Peak Positioning Technologies Inc. (CSE: PKK), a Canadian IT portfolio management company, recently released its financial forecast for the next three years (click here to download forecasts presentation). NAI sat down with Peak Positioning CEO Johnson Joseph to get a better understanding of the projected numbers and what they mean for the Company going forward.
1) When we were first introduced to the Company a little over a year and a half ago, you were just beginning to look at fintech opportunities in China. We understand that you now have two subsidiaries operating in the space, including a licensed financial services company that generated most of your revenues for the second quarter. You have been publishing regular news releases detailing your progress in China. Why do you think your share price has not responded to this?
Peak: People don’t buy penny-stock companies because they’re looking to make a 5% to 10% annual return on their investments. They can buy any bank stock for that and not deal with the inherent risk of investing in a penny-stock company which is considered a “high-risk high-reward” venture. The typical penny-stock investors buy penny-stocks because they’re looking to quickly double, triple and make x-times their investments. They’re usually not long-term investors, but rather opportunists who won’t hesitate to sell one penny-stock position to get into another one if they think there’s a better opportunity for a quick return. I think a lot of the selling pressure on the stock price can be attributed to the fact that many penny-stock investors have been caught up in the marijuana euphoria for the past few months. And that’s something that has affected not just our Company, but other junior tech and resource sector companies as well. Thankfully, we have a solid core of true investors who believe in what we’re building and we’re highly motivated to make sure that they’re rewarded for their continued support.
2) Your financial forecasts show profits over the next couple of years that, according to most investors, could justify a share price considerably higher than what your stock is trading at these days. However, there was little impact on the Company’s share price when the forecasts were released. What do you think is the reason for that?
Peak: In my view, the only logical conclusion is that investors are taking a “let’s wait and see” approach when it comes to our projections.
3) There is a very significant jump in ASDS’s forecasted revenues from 2019 to 2020. How realistic is this increase in revenue?
Peak: ASDS’s forecasted revenues are very achievable. The numbers are based on existing statistics from lenders that are both already on the platform and those expected to join it. These lenders have all been in business for a number of years and the numbers represent only a portion of the loans they currently make on an annual basis. They also expect to be more efficient in their lending activities on the platform, so we’re very confident in what we’re forecasting.
4) To reach your target revenues, how many small-to-medium enterprises (SMEs) do you have to add to the platform and how are you going to attract them?
Peak: It’s rather the number of lenders we’re able to attract to the platform that will determine how much revenue we generate as opposed to how many SMEs we attract. There’s no shortage of SMEs looking for credit in China, so our ability to generate revenue will depend on how much money is available to lend to them, so our focus is on recruiting lenders to the platform. Our marketing strategy to recruit lenders involves working with local and provincial governments as well as loan brokers.
5) Slide 17 shows a 0.25% referral fee. Is this one-time or monthly?
Peak: That’s a one-time fee on the gross value of each loan.
6) We believe your original business model included having the SMEs pay an annual fee to join the platform, but you don’t show any of such revenues in your forecast. Is the SME registration fee still part of the plan?
Peak: No, not for the time being. We looked at and tested several revenue models for the platform and decided that the best approach would be to have the SMEs join for free. We think that having access to the SMEs’ financial data may prove more profitable than any annual fees we would be collecting from them.
7) Speaking of data, slide 13 of your current corporate presentation mentions providing business intelligence data under a monthly subscription model. Peak has never been associated with business intelligence in the past, yet the words are repeated two more times in slide 19. What exactly are you planning to do with the data that you’re accumulating on the platform?
Peak: The platform collects financial data on SMEs to help qualify them for credit, but that data can be used for other purposes. It can be used to gauge economic activity in various industries, which can in turn be used in various business intelligence and predictive modeling applications. We’ve been working with a business intelligence company and believe we have a great opportunity to monetize that data.
8) You are looking to collect and accumulate SME data from your clients. How many do you have on your platform now? how many clients do you currently have on your platform?
Peak: I don’t have the exact numbers, but I believe about 25% of the 40,000 ICBC business clientsare on the platform. The others will continue to be added over time.
9) You don’t think there might be issues with a foreign company handling business intelligence data in a country like China?
Peak: No. All we have to do is comply with the rules and regulations of the country with regards to such matters. For instance, we know that the servers where the data is being accumulated have to be located in China, that the data needs to be anonymized, and that the purposes for which the data is being gathered and used are clearly disclosed.
10) How familiar are your Chinese partners with the capital markets and the importance of hitting the revenue projections you just put out?
Peak: Very. We worked together for several months to produce the forecasts and are totally in sync when it comes to the numbers released. Like all Peak shareholders, I think they’re looking forward to seeing what happens as we hit those targets.
11) I understand that Peak has evolved since our first meeting, but back then, the relationship between Zhonghai Wanyue and its Chairman Jiang Wang seemed to be central to your Chinese operations. Is this still the case?
Peak: There’s no official relationship between Mr. Wang and the Company other than the fact that he remains a significant shareholder. When we moved away from the materials trading on Gold River to put more emphasis on our own financial services as opposed to referring business to Zhonghai Wanyue, he naturally became less and less involved in the operations of the Company. He is still consulted when it comes to Gold River related activities and could potentially continue to contribute by helping to bring business to that platform.
12) What happened to the GoldLegal service? Is it still being offered to lenders?
Peak: Yes, the service might be slightly adjusted based on lender feedback, but we plan to continue to offer it.
13) Do the revenues forecasted for ASFC in the presentation represent only your 51% stake in ASFC or 100% of ASFC’s revenues?
Peak: The revenue numbers are 100% of ASFC’s revenues. That includes our 51% stake and the 49% minority interest of our partners. However, the EBITDA values forecasted are only our 51% stake.
14) Slide 15 mentions that you plan to increase ASFC’s lending capacity from $20M to $60M by 2021. How are you planning to do that?
Peak: According to the rules and regulations governing financial services companies in China, we’re authorized to leverage up to 100% of our registration capital for lending purposes after 12 months of operations. So we should have at least $60Mat our disposal by 2021.
15) You’ve announced that so far in addition to ASFC, two lenders, each with over $100M in lending capacity, had joined the platform. Yet slide 13 shows that you expect $2.7B in lending capacity to come from a total of 50 lenders, giving each lender a lending capacity of $54M. Why are you using such a relatively small number in your forecast when the first two lenders on the platform have almost double that lending capacity?
Peak: There are definitely some large lenders out there, including the big banks. But our research has shown that the lenders with the greatest lending capacities are not necessarily the most active lenders. Our focus will be on working with the more aggressive and active lenders and often times, those happen to be those with smaller lending capacities. But that’s not to say that we don’t plan to work with the big banks or larger lenders. It’s just a longer process, especially from a technological standpoint, to get them signed up and ready to go on the platform.
16) Your second quarter financial statements made no distinction between the revenues generated by your different subsidiaries. Are there any plans to present your financial results in the future by subsidiary the way they were presented in your forecast?
Peak: I don’t think that will happen for the third quarter statements, but that’s definitely something that we plan to implement in the future.
17) Let’s fast-forward to two years from now when the Company projectsmaking a profit, how much of it will be repatriated to Canada?
Peak: That will depend on whether the surplus cash is best used to continue to invest in our operations in China and grow the revenues faster or whether the Board of Directors feels it’s time to pay a dividend to shareholders. It’s too early to respond with any certainty.
18) You were recently on a cross-country roadshow where you met with institutional investors immediately after releasing the projections. What was the purpose of the meetings and are you satisfied with their outcome?
Peak: I’ve been talking to a few institutional investors for a while now and I know that it’s going to take some time to get them involved with Peak Positioning. The purpose of that roadshow was to make sure they’re still following the Company. We discussed Peak’s progress and what can be expected in the upcoming quarters now that the financial forecasts had been released. So yes, considering the purpose of the trip, I am satisfied with how it turned out.
19) So what does the release of these projections mean for the future of Peak Positioning from your perspective as the Company’s CEO?
Peak: The projections should be interpreted as a reflection of what all of us at Peak, both in Canada and in China, expect the Company to achieve over the next few quarters. I strongly believe that by releasing these projections and showing the market that we’re able to hit them, we’ll be rewarding those shareholders that have continuously supported the Company.
20) And finally, in what quarter of 2019 do you expect to have revenues exceed operating costs?
Peak: We would expect that to happen at some point in Q4.
CHF Capital Markets
Phone: 416-868-1079 ext.: 231
Email: [email protected]
President and CEO
Peak Positioning Technologies Inc.
Phone: 514-340-7775 ext.: 501
Email: [email protected]
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