Advertisements

H.E.R.O.’s Journey in Tech (19 February 2019) – Altium sets out target for $500 million revenue by 2025 + Jim Collins – A Rare Interview with a Reclusive Polymath (#361)

H.E.R.O.’s Journey in Tech (19 February 2019) – Altium sets out target for $500 million revenue by 2025 + Jim Collins – A Rare Interview with a Reclusive Polymath

Companies

  • Xiaomi restructures mobile phone business as company moves away from ‘flat’ structure (Technode)
  • Lifull earns $9.1 million in Q1 (AIM)
  • Global market risks expected to drag on Airtac sales (TT)
  • How Innodisk differentiates from other industrial flash storage providers. (TT)
  • Altium sets out target for $500 million revenue by 2025 (AFR)
  • Royal commission provides growth opportunities, says Netwealth (SMH)
  • Wotif founder Graeme Wood’s plan to shift Brisbane into the AI era with Mawson Ventures (AFR

BATTSS – Baidu, Alibaba, Tencent, TSMC, Samsung, Softbank

  • Key Investors Are Unhappy With SoftBank Tech-Investment Fund; High valuations of Vision Fund investments-and the decision-making role of SoftBank chief Masayoshi Son-have led to concerns (WSJ)

FAANNMG – Facebook, Amazon, Apple, Nvidia, Netflix, Micosoft, Google

  • Facebook behaving like ‘digital gangsters’ who spread fake news: British lawmakers (JT); Google and Facebook’s Next Big Fight; The EU regulator nicknamed “Mr. GDPR” wants to go way beyond privacy and into antitrust. The linking of these two things should worry the tech giants. (Bloomberg); Facebook is out of control and politicians have no idea what to do (Guardian)
  • Facebook joins Amazon and Google in AI chip race; Company needs faster hardware for smart digital assistant and real-time video moderation (FT)
  • The latest Instagram influencer frontier? Medical promotions.; Big pharma is partnering with influencers to sell new drugs and medical devices. (Vox)
  • Meet the man helping Amazon’s Alexa rule the world (AFR)
  • Apple could be looking for its next big revenue model (TC)

Asia Tech & Innovation Trends

  • Chinese Tech Giants Seek Further IPO Rule Changes in Hong Kong (Bloomberg)
  • Sharp takes wraps off new RoBoHoN, with apps aimed at getting families and firms used to ‘life with robots’ (JT)
  • Taiwan’s once-glorious tech brands pushed out by cheaper Chinese rivals; Asus and HTC smartphone market shares sink below 1% (Nikkei)
  • Why Indian payment firms think the RBI’s plan to expand the industry is a bad idea (qz)
  • Mom and pop 2.0: Asia’s traditional retailers embrace tech; India’s StoreKing and Indonesia’s Warung Pintar are not out to disrupt an industry (Nikkei)

Global Tech & Innovation Trends

  • VCs aren’t falling in love with dating startups (TC)
  • Lessons from an integration: A conversation with Worldpay’s Mark Heimbouch (McKinsey)
  • Google-backed fintech GoCardless eyes Aussie ‘subscription economy’ (Age)

Life

  • Jim Collins – A Rare Interview with a Reclusive Polymath (#361) (Tim Ferris)
  • Turning the Flywheel: A Monograph to Accompany Good to Great Paperback – February 26, 2019 (Amazon)
  • Short Money Rules (Morgan Housel)
  • The Delicate Art of Conquering Fears (ZR)
  • Malcolm Gladwell on Why the Best Decision-Makers Are a Little Bit Irrational (Heleo)
  • How Bill Gates remembers what he reads (qz)
Advertisements

H.E.R.O.’s Journey in Tech (18 February 2019) – This Company Is Japan’s Top Contender for Global Internet Domination: Recruit Holdings wants to attract the most consumers in the world by 2030 + $3 Trillion In New Liabilities Are About To Blindside Corporate Balance Sheets

H.E.R.O.’s Journey in Tech (18 February 2019) – This Company Is Japan’s Top Contender for Global Internet Domination: Recruit Holdings wants to attract the most consumers in the world by 2030 + $3 Trillion In New Liabilities Are About To Blindside Corporate Balance Sheets

Companies

  • This Company Is Japan’s Top Contender for Global Internet Domination: Recruit Holdings wants to attract the most consumers in the world by 2030. Recruit has also acquired European restaurant-booking site Quandoo, U.K. spa and salon reservation portal Treatwell and Dutch staffing firm USG People, helping to boost sales outside Japan to 46 percent of revenue, from 20 percent five years ago. And it still has a war chest of about $3 billion in cash. The success of its app-based services has raised questions about the value of the company’s traditional media business. Recruit still publishes 54 magazines, and has an employment and staffing services division that accounts for a majority of sales. But the faster-growing media and internet divisions generate two-thirds of operating profit from just about 30 percent of total revenue. (Bloomberg)
  • The Dragon Ball franchise had a monumental year in 2018 as it expanded its brand into various avenues with an anime series, film, video games, parade sightings, and various other merchandising opportunities. Toei Animation talked about many of its licensing and merchandising plans for the Dragon Ball franchise coming this year in the February issue of License Global magazine, and one of the efforts includes a special symphony tour in North America. (CB)
  • SM Entertainment Details Mutual Benefits Of Partnership With Tencent Music Entertainment (Forbes)
  • Delta to boost stake in Thai subsidiary (TT)

BATTSS – Baidu, Alibaba, Tencent, TSMC, Samsung, Softbank

  • ‘Difficult years’ for Baidu as China’s internet goes mobile; Users criticise search results as more content is walled off by rivals Tencent and Alibaba (FT)
  • Tencent releases new rules regulating live-streams containing its games (Technode)

FAANNMG – Facebook, Amazon, Apple, Nvidia, Netflix, Microsoft, Google

  • Google’s Waymo risks repeating Silicon Valley’s most famous blunder; Larry Page drew the wrong lesson from Xerox bungling the PC revolution. (ATN)
  • Everything still to play for with AI in its infancy; IBM and Google’s differing approaches highlight extent to which field is wide open (FT)
  • This is Microsoft’s AI pipeline, from research to reality (FastCo)

Asia Tech & Innovation Trends

  • How Huawei went from small-time trader in Shenzhen to world’s biggest telecoms equipment supplier (SCMP)
  • In China, the fight for AI supremacy starts with the young (Nikkei)
  • China’s peer-to-peer lenders fight for survival; Government clampdown on credit cools once-hot business (Nikkei)
  • China’s third-party nurse apps may pose safety risks for users (Technode)
  • Half of Japan’s regional banks to back Mizuho Bank’s new cashless payment system (JT)
  • IPO hopeful AltoStratos eyes Australia’s consumer electronics market (AFR)
  • New Zealand to target online giants with digital tax (Reuters)
  • Alibaba-Backed Paytm Wants to Cash in on Amazon’s India Distress (Bloomberg)

Global Tech & Innovation Trends

  • A Break From Consumer Tech; What kinds of companies will be the next so-called unicorns? A hint: Many of them won’t have much in common with Uber or Airbnb. (NYT)
  • Designed by A.I.: Your Next Couch, Sweater, and Set of Golf Clubs (Fortune)
  • Lyft to woo investors with fast U.S. growth in IPO race with Uber (Reuters)
  • Vision system for autonomous vehicles watches not just where pedestrians walk, but how (TC)
  • 3 Technologies That Could Create Trillion Dollar Markets Over the Next Decade (Barron’s)
  • Hulu Ad Campaign Spells Out That Its Influencers Get Paid; Streaming service begins new push for its live TV service (WSJ)
  • Investors Get Burned After Betting on Electric-Car Metals; Markets like stocks and oil have rebounded this year, but cobalt and lithium continue to fall (WSJ)
  • Digital Brands Are Booming. But Can They Save Malls? Developers are creating a new breed of pop-up retail for online upstarts to experiment in brick and mortar. (Bloomberg)
  • Citi turns to AI for the early work in approval of corporate loans – and chooses Hong Kong for first testing; Earlier, AI has been tapped to help out on retail consumer loans (SCMP)

Life

  • Fear of Failure: Are We Capable of Rising From the Ashes? (ME)
  • $3 Trillion In New Liabilities Are About To Blindside Corporate Balance Sheets (ZH)

Minwise (KOSDAQ: 214180), Korea’s #1 Mobile Authentication Security Services & Virtual Bank Account Settlement Innovator – H.E.R.O. Innovators Insights from Founder Lee Kyung-min | H.E.R.O. HeartWare | 18 February

As digital online transactions and mobile payments become increasingly popular, relying on mobile text messages (SMS) for two-factor authentication (2FA) can lull companies and end users into a false sense of security as hacking technology such as “SMShing” develops to render the conventional OTP (one-time password) 2FA authentication risky.

As personal information leakage becomes a social problem, the ID and password that are required to input when using financial, games and e-commerce services, are becoming increasingly complex. Although each site set up security measures, there is still concern about login ID/password leakage. In Korea, the domestic financial damages caused by SMShing and other hacking techniques is estimated to approach 200 billion won (US$180m) and the number of criminal cases of financial fraud is around 45,000. Thankfully, a patented anti-theft mobile security service, unlike the conventional method of receiving an authentication number or OTP by SMS, developed by a Korean listed innovator has protected their users who no longer have to worry even if their smartphone/device is lost or stolen or SMShished.

This week, we highlight the under-the-radar listed Asian exponential innovator Minwise (KOSDAQ: 214180) who is Korea’s #1 mobile security authentication services innovator. Minwise has a near-monopoly over 90% share in the secondary authentication service centered on personal information security which allowed smartphone users of all three Korean telecom firms to sign into websites free of security threats and prevent illegal logins from personal information leakage (user ID and password) and mobile phone identification theft. Minwise’s business model generates stable and recurring monthly revenue with subscribers paying a very affordable 1,000 won (US$0.89) a month that is generally economic insensitive and Minwise recognized 700 won per month as its revenue after deducting the 30% share due to all three telco operators. Minwise currently has 5.12m monthly paid subscribers for their 3 core mobile security services as at the end of 3Q FY2018 (out of a 50m population in Korea), up from 1m in FY2012 and 4.52m in FY2016, and is particularly popular amongst ecommerce shoppers and gamers seeking to make secure purchase transactions of high-value gaming items and prevent mobile phone identification theft.

Minwise has also expanded from mobile security services to mobile lifestyle services such as Stock Investment Notes with 100,000 paid monthly subscriber paying 10,000 won per month and Minwise recognized 7,000 won per month as revenue after deducting the 30% share due to the telco operators. Minwise has transformed successfully beyond a software developer to a “publisher”, having built a business platform to attract subscribers to sign up for services of affiliate websites (ecommerce, games, portals, securities firms etc) and shares the profit with affiliates.

Minwise also commands a dominant 90% share in virtual bank account settlement, which is the second most widely used means of electronic transactions in Korea following credit/debt cards (over 14% of the settlement market in 2017 vs 78% for cards), through its 43% stake in SettleBank which it acquired in Oct 2016 for 46.4bn won. SettleBank is expected to list in 1H2019 with a market value of ~400bn won and Minwise’s 43% stake in SettleBank is estimated to be worth 172bn won, or two-third of Minwise’s current market cap of 256bn won. SettleBank is highly profitable, having achieved a sales of 26.9bn won and net profit of 5.3bn won in 1H 2018 and FY2018 sales is estimated to reach 58.3bn won (2017 sales 39.3bn won, operating profit 9.4bn won; 2015 sales 21.9bn won and operating profit 5.8bn won).

SettleBank enjoys stable growth in its mainstay services of virtual account, firm banking, electronic settlement/payment gate (PG), and new opportunities in the fast-growing secure easy account settlement services increasingly used by simple/micro payment companies such as Kakao Pay, Viva Republica’s Toss, Coupang’s Rocket Pay, Gmarket’s Smile Pay, NHN Entertainment’s Payco, online-only banks Kakao Bank and K Bank, etc. The mainstay stable revenue contributor in virtual account is an e-banking service that enables real-time or collective confirmation of customer’s deposits through virtual accounts or code numbers uniquely assigned to customers, members, and distributors in order to facilitate the efficiency of depositing and collecting of funds for business institution customers, ecommerce companies (Coupang, Gmarket, etc), insurance companies, telcos, and over 190 government agencies (National Tax Service, Korea Customs Service, Supreme Court, KEPCO, KT etc) having a large number of customers such as for national and local taxes, utility bills, penalties/fines etc. A separate deposit confirmation process and manpower are unnecessary for the deposit-only virtual account. SettleBank’s virtual account is the only private account registered with and recognized by the National Tax Service in Korea.

The fast-growth easy account settlement service is a bank account transfer service in which a customer withdraws money from a financial institution account and deposits the money into a payment merchant. Cash can be settled by one-time password registration after account registration through self-authentication. Growth is driven by teenagers and young adults without a card and, more importantly, by the fact that it has lower payment fees (1%) than credit cards (3-3.5%). High credit card fees is one of the reasons why profitability of ecommerce companies is poor.

According to Korea’s financial regulator FSS, mobile payment has grown exponentially in Korea from 2.44tr won in 2016 to 11.95tr won in 2017 and an estimated over 27.87tr won in 2018. Over 9 million people use mobile payment apps. Mobile payments are popular in Korea thanks to Minwise, because a customer doesn’t have to go through complicated security authentication systems, including the one-time passwords (OTP) required in other online payments. FSS reported said that despite its rapid growth, the mobile payment industry is structured in a way that creates more losses as the size of transactions grow. Currently, almost all of the simple payment companies such as Kakao Pay transfer money with no charge to customers, but they have to pay banks between 150 won and 450 won for each transaction. The companies are forced to find profits in connecting customers with other financial services, such as fund investments, real estate investments and P2P payments. Besides the convenient one-time registration, buyers receive an Income deduction of 30% compared to 15% for credit cards. Credit card sometimes expires or lost, and card number sometimes changes, and there is a need to re-register the card number registered in the payment means. However, for a simple payment account, you can continue to use it if there is no account number change. The main transaction settlement account has the advantage of being able to utilize for a long time only by registering once because there is very little fluctuation.

Thus, Minwise’s SettleBank business is an infrastructure platform and axis of electronic finance that has very high entry barriers, demanding extremely stable system operation ability and specialized financial technology for emergency disaster response and know-how such as risk monitoring, and is a profitable beneficiary with recurring revenue even as the mobile payment industry changes rapidly and bleeds in losses.

Minwise achieved healthy profitability with TTM (trailing twelve months) operating margin of 24.6% (3Q FY2018 25.9%), positive free cashflow margin 53%, ROE (= EBIT/ Equity) 24.2% and ROA 10.5% with a healthy net cash balance sheet of ~92bn won (US$81.8m; gross cash of 94bn won with 48.8bn won as restricted cash for virtual account settlement, and gross debt of 2bn won), or 37.9% of market cap. Minwise’s healthy cashflow generative capability supports a sustainable dividend payout ratio of around 23-26% since its listing in 2015, or a dividend yield of around 1.24%.

Minwise was founded in March 2009 by Lee Kyung-min, who owns a 27.13% stake (of which 3.45% is pledged) and was listed on 30 June 2015. Founder Lee started his career as one of the early employees (employee #31) in 1999 at NHN Corp/Naver which is “Korea’s Google” (KOSDAQ, 035420) where he was in charge of marketing and financial services while working on securities, real estate, loan services, and credit card contents. The curiosity about the IT-financial convergence service that Lee had accumulated in Naver became the foundation for Minwise. Lee resigned as Minwise CEO on 27 July 2018 to become SettleBank’s CEO to focus on its listing and to meet compliance requirements regarding holding executive positions concurrently in two listed companies.

Having secured a unique market position in the personal information mobile security market in developing the anti-theft service, the sign-plus service for enhanced site login security, and the mobile easy payment manager to solve the problem of managing multiple IDs and passwords related to payment, founder Lee expresses confidence in SettleBank’s easy settlement services: “Although the cash settlement account for around 15% of the total settlement market compared to ~78% for credit cards, it will grow to 45% in the near future once you increase the convenience of the services that consumers use.” Noteworthy is that the industry leader Kakao Pay, which uses SettleBank’s simple settlement services, has surpassed 20tr won (US$17.6bn) in annual transactions in 2018 since its launch in Sept 2014. Transaction volume jumped by more than five times compared to the previous year (US$3.35bn). More than 190,000 stores and vendors across South Korea accept offline transactions using KakaoPay and 26 million members had joined KakaoPay. The plan is to have as many as 1 million stores accept KakaoPay within two to three years.

Thus, instead of investing in the structural long-term regulatory techlash trend of anti-privacy and personal data leakage by shorting stocks such as Facebook who has to pay a multi-billion fine to the US government over purposeful privacy lapses, a better alternative is on the cybersecurity innovators who are beneficiaries of the personal data leakage trend by solving this high-value problem.

However, there is one primary major risk to Minwise. Founder Lee perhaps made a misjudgment when he tapped upon private equity financing from Premier Partners when he acquired the 43% stake in SettleBank for 46.4bn won, which was financed at that time through internal cash (21.4bn won) and convertible preferred shares (“CPS”) (25bn won) to Premier Partners. Premier Partner’s ~1.592m CPS, or ~13.4% of Minwise’s 13.48m total outstanding shares including CPS, can be converted over a conversion period of 5 years (26 Oct 2017 – 25 Oct 2022) at the conversion price of 15,707 won. The CPS also allowed Premier Partner to have a significant onerous influence on SettleBank and the influence will be void only once SettleBank is listed. While SettleBank fulfils all listing requirements in profitability and track record, there is a risk in a delay in the listing which would continue to weigh on Minwise’s short-term share price. In addition, sales from its anti-theft prevention security services has declined from 2.39m users in 2Q2016 to 2.07m users as at 3Q 2018 since the release of SK Telecom’s T-Certification primary authentication in Aug 2016, although Minwise helps to develop and operate the T-certification for SK Telecom and receives additional revenue from maintenance.

Another secondary risk in governance is its questionable capital allocation investments in diversifying into healthcare services in 2016. In July 2016, Minwise invested a 55.1% stake for 1.84bn won (US$1.63m) in NeXT (https://www.moabebe.com) which developed the high-quality fetal ultrasound recording system for the first time in the industry and provide the video app service to members (around 15% of all pregnant women in Korea) and 42 obstetrics and gynaecology clinics nationwide. Members can see the most important baby growth information and D-day information on the expected date of birth on the mobile phone, including a daily life guide for mothers and a support guide for dads, an app that couples use together so that parenting can be a happy teamwork. Minwise also owns a 15.8% in Bio-Eleven (http://bio11.kr), a functional probiotics company developing its own probiotics brand De Simone and intestinal bacteria analysis products Mybiome, which it has acquired for 1.25bn won in Aug 2016; and a 21.5% stake in Mediogen (http://mediogen.co.kr), a manufacturer and distributor of probiotics raw material, which it invested 18.8bn won. Bio-Eleven used to be the only company in Korea that imports, distributes and sells VSL #3, a probiotics product approved by K-FDA as an intestinal immunization, through over 1,000 pharmacies and large online malls nationwide. In addition, Minwise launched in February 2018 its Health Kickmy app (https://myhm.co.kr) as a lifestyle asset management service in reducing unnecessary expenditure by recommending appropriate insurance through insurance and health information to users through mobile app, and now the number of users exceeds 4 million. Minwise wanted to integrate its existing IT service know-how and NeXT’s clinics, distribution channels, and customer data into Bio-Eleven’s probiotic business and create a new business area through expansion of the platform.

Thus far, of the 61 entrepreneurs and CEOs whom we had highlighted in our weekly research brief HeartWare, around one-third are in our focused portfolio of 40 HERO Innovators, while the rest are in our broader watchlist of 200+ stocks.

We are thankful as always to be invited by John Mihaljevic, Chairman of MOI Manual of Ideas Global, to speak at the upcoming Asian Investing Summit 2019 to take place live online on April 10-11. We look forward to sharing with the MOI community of investors about the distinctive value opportunity in a selected group of under-the-radar Asian SMID-cap exponential innovators who generate high profitability and positive free cashflow in solving high-value problems for their customers and society with a higher sense of purpose, as well as the learning insights from our investment mistakes as the world shifts structurally from Value 2.0 (the world where Charlie Munger nudged Warren Buffett from the Ben Graham-style of statistically cheap net-net asset plays in Value 1.0 towards Value 2.0 in qualitative investing in outstanding companies at reasonable prices) to Value 3.0 where disruptive innovation forces sweeping across industries create ever more “value trap” losers and a selected under-the-radar group of winners with exponential edge.

Our emotional labor of love over the past months in sharing openly our research ideas (to battle-test our ideas by critiques and avoid blindspots in investing) and setting up the proper regulated and transparent UCITS fund structure to protect investors’ interests has deepened our conviction for the positive change that we will make together with H.E.R.O. – and we are getting closer to giving birth in March 2019 to H.E.R.O., the only Asia SMID-cap tech-focused fund in the industry and guarding investors’ interests in the regulated UCITS fund structure with daily NAV & daily liquidity and no exit fees.

If you are not moving forward in this exponential world, you are going backwards. If you want to join us at the leading edge of opportunity, if you identify yourself in the values and bigger sense of purpose in H.E.R.O., or you wish to tell from your heart to your most important person, son, daughter, wife, husband, or best friend that you are a farsighted and thoughtful explorer in the H.E.R.O.’s Journey participating in the long-term exponential growth of a selected group of outstanding entrepreneurs, standing up for the embracement of the human spirit, please contact us via email or WhatsApp at +65 9695 1860. Thank you very much for your patience and support and we look forward to growing exponentially with you as we explore the H.E.R.O.’s Journey together. We wish you and your loved ones a fulfilling and healthy Lunar New Year 2019 ahead.


“The Internet and mobile presented us with an ocean of endless information and tremendous convenience, but at the same time we had to worry about endless information leakage and the inconvenience of remembering more information. The problem we need to solve today is to maximize convenience, but minimize worry and discomfort. In March 2009, Min Angie was born after thinking about ‘Is there any way that anyone can use the Internet and mobile without worrying about convenience and security?’ Minwise has also invested in SettleBank, which is the number one virtual bank account settlement services company and is growing further through synergies between Minwise and family of companies. All the services Minwise introduced to the market have a common point of view in terms of providing user’s convenience and useful service. This is Minwise’s service philosophy. Minwise likes the blue ocean that others have not seen and is pursuing a business with a long life cycle,” comments Lee Kyung-min, founder of Minwise (KOSDAQ: 214180).

Minwise is Korea’s #1 mobile security authentication services innovator. Minwise has a near-monopoly share in the secondary authentication service centered on personal information security which allowed smartphone users of all three Korean telecom firms to sign into websites free of security threats and prevent illegal logins from personal information leakage (user ID and password) and mobile phone identification theft. Self-authentication services have been widely used in many areas of our lives, including ecommerce shopping, games, payment, and financial transactions, and has been growing as hacking technology such as “SMShing” develops to render the conventional SMS OTP two-factor authentication risky. The domestic financial damages caused by SMShing is approaching 200bn won (US$180m), and the number of criminal cases of electronic fraud is about 45,000. Minwise’s authentication services also provide convenience to users who do not have to switch devices (between PC and mobile). Minwise has patents for its original mobile security authentication technology.

Minwise’s business model generates stable and recurring monthly revenue with subscribers paying a very affordable 1,000 won (US$0.89) a month that is generally economic insensitive and Minwise recognized 700 won per month as its revenue after deducting the 30% share due to the telco operators. Minwise currently has 5.12m monthly paid subscribers for their 3 core mobile security services as at the end of 3Q FY2018, up from 1m in FY2012 and 4.52m in FY2016, and is particularly popular amongst ecommerce shoppers and gamers seeking to make secure purchase transactions of high-value gaming items and prevent mobile phone identification theft. Minwise has also expanded from mobile security services to mobile lifestyle services such as Stock Investment Notes with 100,000 paid monthly subscriber paying 10,000 won per month and Minwise recognized 7,000 won per month as revenue after deducting the 30% share due to the telco operators. Minwise has transformed successfully beyond a software developer to a “publisher”, having built a business platform to attract subscribers to sign up for services of affiliate websites (ecommerce, games, portals, securities firms etc) and shares the profit with affiliates.

Minwise achieved healthy profitability with TTM (trailing twelve months) operating margin of 24.6% (3Q FY2018 25.9%), positive free cashflow margin 53%, ROE (= EBIT/ Equity) 24.2% and ROA 10.5% with a healthy net cash balance sheet of ~92bn won (US$81.8m; gross cash of 94bn won with 48.8bn won as restricted cash for virtual account settlement, and gross debt of 2bn won), or 37.9% of market cap. Minwise’s healthy cashflow generative capability supports a sustainable dividend payout ratio of around 23-26% since listing in 2015, or a dividend yield of around 1.24%.

Minwise’s core subscription-based mobile services include:
(1) Prevention of mobile phone theft or Phone number security service (PNS) to prevent personal information leakage (2.07 million paid users as at the end of 3Q 2018, 37.5% of sales, launched on 1 Feb 2010). However, sales has declined from 2.39m users in 2Q2016 since the release of SK Telecom’s T-Certification primary authentication in Aug 2016, although Minwise helps to develop and operate the T-certification for SK Telecom and receives additional revenue from maintenance.
(2) Mobile Easy Payment Manager (“EPM”) (1.9m paid users, 22% of sales, launched on 22 May 2015)
(3) Login Plus (“LOP”) (1.15m paid users, 17.6% of sales, launched on 1 Feb 2013)
(4) Stock Investment Note (stockn.kr) (~100,000 paid users, 11% of sales, launched on 20 Oct 2015)
(5) Others (11.8% of sales) that include MEmu App Player that was launched in 2016 with speed twice that of the latest Android-based mobile phones for hardcore gamers to run MMORPG games with stability and multi-tasking capabilities in using other programs at the same time while playing games (memukorea.com); real estate registration notification alert service with 24-hour monitoring to prevent the more than 10,000 real estate fraud every year, subscription fee is 2,200 won per month (dsagun.co.kr); checking of insurance and medical information from smartphone (myhm.co.kr); S-MEMO schedule management app that also simplifies communication between users and to improve office collaboration communication efficiency, etc.

Minwise also commands a 90% dominant share in virtual bank account settlement (“Bank VAN”), which is the second most widely used means of electronic transactions in Korea following credit/debt cards (over 14% of the settlement market in 2017 vs 78% for cards), through SettleBank which it acquired a 47% stake (now 43%) in Oct 2016 for 46.4bn won which was financed at that time through internal cash (21.4bn won) and convertible preferred shares to the private equity fund Premier Partner (25bn won). SettleBank is expected to list in 1H2019 with a market value of ~400bn won and Minwise’s 43% stake in SettleBank is estimated to be worth 172bn won vs Minwise’s current market cap of 256bn won. SettleBank achieved a sales of 26.9bn won and net profit of 5.3bn won in 1H 2018 and FY2018 sales is estimated to reach 58.3bn won (2017 sales 39.3bn won, operating profit 9.4bn won; 2015 sales 21.9bn won and operating profit 5.8bn won).

SettleBank enjoys stable growth in its mainstay services of:
(1) Virtual account (46% of FY2017 sales): An e-banking service that enables real-time or collective confirmation of customer’s deposits through virtual accounts or code numbers uniquely assigned to customers, members, and distributors in order to facilitate the efficiency of depositing and collecting of funds for business institution customers, ecommerce companies (Coupang, Gmarket, Inter park etc), insurance companies, telcos, and over 190 government agencies (National Tax Service, Korea Customs Service, Supreme Court, KEPCO, KT etc) having a large number of customers such as for national and local taxes, utility bills, penalties/fines etc. A separate deposit confirmation process and manpower are unnecessary for the deposit-only virtual account. SettleBank’s virtual account is the only private account registered with and recognized by the National Tax Service in Korea;
(2) Firm banking (12% of sales): Services linked with banking computer to send and receive transaction information by paying or collecting various kinds of funds by enterprise customers. These services include automatic transfer, payment transfer, and deposit transaction specification to automate various expenditure e.g. mobile phone charges, credit cards, insurance premiums, etc;
(3) Payment gateway services (12% of sales);

and new growth opportunities in the fast-growing
(4) Easy account settlement service (30% of sales): Bank account transfer service in which a customer withdraws money from a financial institution account and deposits the money into a payment merchant. Cash can be settled by one-time password registration after account registration through self-authentication. The simple account settlement service was launched in 2015, with sales of only 900m won in the first year, but grew steeply to 3bn won in 2016, 12bn won in 2017, and an estimated 30bn won in 2018. SettleBank’s easy-to-use and secure account settlement service is increasingly used by a number of simple/micro payment companies (Kakao Pay, Viva Republica’s Toss, Coupang’s Rocket Pay, Gmarket’s Smile Pay, NHN Entertainment’s Payco, and online-only banks Kakao Bank and K Bank etc) with lower payment fees than credit cards. Growth is also driven by teenagers and young adults without cards. In the case of an online shopping transaction, the commission charged to the seller is generally about 3.5%, whereas it is about 1% for the simple payment. For example, in an open market online shopping mall, a commission of about 10% of goods sales is charged, which includes a 3-3.5% commission paid to PG (payment gateway). Therefore, sales done through simple settlement generate additional profit of more than 20% through the reduction of commission in the open market.

SettleBank’s growth potential is anticipated in the future as it emerges as an alternative to simple payment companies that are experiencing deteriorating profit structure due to intensifying competition. Based on Bank of Korea’s data, the simple payment services has grown rapidly with the total volume of payments facilitated by simplified mobile pay services rising 158.4% yoy to 67.2bn won in 2017. According to FSS, mobile payment has grown exponentially in Korea from 2.44tr won in 2016 to 11.95tr won in 2017 and an estimated over 27.87tr won in 2018. Over 9 million people use mobile payment apps. Mobile payments are popular in Korea thanks to Minwise, because a customer doesn’t have to go through complicated security authentication systems, including the one-time passwords (OTP) required in other online payments.

FSS reported said that despite its rapid growth, the mobile payment industry is structured in a way that creates more losses as the size of transactions grow. Currently, almost all of the simple payment companies transfer money with no charge to customers, but they have to pay banks between 150 won and 450 won for each transaction. The companies are forced to find profits in connecting customers with other financial services, such as fund investments, real estate investments and P2P payments. Besides the convenience one-time registration, buyers receive an Income deduction of 30% compared to 15% for credit cards. Credit card sometimes expires or lost, and card number sometimes changes, and there is a need to re-register the card number registered in the payment means. However, for a simple payment account, you can continue to use it if there is no account number change. The main transaction settlement account has the advantage of being able to utilize for a long time only by registering once because there is very little fluctuation.

Minwise’s SettleBank business is an infrastructure platform that has very high entry barriers, demanding extremely stable system operation ability and specialized financial technology for emergency disaster response and know-how such as risk monitoring, and is a profitable beneficiary with recurring revenue even as mobile payment industry changes rapidly and bleeds in losses. Minwise has also invested 5bn won for 1 million shares (2% stake) in K Bank (run by telco KT) in 2016.

The biggest risk to Minwise is Premier Partner’s ~1.592m convertible preferred shares, or ~13.4% of Minwise’s 13.48m total outstanding shares including CPS, that can be converted over a conversion period of 5 years (26 Oct 2017 – 25 Oct 2022) at the conversion price of 15,707 won, which also allowed Premier Partner to have a significant onerous influence on SettleBank and the influence will be void only once SettleBank is listed. While SettleBank fulfils all listing requirements in profitability and track record, there is a risk in a delay in the listing which would continue to weigh on Minwise’s short-term share price.

A governance lapse happened in April 2018 when trading of Minwise was suspended by KSE on 11 April due to the accounting reporting omission of related party transactions during the SettleBank’s acquisition process by Minwise. Trading was resumed on 30 April 2018. Minwise generated 154.8m won (~US$137,400) in related-party sales in 3Q2018 with SettleBank.

Another secondary risk in governance is its questionable capital allocation investments in diversifying into healthcare services in 2016. In July 2016, Minwise invested a 55.1% stake for 1.84bn won (US$1.63m) in NeXT (https://www.moabebe.com) which developed the high-quality fetal ultrasound recording system for the first time in the industry and provide the video app service to members (around 15% of all pregnant women in Korea) and 42 obstetrics and gynaecology clinics nationwide. Members can see the most important baby growth information and D-day information on the expected date of birth on the mobile phone, including a daily life guide for mothers and a support guide for dads, an app that couples use together so that parenting can be a happy teamwork. Minwise also owns a 15.8% in Bio-Eleven (http://bio11.kr), a functional probiotics company developing its own probiotics brand De Simone and intestinal bacteria analysis products Mybiome, which it has acquired for 1.25bn won in Aug 2016; and a 21.5% stake in Mediogen (http://mediogen.co.kr), a manufacturer and distributor of probiotics raw material, which it invested 18.8bn won. Bio-Eleven used to be the only company in Korea that imports, distributes and sells VSL #3, a probiotics product approved by K-FDA as an intestinal immunization, through over 1,000 pharmacies and large online malls nationwide. In addition, Minwise launched in February 2018 its Health Kickmy app (https://myhm.co.kr) as a lifestyle asset management service in reducing unnecessary expenditure by recommending appropriate insurance through insurance and health information to users through mobile app, and now the number of users exceeds 4 million. Minwise wanted to integrate its existing IT service know-how and NeXT’s clinics, distribution channels, and customer data into Bio-Eleven’s probiotic business and create a new business area through expansion of the platform.

Minwise was founded in March 2009 by Lee Kyung-min who owns a 27.13% stake (of which 3.45% is pledged) and was listed on 30 June 2015. Founder Lee started his career as one of the early employees (employee #31) in 1999 at NHN Corp/Naver which is “Korea’s Google” (KOSDAQ, 035420) where he was in charge of marketing and financial services while working on securities, real estate, loan services, and credit card contents. The curiosity about the IT-financial convergence service that Lee had accumulated in Naver became a foundation for Minwise. Lee resigned as Minwise CEO on 27 July 2018 to become SettleBank’s CEO to focus on its listing and to meet compliance requirements regarding holding executive positions concurrently in two listed companies.

When asked about how he came about to start Minwise, the challenges he faced and overcame and the breakthroughs during his early entrepreneurial period, founder Lee shared briefly and reflectively the story of his early entrepreneurship period, including the origin of the company’s name and their corporate culture: “Minwise started as a mobile security company at the time of its establishment, but now it is a comprehensive IT service provider that includes information security and Fintech service development as well as publishing services such as Stock Investment Notes. This is a result that both executives and employees are working hard. I started my career as Naver’s employee number 31 in 1999. I was in charge of marketing and financial services while working on securities, real estate, loan services, and credit card contents. As the head of the financial services team, I pursued aggressive marketing in securities and real estate contents and achieved results. When I worked at Naver, I wanted to go beyond direct delivery of financial content and jump into direct financial services. The curiosity about the IT-financial convergence service that I had accumulated in Naver became the foundation for Minwise. When Naver’s business and management entered a stable phase, I lost my sense of adventure and lost interest, and I decided to start a business in 2009 after I came out of Naver and worked for Infovine (KOSDAQ: 115310), a small company providing online payment services for wired and mobile phone bills.”

“After setting up Minwise in 2009, we launched ‘Mobile Phone Number Theft Prevention Service’, which authenticates the person by sending a certain number to the mobile phone by message. Initially, the number of users was not large, but in 2014, a major personal information leakage incident occurred, and Minwise’s business got a good wind. The growth momentum also comes from the policy to restrict the collection of resident registration numbers under the Information and Communication Network Act of February 18, 2013. As a result, the identification of the person based on the resident registration number was replaced by the identity verification of the mobile phone, which is based on the cell phone number and date of birth. Most of the real name authentication market is replaced by the identity authentication of the mobile phone.”

“Many wonder about the mission of Minwise. ‘Min’ comes from the last letter of my name, and if you disassemble ‘min’ one by one, it becomes the abbreviation of ‘Mobile Internet Network’. And because it is a knowledge business, it means wisdom is important.”

“We work hard at work, and at times we often run activities such as an indoor screen baseball tournament or an athletic tournament for socializing and leisure activities among our employees. If the company organizes events and recruits participants, everyone will actively participate and participation rates are high. Minwise is very active in coordination among departments and communication is very horizontal and active. Minwise concentrates on building ways to reduce unnecessary procedures and bureaucracy in its work and concentrates on the performance of employees. We have a pleasant and enthusiastic culture for work flow. Minwise is a young company armed with a strong challenge to go ahead for growth and future, without resting on the present. We will invest boldly in innovative services that reflect the market needs of ever-changing markets.”

Founder Lee went on to emphasize on Minwise’s original technology and patents: “Minwise has patents on our original technology. These include registered patents for:
(1) How to manage mobile phone information on network and how to manage login using mobile phone information;
(2) Method of brokerage service of small amount repayment method of mobile phone;
(3) Security-enhanced login systems and methods;
(4) Site visitor authentication method and authentication system;
(5) How to authenticate visitors to your site;
(6) Site visitor authentication method and authentication system;
(7) How to block access to web server;
(8) How to manage authentication message security;
(9) Authentication system and authentication method;
(10) Real estate registration management device, its management and real estate registration management system;
(11) How to provide authentication service based on character pair array;
(12) How to encrypt and decrypt data with multiple password settings.”

On the industry development and industry dynamics of the mobile authentication security services, founder Lee comments: “As personal information leakage becomes a social problem, the ID and password that are required to input when using financial and e-commerce services are becoming increasingly complex. The number of reports on personal information infringement complaints has been high enough to maintain more than 150,000 cases per year since 2011. Although each site set up security measures, there is still concern about login ID/password leakage. It is expected that the demand for security of indispensable personal information will be continuously increased. Self-authentication services have been widely used in many areas of our lives, including ecommerce shopping, games, payment, and financial transactions, and has been growing as hacking technology such as ‘SMShing’ develops to render the conventional SMS OTP two-factor authentication risky. The domestic financial damages caused by SMShing is approaching 200bn won (US$180m), and the number of criminal cases of electronic fraud is about 45,000.”

“Minwise has secured a unique market position in the personal information security market by developing anti-theft service for theft of personal information and the sign-plus service for enhancing site login security. In order to prevent theft of mobile phone number that we started as a service in Feb 2010, it is unlike the method of receiving an authentication number or OTP by SMS. The service provider inputs the authentication password of the user, receives the approval number sent by the mobile communication company, and inputs the authentication number. In other words, in order to protect the authorization number sent at the authentication step of the mobile phone, it is a paid service affiliated with three mobile communication companies which input the password set by the individual at the service subscription.”

“In the process of online identity verification, most of the original authentication methods were based on the resident registration number. As a result, the psychological burden on the individual and the business operator on the leakage of the resident registration number was very high. The collection of resident registration numbers was restricted on February 18, 2013, and since August 7, 2014, the resident registration number collection statute has been implemented. Authentication of user identity, which was based on resident registration number, was replaced by several alternate authentication methods. Typically, there are Ipin authentication and mobile phone authentication. In particular, the mobile phone authentication market, which is based on mobile phone number and date of birth information, has rapidly replaced the existing market.”

“Ipin is an ID and password that can be used in place of a resident registration number on the Internet. When Ipin is used, the resident registration number of the user is not exposed. However, utilization rate is decreasing because it is necessary to memorize and receive a new Ipin ID and password, and it is not possible to exclude the possibility of leakage of personal information in the institution (security administration) that has stored the information.”

“On December 28, 2012, the Korea Communications Commission (KCC) has designated three mobile telecommunication companies as the identity verification body to certify the identity of the user by inputting the cell phone number, date of birth and name. Mobile phone authentication is the most popular because it is more convenient to use than Ipin and it can also check your real name. However, there is a disadvantage that if a cell phone is stolen or lost, problems may occur. Identity verification by the mobile phone is exposed to character deception, USIM duplication, ID / password theft. Minwise’s mobile phone number theft prevention adds security procedures such as incoming text encryption and secondary password authentication to this authentication procedure.”

“In August 2016, SKT and KT introduced direct authentication services, T authentication and KT authentication respectively. SK Telecom has exceeded 10 million subscribers and 3.85 million monthly users (MAU) in 21 months after its T certification release, and the number of cumulative certificates exceeded 170 million. Minwise helps to develop and operate the T-certification for SK Telecom and receives additional revenue from maintenance. T certification is a simple primary authentication method that utilizes mobile phone companies’ mobile phones. If you register your personal information and password for the first time in the T Certification app, you can easily verify your identity works by simply entering the 6 digit PIN number through the app after entering the name and phone number, and use your mobile phone to receive payment and financial services. Currently, there are more than 31,000 affiliate services that can be certified through T authentication.”

“This can be regarded as a personal authentication service that achieves both the security of Ipin authentication using independent numbers that are irrelevant to personal information and the convenience of mobile phone authentication method. T authentication adopts fingerprint recognition and security solution such as high security (USIM) authentication at the same time while preventing SMShing accident by eliminating authentication number character service (SMS). However, considering the security limitations of the primary authentication service, it is expected that the anti-theft service of Minwise will provide the best security as the secondary authentication service. Voice and biometric authentication will be supported in the future.”

“In January 2018, the Korean government announced that it would abolish all banking certificates abolished as part of a proposed amendment to the Digital Signature Act, so various authentication solutions are expected to benefit. The public certification system, which makes it mandatory for online or mobile banking users to install an authentication certificate on their computers and phones in order to access banking services, has been criticized for its complexity. The system was initially implemented in 1999 to enhance security in the verification process for online transactions. At the time, the government insisted that only a single type of digital certificate could be used – the ‘public’ system. However, new authentication technologies are still slow to replace public certificates because of the lack of security references. In the future, demand for authentication services for users will increase as a self-help measure for protecting personal information and securing transactions.”

On the industry dynamics of the mobile payment and simple settlement services, founder Lee shares his thoughts, including the services provided by SettleBank: “Our simple settlement payment service is very important for business activities and contributed to supporting the rapid growth of the mobile payment market. It does not need to be interlocked with commercial banks, and it only needs to be linked with credit card companies, credit card PGs, and online shopping malls. Online and mobile cash payment services that do not require a credit card are growing rapidly worldwide.”

“SettleBank’s virtual account service gives a virtual account to a consumer when he or she is paying for e-commerce and then immediately notifies the company’s parent account when the customer deposits money for the transaction. Why is this service powerful? Consider that there are thousands of people who deposit money In the account at the same time, how do you identify and confirm who made the deposit and reflect it in each customer’s account? Realistically speaking, the handling and payment confirmation of this large-scale transaction on a real-time basis is too much and too slow. So we connect each virtual account to each customer and check the account through the network and automatically reflect it in the customer’s account. This is the power of virtual account services. So that people do not have trouble. SettleBank receives fees from financial institutions such as banks, card companies, e-commerce companies, the National Tax Service, and local governments in the process. It is cheaper than virtual payment methods and can be collected on the same day. In addition, it can receive the storage specification in real time, and it can realize the automation of the storage. It is possible to set various storage conditions such as deposit period, amount, and name.”

“For our firm banking and simple account settlement services, automatic transfer request and transfer of results and fund collection on the sane day increase profitability of fund management and automatic accounting processing can be done by linking the results of the deposit processing to the bank’s internal computer system. Real-time automatic transfer can be used on holidays, so you can prevent delinquencies, late payments, and termination of your contracts in advance.”

Founder Lee went on to emphasize his confidence that the simple cash settlement account will grow exponentially from the current 15% to 45% in the near future, led by the growth of Kakao Pay which has plans to expand its network of 190,000 stores and vendors to 1 million nationwide within the next two to three years: “Although the cash settlement account for around 15% of the total settlement market, it will grow to 45% in the near future once you increase the convenience of the services that consumers use.”

“Kakao Pay, which uses SettleBank’s simple settlement services, has surpassed 20tr won (US$17.6bn) in annual transactions in 2018 since its launch in Sept 2014. Transaction volume jumped by more than five times compared to the previous year (US$3.35bn). More than 190,000 stores and vendors across South Korea accept offline transactions using KakaoPay and 26 million members had joined KakaoPay. The plan is to have as many as 1 million stores accept KakaoPay within two to three years. KakaoPay will also participate in the Zero Pay project led by the Ministry of SMEs and Startups this March to use KakaoTalk as a platform to conduct Zero Pay transactions across all franchise stores using QR codes. Zero Pay is a government-led project designed to support small businesses. Zero Pay users will be exempted from paying wiring fees to banks, and receive as much as 40 percent of their expenditures as income tax deductions. The project began its test drive last December with 20,000 stores in Seoul.”

When asked to elaborate on Minwise’s mobile authentication services and mobile lifestyle services, founder Lee said: “Unlike the conventional method of receiving an authentication number by SMS and inputting the corresponding authentication number, you will receive a text message ‘Enter your security password’ on your mobile phone, follow the link, enter your authentication password, and receive and enter the authorization number sent by your mobile service provider. Mobile phone number theft prevention is a paid service that is affiliated with all three mobile communication companies, namely SKT, KT and LG U+, which allows the individual to input the password set at the time of subscription to protect the authorization number sent at the authentication step of the mobile phone and prevent the stealing of mobile phone number from the hacking method known as ‘SMShing’. It can be decrypted only by the application for preventing the mobile phone number theft. It plays an important role in the upgrading the security of identity verification in smartphone environment.”

“Login Plus is a service that strengthens security by inputting OTP of the additional password set at the time of signing up the service in addition to the ID and password of the registered site at the time of login. It is a one-channel service that blocks illegal logins in the system even if the ID and password are leaked. It is an additional service that is affiliated with all three mobile service providers. Login Plus is mainly used to protect items or contents linked to accounts, such as game services or cloud services. The explosive growth of the smartphone game industry and the expansion of cloud service users also resulted in Login Plus subscribers to grow steadily regardless of economic fluctuations.”

“ID and password required for payment are essential for everyday life and the simple/micro payment market continues to grow. As the market grows and the number of IDs and passwords that need to be managed increases, and that there is a growing awareness that portals and financial institutions will leak large amounts of personal information, users increasingly want to protect their own personal information themselves. According to the Korea Internet Research Institute, over 40% of the population use more than three IDs. The percentage of people whose passwords are changed more than three times a year is 41%. Considering that most Internet sites now require password changes once every 90 days, the number of times passwords need to be changed is increasing. Easy Payment Manager is a service that relieves the burden on customers for identity and password management caused by various requests of ID and password information by many different businesses.”

“EPM is a service that combines the convenience of using an ID and password related to payment in one app based on mobile phone number, and solves the problem of managing multiple IDs and PWs. There is security of information and security enhancement through distributed storage on apps and servers, so ID/password information is encrypted and decentralized to improve security. Also, businesses can reduce the rate of payment drop-out and failure due to lost or leaked payment information when using a mobile phone simple login. Based on this security and convenience, the number of subscribers has been increasing rapidly since the launch of EPM in Q3 2015.”

“Stock Investment Notes is for individual investors. High-quality stock investment information of major stock markets such as morning market recommendation by key stock experts are provided in the form of text messages four times a day. It is the only service in Korea that is expected to continue to grow as a mobile telecom service. We also have the next-generation service SuperStock (https://super.stockn.kr), utilizing big data machine learning technology to provide robo advisory solution to manage stock recommendations and portfolio management, at the subscription price of 22,000 won per month. Minwise has signed a partnership agreement with Shinhan Financial Investment to support overseas stocks and mutual fund investments during the first quarter of 2019. We will continue to showcase next-generation financial services, starting with life-friendly asset management. Our integrated account information management service, Bank One Shot, released in 2018, provides automatic debit transaction notifications based on user account information and expenditure patterns. It has been steadily growing and has secured over 1.4 million users.”

“Our real estate registered alerts launched in 2015 is a service that notifies real-time through mobile phone texts and e-mails when property registration changes occur due to fraud. The Supreme Court can provide a reliable copy of registration information through the registry office and monitor it 24 hours a day, 356 days a year. When a user receives legal notification of registration change, he or she may be required to obtain legal counsel due to illegal or unauthorized registration, or to provide legal support services in the event of a dispute. Self-registration is a service based on lawyers who are affiliated with the Korean Lawyers Association. The lawyer visits the official residence in the office of the real estate agent to transfer the real estate registration work. You can save registration fee up to 50% through direct dealings with users, and you can check real-time apartment registration cost estimates by entering basic information such as purchase price in self registration application. Since only 10% of the legal representative’s remuneration is paid, it is possible to reduce the consumer burden due to the large expenditure when buying real estate. In the first two months of this service in 2016, the cumulative transaction value reached 100 billion won. In addition to existing real estate owners, we will gradually expand B2B businesses such as financial institutions and real estate brokers.”

“In addition, Health Kickmy, launched in February 2018, has grown to become a lifestyle asset management service in reducing unnecessary expenditure by recommending appropriate insurance through insurance and health information to users through mobile, and now the number of users exceeds 4 million.”

“In July 2016, Minwise also developed the high-quality fetal ultrasound recording system for the first time in the industry and acquired a 55.1% stake in NeXT (https://www.moabebe.com) for around 1.84bn won (Minwise recognized an impairment loss of 919m won), which provides the ‘Moabebe’ baby ultrasonic video app service to over 60,000 members and 42 obstetrics and gynaecology clinics nationwide. Around 15% of all pregnant women in Korea are using the service. It also offers the industry’s first lock screen UI so that you can see the most important baby growth information and D-day information on the expected date of birth on the mobile phone. In addition to providing a daily life guide for mothers and a support guide for dads, we have developed a total child care service to check the growth of babies everyday and to share information in the existing high quality fetal ultrasound image confirmation service. The focus of app is on the relationship between the couple and as well as the relationship between the baby and the mother, an app that couples use together so that parenting can be a happy teamwork with the father rather than just the mother. Minwise expects to integrate its existing IT service know-how and NeXT’s management clinics, distribution channels, and customer data into Bio-Eleven’s probiotic business and create a new business area through expansion of the platform.”

“Minwise has also invested in the mobile advertising platform company Odemy in 2016. Odemy has been ranked the #1 mobile performance platform as a service based on mobile viral marketing and has launched a Japanese subsidiary in Japan.”

Founder Lee summed up by emphasizing that they look forward to leaping forward with a steady profit structure in providing innovative original services in blue ocean markets that enriches people’s lives: “We look forward to the company as a platform for employees to grow. We are steadily growing based on the fact that we are leading the blue ocean market that drives IT trends for every service we offer and that we have a stable profit structure through a large number of business partners. We look forward to a real leap forward as a convergent IT company providing original services that enriches people’s lives and we will take on social responsibilities as a convergence IT company. I hope you will keep an eye on Minwise’s steps to create a better world and we ask for your support and encouragement.”


Intrigued and want to read more? Download this week’s H.E.R.O. HeartWare: Weekly Asia Tech News with brief highlights of the inspiring entrepreneurial stories of tech leaders in Asia whom we have been monitoring over the past decade in our broader watchlist of over 300 listed Asian tech companies and our focused portfolio of 40 HERO Innovators who reveal their problems and successes behind building the company. Inspired by Brandon Stanton’s photo-journalistic project Humans of New York which collects and highlights the street portraits and moving stories of people on the streets around us who were doing things that changed lives and made a difference in the city but often went unnoticed, we have curated a collection of Hear the Heart of the H.E.R.O. stories on our website which we aim to update with refreshing and uplifting new stories weekly. Please check them out and give us your valuable feedback so that we can improve to make them better for you.


It started with rethinking a few questions. Question No. 1: Can the megacap tech elephants still dance? Or is this the better question: Is there an alternative and better way to capture long-term investment returns created by disruptive forces and innovation without chasing the highly popular megacap tech stocks, or falling for the “Next-Big-Thing” trap in overpaying for “growth”, or investing in the fads, me-too imitators, or even in seemingly cutting-edge technologies without the ability to monetize and generate recurring revenue with a sustainable and scalable business model? How can we distinguish between the true innovators and the swarming imitators?

Question No. 2: What if the “non-disruptive” group of reasonably decent quality companies with seemingly “cheap” valuations, a fertile hunting ground of value investors, all need to have their longer-term profitability and balance sheet asset value to be “reset” by deducting a substantial amount of deferred innovation-related expenses and investments every year, given that they are persistently behind the innovation cycle against the disruptors, just to stay “relevant” to survive and compete? Let’s say this invisible expense and deferred liability in the balance sheet that need to be charged amount to 20 to 30% of the revenue (or likely more), its inexactitude is hidden; its wildness lurks and lies in wait. Would you still think that they are still “cheap” in valuation?

Consider the déjà vu case of Kmart vs Walmart in 2000s and now Walmart vs Amazon. It is easy to forget that Kmart spent US$2 billion in 2000/01 in IT and uses the same supplier as Walmart – IBM. The tangible assets and investments are there in the balance sheet and valuations are “cheap”. Yet Kmart failed to replicate to compound value the way it did for Walmart. Now Walmart is investing billions to “catch up” and stay relevant. Key word is “relevancy” to garner valuation.

We now live in an exponential world, and as the Baupost chief and super value investor Seth Klarman warns, disruption is accelerating “exponentially” and value investing has evolved. The paradigm shift to avoid the cheap-gets-cheaper “value traps”, to keep staying curious & humble, and to keep learning & adapting, has never been more critical for value investors. We believe there is a structural break in data in the market’s multi-year appraisal (as opposed to “mean reversion” in valuation over a time period of 2-5 years) on the type of business models, the “exponential innovators”, that can survive, compete and thrive in this challenging exponential world we now live in. Tech-focused innovators with non-linear exponential growth potential are the most relevant multi-year investment trend and opportunity.  

During our value investing journey in the Asian capital jungles over the decade plus, we have observed that many entrepreneurs were successful at the beginning in growing their companies to a certain size, then growth seems to suddenly stall or even reverse, and they become misguided or even corrupted along the way in what they want out of their business and life, which led to a deteriorating tailspin, defeating the buy-and-hold strategy and giving currency to the practice of trading-in-and-out of stocks. On the other hand, there exists an exclusive, under-the-radar, group of innovators who are exceptional market leaders in their respective fields with unique scalable business models run by high-integrity, honorable and far-sighted entrepreneurs with a higher purpose in solving high-value problems for their customers and society whom we call H.E.R.O. – “Honorable. Exponential. Resilient. Organization.”, the inspiration behind the H.E.R.O Innovators Fund, (surprisingly) the only Asian SMID-cap tech-focused fund in the industry.

The H.E.R.O. are governed by a greater purpose in their pursuit to contribute to the welfare of people and guided by an inner compass in choosing and focusing on what they are willing to struggle for and what pains they are willing to endure, in continuing to do their quiet inner innovation work, persevering day in and day out. There’s a tendency for us to think that to be a disruptive innovator or to do anything grand, you have to have a special gift, be someone called for. We think ultimately what really matters is the resolve — to want to do it, bring the future forward by throwing yourself into it, to give your life to that which you consider important. We aim to penetrate into the deeper order that whispers beneath the surface of tech innovations and to stand on the firmer ground of experience hard won through hearing and distilling the essence of the stories of our H.E.R.O. in overcoming their struggles and in understanding the origin of their quiet life of purpose, who opened their hearts to us that resilience and innovation is an art that can be learned, which can embolden all of us with more emotional courage and wisdom to go about our own value investing journey and daily life.

As the only Asian SMID-cap tech-focused listed equities fund in the industry, we believe we are uniquely positioned as a distinctive and alternative investment strategy for both institutional and individual investors who seek to capture long-term investment returns created by disruptive forces and innovation without herding or crowding to invest in the highly popular megacap tech stocks, and also provide capital allocation benefit to investors in building optionality in their overall investment portfolio.

The H.E.R.O. HeartWare Weekly highlights interesting tech news and listed Asian emerging tech innovators with unique and scalable wide-moat business models to keep yourself well-informed about disruptive forces and innovation, new technologies and new business models coming up, and the companies that ride on and benefit from them in some of the most promising areas of the economy in Asia as part of our thought leadership for our ARCHEA Asia HERO Innovators Fund to add value to our clients and the community. Hope you find the weekly report to be useful and insightful. Please give us your candid feedback and harshest criticisms so that we can improve further to serve you better. Besides the BATTSS (Baidu, Alibaba, Tencent, TSMC, Softbank, Samsung), do also tell us which Asian tech entrepreneurs & CEOs whom you admire and respect and why – we will endeavor to do up profiles of them for sharing with the community. Thank you very much and have a beautiful week ahead.

Warm regards,
KB | kb@heroinnovator.com | WhatsApp +65 9695 1860
www.heroinnovator.com

H.E.R.O.’s Journey in Tech (16 February 2019) – Purchases With Plastic Get Costlier for Merchants-and Consumers; Visa and Mastercard plan to raise fees on credit and debit cards, putting new strain on retail + Strategies for Seizing the Day

H.E.R.O.’s Journey in Tech (16 February 2019) – Purchases With Plastic Get Costlier for Merchants-and Consumers; Visa and Mastercard plan to raise fees on credit and debit cards, putting new strain on retail + Strategies for Seizing the Day

Companies

  • GaAs IC foundry Win Semiconductors expects robust demand for 3D sensing and 5G related applications to drive its mid- and long-term business growth. (Digitimes)
  • FPCB firm Flexium gearing up for 5G (Digitimes)

BATTSS – Baidu, Alibaba, Tencent, TSMC, Samsung, Softbank

  • Buying WorldFirst gives Ant the technology it needs to service an international marketplace. That’s good news for Alibaba’s growth plans. (Bloomberg)
  • Alibaba acquires 8% stake in Bilibili to double down on content-driven e-commerce (Technode); Alibaba buys into online video-sharing site Bilibili to tap young consumers (KRA)
  • TSMC takes $550m hit from defective chemical at chip plant; Company cuts earnings outlook after troubles supplying Apple and Huawei (Nikkei)
  • Seizing on Huawei’s troubles, Samsung bets big on network gear (Reuters)

FAANNMG – Facebook, Amazon, Apple, Nvidia, Netflix, Microsoft, Google

  • Apple acquires talking Barbie voicetech startup PullString (TC)
  • Amazon, Western Union debut PayCode to sell goods in emerging markets and let shoppers pay in cash (TC)
  • Amazon launches UPI payments in India, taking on Paytm, Walmart and Google (Forbes)
  • Google’s AI plan to understand everything about humans can go wrong: expert (Investor)

Asia Tech & Innovation Trends

  • Forbes India Conversations: AI is one technology where India can fully leverage its people (Forbes)

Global Tech & Innovation Trends

  • Purchases With Plastic Get Costlier for Merchants-and Consumers; Visa and Mastercard plan to raise fees on credit and debit cards, putting new strain on retail (WSJ)
  • Postscript wants to be the Mailchimp for SMS (TC)
  • Vimeo Chases Video Producers With Its First Big Ad Campaign; A video platform pursues creators’ budgets instead of viewers’ wallets (WSJ)
  • The Oracle of Omaha has given up on Oracle, the company (qz)
  • The era of general purpose computers is ending (NP)
  • Looking to Reverse Its Slide, Austrian iPhone Supplier Pushes Beyond Apple (Barron’s)
  • 4 Stocks to Play the Data-Center Boom (Barron’s)
  • 5 Ways to Invest in the Robotics Revolution (Barron’s)
  • Is Yelp a business or a howl of pain? The reviews site blames Google for its problems but investors see another culprit (FT)
  • Uber posts $50 billion in annual bookings as profit remains elusive ahead of IPO (Reuters)
  • Zillow Wants to Flip Your House; A new breed of high-tech real estate flippers is using algorithms (and a healthy dose of Silicon Valley venture capital) to buy at massive scale. (Bloomberg)

Life

  • Strategies for Seizing the Day (RH)
  • Hong Kong’s securities watchdog freezes brokerage accounts for suspected involvement in misleading data (SCMP)

H.E.R.O.’s Journey in Tech (15 February 2019) – Trend Micro Reports Highest Annual Net Sales in Company’s History for Fiscal Year 2018 ; US. negotiating multibillion-dollar fine with Facebook

H.E.R.O.’s Journey in Tech (15 February 2019) – Trend Micro Reports Highest Annual Net Sales in Company’s History for Fiscal Year 2018

Companies

  • Chinese surveillance camera supplier Hikvision posts slowest profit growth in a decade (SCMP)
  • Trend Micro Reports Highest Annual Net Sales in Company’s History for Fiscal Year 2018 (BW)
  • Japan’s Nidec to double China capacity for electric-car motors (Nikkei)
  • Nintendo Unveils New Mario, Zelda Games in Bid to Boost Switch; The big franchise names were among 18 titles announced (Bloomberg)
  • Kakao’s operating profit plummets in 2018 (Investor)
  • Higher US interest rates boost Computershare profits (AFR)
  • Inari to benefit from business uptick due to coming 5G rollout (Edge)

BATTSS – Baidu, Alibaba, Tencent, TSMC, Samsung, Softbank

  • Alibaba buys 8% of Bilibili (TIA)
  • Ant Financial acquires UK payments firm WorldFirst to advance its global expansion (SCMP)
  • Alipay accepted at over 3,000 Walgreens drugstores in the US amid overseas push by China payments firm (SCMP)
  • Canadian food delivery startup partners with Alipay to launch food ordering mini-program (Technode)

FAANNMG – Facebook, Amazon, Apple, Nvidia, Netflix, Microsoft, Google

  • Berkshire trims Apple stake, adds Suncor and Red Hat, exits Oracle (Reuters)
  • US. negotiating multibillion-dollar fine with Facebook – report (Reuters)
  • Amazon’s Alexa wants to ease your ‘cognitive overload’ (Age)
  • Google’s AI plan to understand everything about humans can go wrong: expert (Investor)
  • Amazon launches UPI payments in India, taking on Paytm, Walmart and Google (Forbes)
  • Gates Foundation Trust Sells Berkshire, Microsoft Stock (Barron’s)
  • Chipmaker Nvidia falls from ranks of tech darlings; Sale of stake by SoftBank’s Vision Fund comes as group hit by end of cryptocurrency boom (FT); Nvidia full-year sales outlook tops analyst views; shares rise; Nvidia has entered into newer growth areas such as data centers and self-driving cars as it looks beyond its bread-and-butter business of selling chips that enhance video games graphics (Reuters)
  • Everything still to play for with AI in its infancy; IBM and Google’s differing approaches highlight extent to which field is wide open (FT)

Asia Tech & Innovation Trends

  • How will China’s internet economy develop further? (Part two) (KRA)
  • China’s Didi reportedly lost a staggering $1.6 billion in 2018 (TC)
  • PEFs face trouble exiting from indebted pay TV provider (Investor)
  • Australia’s Canva Has Become A Unicorn By Bringing Online Design Tools To The Masses (Forbes)
  • Crossover: A software sweatshop (Forbes)

Global Tech & Innovation Trends

  • Can Europe’s Latest Tech Darling Keep It Up? Adyen has become one of the continent’s biggest success stories since going public, but investors may be betting on a best-case scenario. (Bloomberg)
  • How AI is protecting us from phone-wielding drivers (e27)
  • Pinterest founder Ben Silbermann on creating the anti-social media platform (CNN)
  • The Increasingly Crowded AI Unicorn Club (CBI)
  • Prominent investors stock up on eBay, then activists flex muscle (Reuters)
  • Big Tech’s banking foray on regulators’ radar (Reuters)
  • The AI That Can Write a Fake News Story From a Handful of Words (Bloomberg)
  • Software Update Aims to Keep Drones Away From Airports (Bloomberg)
  • AI Redefines Healthcare (hvst)

Life

  • Lee Kum Kee oyster sauce dynasty flies up Forbes Hong Kong rich list but can’t touch Li Ka-shing’s fortune (SCMP)

H.E.R.O.’s Journey in Tech (14 February 2019) – How a Sydney startup is using artificial intelligence to fix sewerage pipes + Bill and Melinda Gates 2019 Annual Letter

H.E.R.O.’s Journey in Tech (14 February 2019) – How a Sydney startup is using artificial intelligence to fix sewerage pipes + Bill and Melinda Gates 2019 Annual Letter

Companies

  • Tencent-backed Douyu files for $500m IPO in New York (KRA)
  • Recruit Holdings Q3 revenue rises 6%, HR technology boosts growth (SI)
  • PKSHA makes Sapeet of 3D algorithm development a subsidiary (TC)
  • E . Guardian started startup support project (TC)

BATTSS – Baidu, Alibaba, Tencent, TSMC, Samsung, Softbank

FAANNMG – Facebook, Amazon, Apple, Nvidia, Netflix, Microsoft, Google

  • Apple Doesn’t Need to Be Netflix to Succeed at Video; The iPhone maker can have a robust business without revolutionizing entertainment. (Bloomberg)
  • Apple aims for April launch of TV service with CBS, Viacom and Starz (Reuters); Apple Invites Hollywood Stars to Video Service Launch (Bloomberg)
  • The Cost of Apple News (Stratechery)
  • Apple’s Autonomous Cars Need Much More Human Help Than Its Rivals (Bloomberg)
  • Jeff Bezos and Amazon are taking over suburbia (qz)
  • Amazon: Eeros and villains; Planned purchase of WiFi start-up will only add to scrutiny over tech data collection (FT)
  • Google to Spend $13 Billion on Data Centers, Offices Across U.S. (Bloomberg)
  • Waymo builds big lead in self-driving car testing; Data show widening gap in autonomous vehicle race with Uber going into reverse in 2018 (FT); Apple ramps up self-driving program as Waymo says its tech improves (Reuters)
  • Nvidia Stock’s Future Is in Artificial Intelligence, Says Analyst (Barron’s)

Asia Tech & Innovation Trends

  • To subsidize drivers, Didi racks up annual loss of US$1.6 billion (KRA)
  • China’s gig economy losing ability to absorb laid-off factory workers (TIA)
  • China’s Stock Traders Are Snapping Up Everything 5G (Bloomberg)
  • Man vs machine: China’s workforce starting to feel the strain from threat of robotic automation (SCMP)
  • Reading between the lines of China’s secondhand e-commerce market (Technode)
  • What does Tiktok’s rise mean for Facebook and Snapchat? (Technode)
  • Demand for memory chips in Asia might be picking up soon, analysts say (CNBC)
  • ALTBalaji subscriptions reflect rising popularity of OTT streaming in India; Even as the telecom regulator considers fresh regulations of the OTT sector, mobile content streaming is surging in the country (Forbes)
  • Singapore is Asia’s most ready nation for autonomous vehicle adoption (Edge)
  • How a Sydney startup is using artificial intelligence to fix sewerage pipes (Age)

Global Tech & Innovation Trends

  • Yelp barely lives up to revised promises, but it just promises more (MW); Yelp Users Bemoan Disappearing Recommendations, Adding to Company Troubles (Bloomberg)
  • Driverless Car Data Shows Robots Are Improving But Still Need Human Hands; California records show safety operators in GM and Waymo test vehicles are taking the wheel less (WSJ)
  • Xnor’s saltine-sized, solar-powered AI hardware redefines the edge (TC)
  • Bill Gates-backed Vicarious Surgical adds a virtual reality twist to robots in the operating room (TC)
  • First Robo-Trucking Unicorn? TuSimple Delivers $95 Million Funding Round (Forbes)
  • AI will soon decide what we eat (TNW)
  • EA Paid Twitch Gamers to Battle Back Against Fortnite (Barron’s)
  • Beware Investing in Uber and Other ‘Unicorns’ Going Public, Goldman Sachs Says (Barron’s)
  • TripAdvisor Earnings Send Stock Down as Analysts Cite Concerns (Barron’s)
  • Startup Accelerates AI at the Sensor; claims that its novel techniques of processing neural-networking tasks at the level of sensor signals will undercut rivals in power and cost (EE Times)
  • Shipments of 3D sensing-enabled Android smartphones to boom, says Digitimes Research (Digitimes)

 

Life

  • Bill and Melinda Gates 2019 Annual Letter: Textbooks are becoming obsolete. Software is finally changing how students learn. (Gatesnotes)

H.E.R.O.’s Journey in Tech (13 February 2019) – Pinduoduo’s bid for calm has its limits

H.E.R.O.’s Journey in Tech (13 February 2019) – Pinduoduo’s bid for calm has its limits

Companies

  • Pinduoduo’s bid for calm has its limits (Reuters)
  • Chinese smartphone brands strengthen their grip on India, with Xiaomi displacing Samsung from top spot (SCMP)
  • CyberAgent president “regrets relying too much on a single game title” as Dragalia Lost underperforms (PG)
  • Rakuten to Invest in Mobile Industry Innovator Altiostar (PN)
  • Carrier KDDI to expand financial services with Kabu.com buy; Japan’s second-largest wireless provider hurries to diversify from smartphones. (Nikkei)
  • Seoul Semiconductor supplies LEDs to Dutch lighting firm (Investor)
  • Tencent Partner Nexon Signals More Weakness in China Games (Bloomberg)
  • Chroma to buy 20.5% of Camtek (Digitimes)
  • Carsales hit by mixed result at home, but international revs up (AFR)

BATTSS – Baidu, Alibaba, Tencent, TSMC, Samsung, Softbank

  • Tencent’s Supercell posts second consecutive year of falling sales (FT)
  • Asian chipmakers’ profits plunge after smartphone downturn; Samsung margins shrink 14 points while SK Hynix cuts investment by 40% (Nikkei)

FAANNMG – Facebook, Amazon, Apple, Nvidia, Netflix, Microsoft, Google

  • How Xbox’s ‘Netflix for games’ is expanding players’ horizons (Age)
  • Amazon, GM in talks to invest in electric pickup truck maker Rivian: sources (Reuters)
  • Amazon gobbles up eero to round out its smart home plan (Wired)
  • Your Smart Light Can Tell Amazon and Google When You Go to Bed (Bloomberg)
  • Publishers Chafe at Apple’s Terms for Subscription News Service; Apple plans to keep about 50% of subscription revenue from ‘Netflix for news’ service, likely won’t share customer data with publishers (WSJ)
  • Google Cloud Chief’s Plan to Catch Amazon and Microsoft: Sales Reps; CEO Thomas Kurian seeks to borrow approach to growth from former employer Oracle (WSJ); Google’s New Cloud Boss Targets Old Issue: Selling to Big Firms (Bloomberg)

Asia Tech & Innovation Trends

  • How will China’s internet economy develop further? (Part one) (KRA)
  • I. Shows Promise as a Physician Assistant; A so-called neural network analyzed the medical records of 600,000 hospital patients in China, diagnosing their conditions as accurately as doctors did in some cases (NYT)
  • China has produced another study showing the potential of AI in medical diagnosis (qz)
  • Asian investors embrace data centers to ride out property slump; Facilities offer attractive returns amid slowdown, but regulations loom (Nikkei)
  • Japanese self-drive cars map developer to buy rival U.S. startup: Nikkei (Reuters)
  • Sider of code review support SaaS raises funds and provides enterprise version (TC)
  • Trevari runs a subscription-based platform through which subscribers join book clubs that meet in person. A four-month membership ranges from 190,000 won to 290,000 won, excluding the cost of purchasing books. (Investor)
  • India’s Swiggy goes beyond food to offer product delivery from local stores (TC)
  • Southeast Asia eclipses China as world’s mobile economy hot spot; Thais, Indonesians and Singaporeans are big-time online bankers, shoppers and ride-hailers (Nikkei)

Global Tech & Innovation Trends

  • SaaS Valuations Revisit Record Highs; public SaaS companies are once again worth around ten times their revenue as their share prices recover from December’s disturbance. (CB)
  • Ubisoft and Mozilla team up to develop Clever-Commit, an AI coding assistant (TC)
  • Voice assistants in use to triple to 8 billion by 2023 (TC)
  • What Spotify’s big podcast purchases mean for the future of the medium (Age)
  • EA Paid Twitch Gamers to Battle Back Against Fortnite (Barron’s)
  • PayPal Can Gain Nearly 60%: Fund Manager (Barron’s)
  • Shopify profit forecast misses on higher spending, shares fall (Reuters)
  • Antipodes say disruptors distract from main tech game (AFR)
  • IBM says Watson AI services will now work on any cloud (Reuters)
  • Akamai earnings beat on cyber-security strength (Reuters)
  • TV Streaming Apps Can Learn From The Love of Free Shipping; As online shoppers continue to choose free delivery over faster shipping, it’s food for thought for the media industry. (Bloomberg)
  • Is Trump’s AI executive order a Sputnik moment for the US? (SCMP)
  • Why People Still Don’t Buy Groceries Online (Atlantic)
  • Airbnb-style space is the new warehouse trend; “Because customers today demand such fast delivery when they order online, companies need more smaller locations rather than fewer larger locations” (Age)
  • Jobvite raises $200M+ and acquires three recruitment startups to expand its platform play (TC)
  • The automotive industry often describes a connected vehicle as a “smartphone on wheels.” Nothing, however, is further from the truth. (EE Times)
  • Is Globalfoundries seeking a buyer? (DT)

Life

%d bloggers like this: