As the Pandemic Recedes, Will AGTech Holdings Limited (8279.HK) be Restructured to Enter a New Phase of Growth?

As the Pandemic Recedes, Will AGTech Holdings Limited (8279.HK) be Restructured to Enter a New Phase of Growth?

 

(March 30, 2023, GuruClub) Three years after the pandemic, the situation is finally stabilized, the global economic landscape has now been reshaped with enterprises undergone refinement and reforms, and exemplified by certain industry leading ones which have been exploring and laying out new growth targets, by means of continuously strengthening their core competitiveness, promoting their own transformation and upgrading, and contributing to the  development of the economy to a higher quality.

 

AGTech Holdings Limited (8279.HK), (“AGTech” or the “Company”), being the exclusive lottery platform of Alibaba Group and Ant Group, is one of the typical representative of the lottery and entertainment service providers. In March last year, the Company completed the acquisition and consolidation of financial results of Macau Pass, a leading local payment provider in Macau, marking the completion of its transformation from a lottery service provider to an integrated electronic payment service provider, as well as a crucial step in its layout strategy in the Guangdong-Hong Kong-Macau Greater Bay Area (“Greater Bay Area”).

 

On March 22, AGTech announced its 2022 annual results. The announcement stated that the Company achieved total revenue of approximately HK$351 million in 2022, an increase of approximately 38.8% year-on-year. The increment mainly resulted from the increase in revenue of e-payment related business from the consolidation of the results of Macau Pass.

 

Obviously, the consolidation of Macau Pass has brought about a series of incremental direct costs and expenses to the Company in areas including operations, depreciation and amortization. In response to the guidelines of Monetary Authority of Macau, Macau Pass has provided rebates on transaction fees charged to SMEs since March 24, 2022, together with the impact of foreign exchange fluctuations and fair value revaluation, the Company has resulted in an increase of  full year loss in 2022 compared to the same period of the previous year.

 

Now, full optimization of anti-epidemic measures have taken place and travels between mainland China, Hong Kong and Macau have resumed since February, these have given a “shot in the arm” to Macau’s economic recovery, especially to the restoration of Macau Pass’ e-payment business, which is expected to drive the overall performance of AGTech after the restructuring of its business operation.

 

Electronic Payment: Leveraging on Multiple Advantages and Expected to Enter a New Cycle of Growth, with Multiple Initiatives to Practice Social Responsibility

 

1.  Being an experienced local electronic payment provider, it has multiple advantages and is expected to enjoy the accelerated development of the Greater Bay Area in the medium and long-term

 

Currently, AGTech has set up several major business segments covering electronic payment services, lottery, mobile games and entertainment, marketing technical services and non-lottery hardware supply. Among them, the e-payment business, operated by Macau Pass as an entity, undoubtedly supports AGTech at strategic level in opening up its future growth horizon.

 

As a long-established local payment service provider, Macau Pass has a leading market position and is gradually diversifying its business.

 

Among them, Macau Pass Card, the most common contactless smart card in Macau, can be used on buses and other public transportation (including light rail), parking lots, government services, retail consumption, etc. The cumulative number of Macau Pass Cards issued has exceeded 4.5 million.

 

In addition to traditional payment services, Macau Pass also offers e-wallet services through its mobile APP MPay, which currently has registered users covering over 90% of the total number of local residents. Other than supporting online and offline and covering a variety of common local payment scenarios, it can also be used offline across borders within China through designated banks.

 

Since October last year, AGTech has connected MPay with Taobao Tmall (Macau), and participated in Youku’s “This is Street Dance Season 5” (這就是街舞第5季) Grand Final through Macau Pass. In current year, AGTech has provided ticketing support to  (無限超越群星演唱會) in Macau and “Miss You Much Leslie Concert” (繼續寵愛. 二十年. 音樂會) in Hong Kong successively. In addition, it has also entered into strategic cooperation with Damai, Alibaba Pictures and Galaxy Entertainment in February this year to further develop Macau’s cultural and entertainment market. It helps to support the diversified development of Macau and serve Macau residents as well as visitors.

 

AGTech is taking this opportunity to accelerate its cooperation with Alibaba Group’s payment and entertainment ecosystem, and is expected to realize cross synergy effects at business and market levels gradually.

 

Although the epidemic has caused short-term disruption to Macau’s economy and affected the profitability of Macau Pass, the policy trend and market potential in 2023, as well as the technology advantage and payment capability of AGTech have provided extremely favorable condition for the long-term development of Macau Pass.

 

Compared with the world’s three largest bay areas, the Greater Bay Area is no less advantageous in terms of its regional desirability, economic volume, population scale, land area and talent pool, albeit there is still a considerable gap in terms of per capita level, R&D investment, industrial structure and technology innovation. In view that the construction of the Greater Bay Area has been upgraded to national strategy level, its future potential speaks for itself.

 

As such, Macau Pass can also be seen as an important move of AGTech, with Alibaba at its back, in laying out its strategy in  the Greater Bay Area, and will surely be benefited from its progress towards becoming a world-class bay area.

 

2.  Contributing to the long-term economic development of Macau and  Mainland China, and practicing social responsibility with multiple initiatives

 

The transformation of AGTech and the direction to which it is now firmly heading will certainly have far-reaching implications for the long-term economic development of Macau and Mainland China, which are shown mainly in the following areas:

 

(1) Create business infrastructure to support the development of micro and small businesses. Through Macau Pass, AGTech provides micro and small enterprises with multi-scenario and efficient payment services, as well as basic business information analysis to support business decisions. Macau Pass has provided payment services to over 20,000 payment outlets, covering almost all mainstream payment scenarios and supporting different payment methods including MPay, Macau Pass Card, Alipay, AlipayHK e-wallet, WeChat Pay and other e-wallets launched by the banks in Macau.

 

(2) Multiple initiatives to help micro and small businesses to get through the difficult time. In order to boost internal demand and ease the financial pressure faced by local residents and enterprises under the epidemic, the Macau government has continued to launch several relief measures. Like the third round of the “Electronic Consumption Voucher Scheme” for the period from June 1, 2022 to February 28, 2023, and additional subsidies  announced in October 2022, Macau Pass Card and MPay were two of the major channels in distributing the subsidies.

 

(3) High reliability and security of products and services. Especially in the field of mobile payments, whether it is Macau Pass which has been established for nearly two decades, or AGTech and Alibaba ecology, all of which are readily recognized as outstanding players whose creditability have been proved by long-term market validation.

 

(4) To enhance the connection between Hong Kong,Macau and Mainland China, and accelerating the integrated development of the Greater Bay Area

 

MPay, one of Macau Pass’ products, was officially approved by the People’s Bank Of China in the fourth quarter of 2019 as the first offshore e-wallet launched by a financial institution based outside of China for cross-border use in China and Hong Kong. In January 2023, an electronic campaign “Rewards for Consumption in Macau” was launched by Macau Pass on AlipayHK e-wallet, with the specific aim of attracting Hong Kong visitors to spend in Macau while helping partner merchants to boost their online exposure.

 

 In summary, MPay provides a series of consumer promotions and conveniences to help Macau’s economic recovery. Its close cooperation with Alibaba’s entertainment matrix and e-commerce ecosystems serves visitors to Macau and is also conducive to the promotion of Macau’s diversified development and economic prosperity.

 

 

 

Lottery: growth of distribution sales far exceeds the main market, and market rebound for hardware is expected

 

AGTech’s 2022 annual results revealed that AGTech’s revenue from lottery hardware sales was approximately HK$102 million, a decline from the same period of the previous year. This is mainly due to a decrease in bidding for Android terminals from Sports Lottery Centres as well as delays in bidding and delivery of lottery hardware due to the outbreak of the epidemic in mainland China in late 2022. Conversely, this also means that the business is likely to rebound once the impact of the epidemic subsides.

 

In comparison, the lottery distribution business still maintained its growth momentum, generating a revenue of approximately HK$63.41 million for the year 2022, up 47.9% year-on-year, and well ahead of the market growth rate (13%).

 

The announcement also stated that AGTech currently distributes lottery tickets (including lotto, sports lottery and instant scratch tickets) in China mainly through expanding physical lottery sales channels at the retail outlets operated by Alibaba Group. In particular, the number of outlets increased by approximately 23% in 2022 compared to the same period in 2021, and the average lottery sales per sales outlet has also increased, thus leading to a significant increase in revenue from lottery sales through retail outlets during the period by approximately 58% compared to the same period in 2021.

 

Undoubtedly, 2022 was also a veritable sports year. Big sporting events like the Winter Olympics and the Qatar World Cup were held one after another, creating a sustained growth environment for sports industry-related consumption, the sports lottery sales was especially stimulated during the World Cup.

 

According to the statistics from the Ministry of Finance, in December last year alone, China’s sports lottery achieved sales of more than RMB61.8 billion, a year-on-year increase of 91.7%. The announcement also reported that, during the 2022 FIFA World Cup in Qatar, compared to 2020 UEFA European Football Championship, the average daily active users of AGTech’s event contents on Taobao and Alipay lottery resource channels has increased by approximately 140%.

 

 

Epilogue

 

To sum up, AGTech is likely to have reached its bottom of performance last year. With the epidemic receding this year and a series of subsequent policy measures to restore the economy, the Company’s operations will also improve gradually. In view of Macau’s favorable and diversified market environment and Alibaba’s ecological and resource advantages in payment, entertainment and consumption, the electronic payment business will play an increasingly significant role in the future as AGTech and Alibaba join hands and advance together.

 

Recently, Alibaba has made a series of important announcements, one being Jack Ma’s long-awaited appearance in China on March 27, and the other being its announcement of the largest business restructuring in its history, “1+6+N”. Morgan Stanley sees this piece of news as a clear positive catalyst to unlock the maximum value of Alibaba.

 

Boosted by this, Alibaba-SW opened nearly 15% higher that day, with related stocks soaring across the board, including AGTech, which once rallied up nearly 11% during the day. As organizational changes are often the beginning of fundamental corporate changes, the future direction of Alibaba Group and related companies is undoubtedly worth attention, and the current market response has clearly shown strong recognition and anticipation on this move.