Logiq: E-Commerce Intrinsic Valuation Offers A Deep Value Opportunity

Summary

• Logiq is positioning to become a niche focused yet highly relevant e-commerce market leader.
• The e-commerce sector is priced at all time highs due to the global pandemic, finding value is becoming more difficult.
• Investors looking for opportunities in e-commerce must focus on growth and sum of the parts valuation (SOTP).
• Logiq, a PaaS/SaaS company is currently trading at a deep discount to peers in the e-commerce space.
• A candid question to Executive Chairman Brent Suen on the future valuation of Logiq.

Introduction

"We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful." Warren Buffet

If there has ever been a time to be a skeptical, cautious investor, that time in my opinion is now. Over the past quarter, markets have been trading at all time highs, yet a global pandemic has set the stage for years of a new normal. What we face as investors is unknown, and that in my opinion is all we know. As a deep value investor, I never chase a "hot" stock or trend. I focus on buying prior the broader market and searching for companies with massive upside. I believe, Logiq (OTCQX:WEYL) offers a sum of the parts (SOTP) valuation multiple not yet realized by the broader markets.

Logiq e-commerce PaaS/SaaS still trading under the radar

Logiq (WEYL) formerly Weyland Tech is a leading global provider of e-commerce and fintech business enablement solutions, with a focus on m-commerce, e-wallet and food delivery. Today, Logiq trades at a market capitalization of 2X revenues. Looking at closest competitors, offering a full circle "Software as a Service/Platform as a Service" (SaaS/PaaS) like Logiq, include multi-billion dollar e-commerce giants Shopify (SHOP) and Sea Limited (SE), these companies carry valuations trading at 56X and 28X revenues respectively. Further, BigCommerce (BIGC) was recently priced at 11X revenues in their IPO and traded to a high of 45X revenues. Why is this? Simply, investors see the underlying trend and are paying up for it. Are these companies fairly priced in the new normal? That question I will leave to the analysts that cover them.

M-commerce is projected to be a 4.3 trillion dollar market by 2023, companies positioned to grab market today will be leaders of the future. Logiq is positioning to be an M-commerce market leader.

Image source: Logiq presentation slide, LD 500 conference Sept 4 2020

Recently, I composed a Sum of the Parts valuation looking at Weyland Tech and Sea Limited. I urge readers to take a moment to look over and gain insight into this fast moving e-commerce space and how my valuation model of Logiq has changed in just a matter of weeks, as great progress has been made on multiple fronts.

Pandemic the future is now

In a matter of months, the corona virus pandemic has fast forwarded e-commerce and consumers behaviors a decade into the future. Home, is now for most, our primary or secondary office, school and refuge. Recently, COVID-19 experts have noted implications are going to get much worse, as fall and winter flu season begins, noting death toll numbers are estimated to double over the next few months. Mandatory stay at home orders are again most certainly in the not so distant future.

Today, Wall Street is placing all time high valuations on businesses that cater and enable this new normal environment. These higher valuations implies that these businesses are the ones that will thrive and prosper in the years ahead.

Logiq is the definition of an e-commerce company enabling small to medium businesses (SMBs) and consumers in the new normal "stay at home" business model. Logiq was growing prior the pandemic, and is positioned today for exponential growth due to demand of its e-commerce services globally. From the second quarter press release, major progress has been made across all segments of business.

Q2 2020 Operational highlights, source: weyland-tech.com 

• Partnered with ShopeePay, Indonesia’s integrated e-money services, to launch a new marketing campaign for Weyland’s fast-growing AtozGo™ food delivery service in Jakarta.
• Reached an agreement to acquire Fixel AI, an award-winning innovator of digital marketing technology. Fixel’s audience engagement platform provides startups to Fortune 500 companies including "Auto Trader" (LON:AUTO) the ability to dramatically enhance their online marketing spend by segmenting and ranking website visitors based on their level of engagement.
• Launched new digital marketing campaign in Taiwan and Indonesia for CreateApp. The launch in Indonesia follows a successful pilot marketing program recently completed in Taiwan that included new online seminars hosted by CreateApp’s chief product officer and founder, Eddie Foong. This resulted in more than 1,000 new CreateApp customers, and generated a marketing ROI to Weyland of about 3-to-1 on the first month.
• Company’s new Logiq subsidiary reported a major turnaround in revenues and new eCommerce engagements over the last few months. Logiq is on track to meet or exceed previous guidance of $13 million to $15 million in 2020, with margins improving to around 20%.
• Engaged leading U.S. investment bank, The Benchmark Company, to assist in the exploration and evaluation of strategic alternatives for enhancing shareholder value.
• Announced a game changer for it's PaaS, the company has implemented "AR" augmented reality into it's AppLogiq service. Demand for AR has taken off immediately for APPLogiq, including a partnership with the largest European hypermarket chain with more than 4,000 locations across several countries. 

Looking at valuation

Recently, the team at AppLogiq "the companies platform-as-a-service division, formerly CreateApp" has transformed their entire marketing/sales/training/reselling/supporting to 100% digital. In their Taiwan pilot program launch margins improved dramatically as noted in quarterly highlights. Today, the team at AppLogiq has taken this digital model approach to Indonesia and European markets including France and Italy.

Looking at previous gross margins of ~17% and high R&D spends of ~20% of revenues, it was no surprise that Logiq traded at lower than average SaaS valuation metrics. According to the company, the new platform approach with 100% digital everything commands gross margins of over ~30% and R&D drops down to under 2%. This clearly sets the stage for becoming both profitable and attracting investors seeking typical SaaS company margins and outlook.

Investors should note Shopify carries roughly ~41% gross margins so Logiq's AppLogiq is looking more like a typical SaaS investment opportunity. As I noted earlier Shopify trades at 56X revenues and Logiq is trading at 2X revenues, investors should realize there is a clear disparity in valuation.

Sum-of-the-parts (SOTP) Valuation:

Valuation metrics based on Logiq August 2020 investor presentation 2020 forecast.

In performing the SOTP exercise, I used below average e-commerce industry revenue metrics, with benchmarks of 3X, 5X and 7X multiples respectively for each division of Logiq.

WIP Indonesia eWallet/Food Delivery App business, now GoLogiq and PayLogiq: expected $35 million 2020 revenues X3  = $105 million at 51% Logiq stake = $53.5 million value. (Note; Gologiq "formerly Atozgo" recently partnered with Sea Limited's ShopeePay revised revenue guidance has not yet been released.)

DataLogiq: $24 million in estimated 2020 revenue run rate by year-end X5 = $120m 100% Logiq stake = $120 million

AppLogiq: $30 million in estimated 2020 revenues at 7X Price to Sales Logiq stake 100% = $210 million with now higher SaaS margins and nearly zero R&D spend. (Note; AppLogiq revenues estimates do not include new augmented reality service.)

In summary, my sum of the parts valuation today would be $383.5 million of attributable value. When applied to Logiq's current shares outstanding of 13.3 million, a SOTP valuation would equate to roughly $29 per share.

Recent news shows Logiq is positioned for growth, focusing on big data and mergers.

Logiq, just announced a Fintech partnership with Tech Mahindra (TECHM.NS). Tech Mahindra is a global goliath of e-commerce with divisions on five continents, and today this partnership with Logiq brings them to Indonesia. Tech Mahidra's YABX division provides micro lending platforms in low income, unbanked (consumers without bank accounts) regions of the world. They operate in Vietnam, Pakistan, Columbia Bangladesh and Africa. Tech Mahindra is attracted to Indonesia because of the large population (260 million) which is mostly unbanked. Of note, most people in Indonesia do not have credit nor access to it, but most have smart phones, hence the high degree of investment and interest by large foreign Fintech companies trying to get a foothold on the market.  Logiq's e-wallet division Paylogiq of Indonesia caters to the low-end of the market and offers a unique platform for Tech Mahidra's YABX and Logiq to provide micro-loans to those consumers.

What dose this partnership mean to investors? A revenue model would involve small loans of $2-$10 at a time with approximate fees of 6-10%. On 1 million consumers borrowing $5 per month and paying a 6% fee, that comes out to a $3.6 million per year business. Not huge but not imaterial, put a 10X multiple on borrowers at higher dollar loans and one sees the scale, revenues could easily hit $50-$100 million very quickly. The real Fintech opportunity in Indonesia, is with small businesses using credit lines for working capital. This opportunity could be many times the above scenario.

As with the other Indonesia businesses that Logiq operates, the initial opportunity is modest, although managements 'positioning' of being attractive to large strategic investors holds true here as well. Could multi-billion dollar behemoth, Tech Mahindra want to acquire Logiq's Indonesia division and throw their weight behind it? If so, they may have to battle it out with recent partner Sea Limited, Grab or others interested in this multi-billion dollar market. 

A new CEO has taken the helm with a focus on big data

Earlier this month, Tom Furukawa a leading Martech pioneer was promoted to the position of Chief Executive Officer of Logiq. Furukawa succeeds Brent Suen, who has been appointed President and Executive Chairman of Logiq. Of interest is Furukawa's extensive e-commerce background, including high level Martech positions at Yahoo and Rubicon. Furukawa has a track record of success for being an industry leader in the big data space and his appointment to CEO shows the direction the company is moving in.

With extensive experience and knowledge of the South East Asian markets, Brent Suen will focus on negotiations for mergers & acquisitions and a possible exit strategy which bodly includes possible sale of Logiq, as he has mentioned in his presentation at LD 500 Virtual Investor Conference earlier in the month. Investors should realize, Executive Chairman Suen is the largest open market buyer of Logiq stock for the past 3 years, noted through FORM 4 filings. Executives whom purchase stock have a two year restriction in place to sell stock from the last purchase date, which incidentally was last month for Mr. Suen. Point of interest, is this restricted stock is immediately liquid upon sale of the company.

A key take away's from the LD 500 conference highlighted peer e-commerce comparative valuations, showing a large disconnect in price to revenues of Logiq with respect to peers. Investor should note if Logiq traded at a valuation one half that of the average price to revenues of its peers, it would trade at a valuation of $570 million or  $43/share. In the LD 500 presentation, Executive Chairman Suen stressed repeatedly, that the company is focused on narrowing this valuation gap.

Slide from LD 500 Investors Conference source: presentation Slides Logiq 

Interview with Executive Chairman, Brent Suen

Recently, I called the Executive Chairman, Brent Suen, and asked him "What is your assessment of where you are now and where the Company can go?"

He answered: "What we're seeing right now, is a major transformation in the way people live and work - it's not only evidenced in video calls vs. face-to-face meetings, a boom in e-commerce, socially-distanced activities and touchless payments; It's also dramatically affected stock prices and valuations of companies that benefit from all of this. You look at Zoom (ZM),  Shopify (SHOP), Wix (WIX), Amazon (AMZN), WalMart.com (WMT) Peloton (PTON) and a whole host of others and you'll see exactly what I'm describing. The key to this creating value for Logiq, is already underway because we've been in these businesses that have all the elements. The missing ingredient is investor awareness that Logiq, at a fraction of the valuation metric of our peers, should narrow that gap, thus create a self-fulfilling prophecy as further exposure brings higher volume, share price and visibility. Our business is doing extremely well so now we need to have our market cap track upwards as well."

Conclusion

In closing, with recent developments, I anticipate Logiq's market value to reach an inline alpha valuation comparative to peers in the e-commerce, PaaS/SaaS space. As expansion continues and mergers and acquisitions take place value should most certainly be realized.