Moody’s of South East Asia- Credit Bureau Asia

Credit Bureau Asia has been a stock that we are interested in since its IPO in December 2020 at 93 cents. However, the price has been on an upward trajectory that we missed the move to $1.58 as our value investor mindset sets in.

However, recently the price has dropped back to $1 and it stirs up our interest to take a second look at their business to see if our original bullish thesis is still valid.

Source: Moody’s Website

As per our title, when we saw the prospectus of Credit Bureau Asia (CBA), we thought of it as the Moody’s of South East Asia where it is providing credit reports and business data to help companies make better decisions. The only thing that might be different would be the pedigree as Moody’s was established in 1909- CBA was founded in 1995.

Also, Moody’s have the research arm and ability to issue credit rating for corporate bonds but CBA does not have this capability.

 

Reasons to be Bullish

The most important characteristic that attracted us to CBA is that the margins are rich and there is a strong moat; it is not easy to just set up a credit bureau without any connections. This is especially so in developing countries where CBA have a presence like Myanmar, Cambodia and Vietnam (They have just got a foothold in Vietnam recently through a joint venture).

CBA is also carving out their niche by focusing on SEA where they have an edge over others. Another attractive proposition is that it is in a recession-proof business and in times of crisis, the demand for credit reports and analysis might be even higher. Their business is also not capital intensive and therefore will be able to generate good Returns on Investment.

This type of business model is exactly a Buffet type of business with high margins and a strong moat- Buffet has a 13% stake in Moody’s.

 

Business Model

Source: CBA’s Company’s Presentation Slides

To better understand what CBA does, here is the write up from their presentation slides.

 

The core business of CBA is split into Financial Institutions and Non-Financial Institutions. They are working with the banks to assist them in their risk assessment so as to minimise bad debts for the FI business. As for their Non-FI business, it is using their subsidiary Dun and Bradstreet as their proxy to this sector by assisting MNCs and companies to streamline their risk management decisions. From the above slides, we could have an overview of the business model, services and products that they offered to their clients.

 

Source: moomoo Trading App- Revenue Composition

We are currently using the moomoo app for our research and trading needs. We have extracted information such as revenue breakdown in business and region using the app. What we like about moomoo is the strong and active community- 16 million account holders- which will facilitate a great exchange of views and ideas. The current promotion will be a free Apple share worth S$240 and S$40 cashback if you open and fund your account with S$2700 giving you a risk-free return of 10%. Appreciate your support for The Big Fat Whale by using our referral link to set up your moomoo account. There won’t be any maintenance fees and you have access to a huge array of free investor resources.

 

Their current business model has 59% of their revenue and 41% of their revenue generated from Non-Financial and Financial data respectively. Their main source of revenue of close to 88% is from the sale of credit reports while their supplementary services highlighted are possible avenues to cross-sell and drive future growth.

 

Source: CBA Annual Report 2020

The crown jewel for CBA would be their stake in Credit Bureau Singapore and Dun & Bradsheet Singapore as close to 98% of their revenue is generated from their Singapore business. They are spreading their wings regionally to developing countries which we have highlighted earlier that have huge scope for growth given the low base that they are coming in from.

 

Financial Metrics

Stock/ Price	Forward PE	Debt to Equity	Cash Per Share	Dividend Yield	Price to Cashflow	Return on Equity	Market Cap
Credit Bureau Asia/ 0.97	32	0.03	0.23	3.37%	12	22%	223 million

Source: Morningstar

Taking a look at the financial metrics, this is not a value stock candidate with a mind-blowing PE of 32. However, it is a cash flow generating machine with a price to cash flow ratio of 12 which means a good portion of the earning is eroded by non-cash flow items such as depreciation. The cash flow for 2020 come in at close to 20 million dollars versus a profit of 8.2 million dollars.

As highlighted earlier, due to the nature of the business, it generates high margins as could be shown by the 22% return on equity figure. It has also a strong balance sheet with almost zero debt and is backed by 52 million dollars in cash. That translate to 23 cents or accounts for almost a quarter of their current price.

However, it is prudent to note that the bulk of their revenue and the highest margin is derived from their stable Singapore business. Due to their corporate structure, they only owned 38% of their Singapore operations. For their other business ventures in other geographical areas, it is still more of a work in progress and we are not sure if things will pan out as well as their Singapore business.

The trend of their business growth in revenue has been around 6-8% over the past few years. We concur that it is not spectacular but it is steady growth and the seeds planted in other geographical areas could bear fruits and contribute to sustainable growth in the future.

Moreover, their Singapore business will still see growth as they are trying to finalise deals with the Digital Bank Licensees. They have also set up the Money Lenders Credit Bureau from 1st July 2021.

They have recently declared dividends making up 100% of their profits and have given the guidance of issuing dividends of at least 90% of their profits till the end of 2022. Their current dividend yield is at a decent 3.37%.

 

Source: moomoo app- CBA and Moody’s comparison

Using the moomoo app, we are able to compare CBA with up to 2 other similar companies. So this is another useful feature that we use moomoo app for to enhance our research capabilities. Click on this referral link to set up an account and have access to these great free research features.

 

Charting Point of View

Source: moomoo app- CBA Chart as of 17th Jan 2022

The price action of CBA is not looking too good. it has started spiralling down since December 2021. It is now trading at near its all-time low of 96 cents which was the price it started on IPO day. It went all the way up to 1.58 but the initial craze has since fizzled off.

96 cents should see some support but the critical level to take note of will be their IPO price of 93 cents which will be an important psychological level. A sell-off below 0.93 would see a wave of selling pressure as most people who got it from the IPO would have the temptation to sell it while they are not too deep out of the money.

We would think 0.93-0,96 would be good accumulation levels if the selling pressure eases off and they enter into a consolidation state. There are no notable bottoming signals yet such as a double bottom or divergence in RSI.

Therefore, let’s be patient and go in at tranches if you are interested in including this stock in your portfolio.

 

Why is the price plunging?

We were not able to find huge reasons that led to their price plunging since hitting the peak at 1.58.

There could be two possible reasons and one of which is they missed analyst estimates slightly which should not be enough to justify such a substantial drop.

The second reason would be their exposure to Myanmar which management has guided would be fully back to operational by end of 2021.

We would infer that it is likely due to their rich valuation but at the current price, it is trading at a more reasonable valuation. If we take cash per share off their current price, it is trading at a PE of 25X. It gives a yield of 3.37%. Growth could come in brilliantly if their ventures off Singapore pan out while Singapore will be the cash cow to support their expansion regionally.

 

Major Shareholders

Source: moomoo app- Major Shareholders of CBA

Using the moomoo app, we have extracted the top shareholders for CBA. It is heartening to know that their Chairman and CEO, Kevin Koo, and executive director, William Lim, still hold a substantial stake in CBA and hence interests are aligned with shareholders. 

There are also reputable fund management companies that are vested.

 

Summing Up

Credit Bureau Asia would stand out as a company that perhaps even Warren Buffet might be interested in given its strong moat and good returns on capital– it is not in an industry that is capital intensive. 

They have their crown jewel in the Singapore market that would act as a cash cow for their expansion regionally. Given the dynamics of the South East Asia region, the need for credit reports and risk assessment is more a necessity given the state of corporate governance in these developing economies. Therefore, it presents a great growth story and niche that CBA is embarking on. 

As their ventures regionally are still in their infancy apart from Malaysia, the revenue contribution has been lacklustre but we would be monitoring closely to see if their foray into these developing countries (Cambodia, Myanmar and Vietnam) are working out.

Valuation wise, it might not be in Graham’s liking but given the potential and their recent drop, CBA is looking much more interesting as an investment candidate for our portfolio. It is trading at a PE of 25X if we exclude the cash per share from its current price.

It is also cash flow positive with a decent Price/Cash flow of 12X. Also, it has a respectable return on equity of 22%. It comes with a dividend yield of 3.37% and a strong balance sheet with almost zero debt.

Charting aspect wise, it is still looking to find a base and we are looking at 0.93-0,96 as a potential accumulation range.

Given the analysis that we have done up, we are looking at Credit Bureau Asia as a potential core holding which could be held for a long time to come as long as their revenue and profit growth is showing a consistent upward trend.

Will it live up to the name of being “Moody’s of South East Asia?”