international.
Q. Where do you hope to see Peak, specifically Peak's stock price next year? In five years?
A. By 2017, Mr. Wang expects to move a substantial amount of existing business from "offline" to "online" through the subsidiary set up under Peak. While prefacing that his vision is focused on the long-term success of the business over the short term stock price movements, he expects that in 2017 the stock will be listed on the TSX big board and trade in the $2-$3 range. (E. The goal is without a reverse split, so think in terms of a market cap in the hundreds of millions and up to two billion dollars). 2020 is much further out so it's difficult for him to guess on a stock price, but he expects that the stock will be listed on the NASDAQ or NYSE. There will be numerous businesses housed under the Peak subsidiary. The growth and international exposure of the business will allow him to achieve his goal of gaining access to new projects worldwide which will also be a part of Peak.
About the Partnership with Peak
Q. What do you believe Peak management bring to this business relationship that will help you reach your goals?
A. Just like Peak management had to do their due diligence on Banlan (which eventually led straight to Banlan's owner), Mr. Wang did his due diligence on Peak. Mr. Qiu was the key intermediary here as he has known Mr. Joseph and other members of Peak's management team for many years. Mr. Wang reiterated that after the initial deal (as described in the December 1, 2015 press release) is closed, the plan is to put more resources into Peak and to hire more people to help run the international aspect of the business plan.
Q. When do you expect to be able to send the $4M investment to Peak to make the partnership official?
A. The transfer of funds for the remaining $3.9 million will be completed by the end of January as agreed with Peak. The reason behind the transfer not being completed sooner is that is takes a few days to complete the required paperwork before funds transfer process can be completed (some of which will be outflows to Canada and outflows to Canadian dollars) per Chinese government regulations.
(E. So this has nothing to do with Mr. Wang's ability to do, and excitement over, this deal with Peak - both of which I feel are very high. It has to do with flow of funds out of China. Investors have brought this up before and I think this is a really good primer on what we can expect. Getting funds out of China is tricky, but not impossible. It's a thing to think about, but it shouldn't be a deal-breaker for avoiding investment. This is an example where the money can come out, it just takes a little longer. I believe if Mr. Wang's vision of international expansion comes to fruition, this issue will dissipate with time. By the time Peak starts to pay dividends, revenue may be substantially international in nature anyways.)
Q. When do you expect the plastic bank to begin to operate and when can investors start to see revenues come from its operations?
A. The platform will be online by the end of Q1 and revenues will start to flow in Q2. The development of the plastic bank platform actually started in June 2015.
Q. Other than the plastic bank project and the distribution of plastic raw materials, are you planning on having some of your other projects and companies run through Peak to increase Peak's revenues in the future?
A. Already touched upon earlier, but yes, the intent is to have other bulk goods like rice and steel running through the platform in addition to plastic.
Q. Peak's management has plans to see the stock listed on the TSX big board by the end of 2017 and eventually listed on the NASDAQ by the end of 2018. Do you share that vision?
A. Yes, again touched on before (E. apologies for not having the improvisation skills to change my pre-set questions on the fly while taking notes). When Mr. Joseph came to meet Jiatao Luo, the chairman of Banlan, he originally believed the deal was solely for the plastic bank. Since then, Mr. Wang has pushed the vision of moving the transactions of many bulk products from offline to online, not just plastic. Mr. Joseph is obviously on board and thrilled with this expanded vision. Mr. Wang reiterated that revenue flowing through the subsidiary will not be a problem. It will just be a matter of how fast the transactions can be moved from offline to online and therefore into the subsidiary.
Reassuring North American Investors
Q. North American investors have lost money in the past by investing in Chinese-North American partnerships. So it's very important to let these investors know that this Peak partnership is with a reputable and respected businessman. What would you say about yourself and the partnership with Peak to reassure investors that this will be a very successful partnership?
A. This transaction will occur within Chinese and Canadian laws. The operations and financial statements will be audited both on the Chinese and Canadian ends of the company through Grant Thornton LLP. Mr. Wang reiterated that he has been in business for 20 years and that his reputation is very valuable to him and his business. He will do what it takes to achieve his goals and deliver on his promises. He also finds the value in a steady flow of news releases, communication and transparency between Peak and its investors.
Q. I'm sure some of Peak's investors would like to have the opportunity to meet you. Are you planning to travel to Canada in the future to visit Peak and possibly meet some of Peak's investors?
A. Yes, Mr. Wang plans to travel to Canada in March or April.
That concluded the interview. The call ended with Mr. Joseph confirming that he will make another trip to China in two weeks. I left it feeling extremely good about Peak, even more than before. The three things that struck me the most were:
1. His vision of an international online bulk trading platform which sounded to me like the Alibaba of the industry.
2. His estimation that the stock price will be $2 to $3 next year. Like I said, this implies that Peak will be up to $2 billion in market cap assuming a fully diluted share count of 700 million inclusive of all warrants being exercised. That's an unbelievable run under any set of circumstances and investors should be cognizant of the difficulty of such an achievement before letting their heads go into the clouds. However, ZHWY Enterprises is worth an estimated 50 billion RMB. Mr. Wang certainly has the firepower to make it happen.
I think of a story like Martin Shkreli. The mere mention of him investing in KaloBios Pharmaceuticals, Inc. (KBIO) caused the stock to go from $2 to $45 in days before it crashed again after his arrest on charges of security fraud. If the mere investment from a man like him causes a stock to run 2,000% before he even does anything with it, why shouldn't an investment from a man with high integrity like Jiang Wang, someone with even greater wealth and a very specific plan, do the same for Peak in a reasonable time frame like a year?
3. Mr. Wang calling Peak a "mini-me" was particularly striking to me. Above and beyond the important business contact made possible through Mr. Qiu, this Peak deal makes a lot more sense. Mr. Wang likes Peak because he sees in the company a smaller version of his business. Mr. Wang calling Peak a mini-me means he thinks the management team has the same mindset as him. I cannot overstate how important it is that Peak and Mr. Wang are on the same page, and it sounds like they are.
I reiterate that I will not change my 20 cent price target on PKK until it reaches that price level and I can revise it upwards at that time. It's always better to be conservative than too aggressive. I always thought that Mr. Joseph's $1 target was a "dream big" type of goal. However, I must admit after conducting this interview, I can see a very clear path that would justify a $1 or greater stock price. I would just prefer to reach that conclusion in stages. Investors are free to come to their own conclusions, but I would not sell a substantial portion (greater than 10%) of my shares at 20 cents if it were to hit that target tomorrow.
Disclosure: I am/we are long PKKFF.
Additional disclosure: I hold positions in securities as disclosed in this article. I have not received any compensation for this article and all opinions reflected herein are my own. The information provided herein is strictly for informational purposes only and should not be construed as a recommendation to buy or sell, or as a solicitation of an offer to buy or sell any securities. There is no guarantee that any estimate, forecast or forward looking statement presented herein will materialize and actual results may vary. Investors are encouraged to do their own research and due diligence before making any investment decision with respect to any securities discussed herein, including, but not limited to, the suitability of any transaction to their risk tolerance and investment objectives.