JS Securities Limited - JS Research (29-06-2021)

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JS Securities Limited – JS Research (29-06-2021)

June 29, 2021

Karachi, June 29, 2021 (PPI-OT): TRG Pakistan Corporate Briefing Session

TRG Pakistan Limited (TRG) held its Corporate Briefing session where the management discussed the 9MFY21 results and shed light on the future outlook of the company. To recall, TRG posted a Profit After Tax of Rs7.2bn (Rs13.25 per share) as against Rs19.2mn (Rs0.04 per share) during the same period last year.

Key highlights from the presentation and discussions are shared below:

E-Telequote is expected to post revenues of US$193.4mn for FY21 (1HFY21 annualised), up 71% from the US$113.1mn recorded during FY20. Meanwhile, EBITDA is expected to rise by 40% YoY to US$58.2mn in FY21.

The definitive sales agreement of E-Telequote is expected to close by July-August where TRGI is expected to receive nearly US$300mn from the sales proceeds. A portion of this will be set aside for emergency use and the remainder is planned to be distributed in the most tax efficient manner. Commenting on the long term plans for TRGI, the management shared that there are no plans to make further investments.

In its last preferred valuation, Afiniti got a tag of US$2.1bn of which US$1.7bn is the equity portion. The company operates in nearly 12 countries with a skew towards the US market.

However, confident in the potential of the Chinese market, the management has opened offices in Beijing and Hong Kong. In fact, the management believes that the Chinese market could become even bigger than the US in the year to come.

The management claims Afiniti’s business model is unique even in international markets. This means that the company not just leads the market but effectively commands it.

Furthermore, the management opined that adoption in the tech sector takes time but the growth is generally very impressive when the inflection point is reached. And Afiniti is currently at this inflection point. The closest comparative companies that have recently been listed are C3.ai and Palantir which trade at very high Price to Sales multiples of 41x and 35x for FY21. With the company expanding operations in a number of industries, one can expect its discounted valuations to provide even more upside potential.

While Afiniti meets the minimum listing threshold of US$100mn revenues, the listing of the company may be pushed to 2022. IBEX, which is listed on NASDAQ, has a market capitalization of US$379mn currently.

The management believes that the 15% tax imposition on tech companies proposed by the G7 will not have any immediate impact as approval and implementation of this may take a long time.