Danareksa Equity Snapshot – NFC ( NFCX. IJ.NOT RATED ) December 04
Niko Margaronis, Ignatius Teguh Prayoga
NFCX is a pioneer in the development of digital platforms with its profit-making telco pulsa/credit exchange. And through OONA TV, the company is a prospective force in media using the advertising Video on Demand (VOD) business model with low opex/capex. NFC’s products create uses for TSEL’s Tcash. Going forward, the company seeks to foster new partnerships and more digital projects
NFC’s asset light model will thrive on new digital initiatives. NFC has an asset-light model which seeks to exploit existing market imperfections by being more efficient among various ecosystems, essentially disrupting the status quo. NFC currently has three main products: 1) the telco pulsa exchange (which has been NFC’s revenues stream since FY15), 2) OONA TV VOD, and 3) DMS marketing solutions which are expected to start generating revenues in the coming months. NFC looks well placed to ride the digital wave on rising smartphone penetration and growing consumption.
NFCXC.com marketplace for pulsa. In the pulsa marketplace, visibility can be limited at times leading to unexpected inventory excess and shortages for distributors. These agents deal with each other to optimize their positions. NFCXC.com is one of the few exchanges that helps aggregate inventory positions, and agent members in the exchange almost doubled over the last 3 months to 1,800 in Sep 18 from 918 in June 18. This helped both revenues and earnings to increase in 3Q18.
OONA: Internet TV with intuitive digital marketing functionalities. OONA TV is an internet TV platform offering users a vast choice of channels with local and international content. In parallel, it scientifically identifies user needs and delivers digital advertisements in a more precise and targeted manner. Around the time of its IPO, Oona only had 20,000 subscribers, setting a target of 500,000 subs by YE18. As of October, Oona surpassed the initial target, with 1.2million subscribers of which 35% are active users. It is plausible that the company ends the year with 3 mn subs, according to our contact. The model is in pilot mode till it garners a sizable base with commercialization expected to commence in 2019
No debt exposure with a positive bottom line. Like Go-Jek, vendors and buyers meet in an online marketplace to trade goods & services to clear the market from idle capacity and demand. Based on this model, NFCXC can be very robust posting solid growth in 3Q18. After its IPO and raising Rp300 bn, NFC remains asset light and debt free offering leeway for OONA and other digital projects to develop traction and support the future valuation. NFCX is currently trading at PER-19 of 26.3x based on consensus earnings estimates.
NFC benefits from imbalances in pulsa inventories. Over 95% of telco sales are prepaid pulsa top-ups relying extensively on 3rd party distributors to sell the pulsa to cellular subscribers with specific denominations, pricing terms and timeframe. The information in our exhibit shows that there are substantial unearned revenues from prepaid sales with the possibility of unsold inventory.
Telcos assign to distributors a certain quantity of vouchers to sell within a week. Time is limited to disseminate the inventory and collect the proceeds. Given the market dynamics, there is bound to be excess and/or depleted inventory. A centralized option which helps to identify these imbalances faster will help distributors meet their deadlines. This is where NFCXC.com comes in to drive the market clearing process faster. The online exchange offers transparency to market agents helping them to identify other agents and manage inventory levels with more flexibility.
NFCXC.com currently offers the basic cashflow for NFC to fund the making of new exchanges for digital commodities as well as jobs.
OonaTV: free TV on the go with premium content. OonaTV is a TV channel aggregator for smartphone users offering free access to more than 130 channels of Free-To-Air (FTA), Video-On-Demand (VOD) and premium content with the number of channels steadily increasing. NFCX has a controlling 51% stake in PT OONA Media Indonesia OMI (OonaTV). OONA has wide local content coverage including the Syahrini channel where the TV celebrity directly addresses her fans in a similar way to the Kardashian family utilizing reality TV. Another channel is Angkasa Pura II’s flight information and entertainment channel.
Taking TV advertising a step further. Monetization is pretty similar to FTA television channels for traditional TV sets, with TV content acting as a magnet for viewers. OONA goes further to mining data using chatbot and Artificial Intelligence driving interaction and Q&A sessions with the viewer to extract personal information while the TV channels are viewed. NFC will map the preference of the users through ultra-large data analysis and then provide suitable ads. Those ads appear on the screen enticing the user to click them in exchange for Tcoins. Users can also receive Tcoins by sharing content with friends in social media. Tcoins can then be redeemed on TSEL‘s Tcash bonus balance to transact with Tcash merchant partners, as well as with clients from the sister company DIVA. This process is dynamic and feeds advertising agencies instantaneously with data without having to wait for AC Nielsen ratings.
Sharing economy model with low OPEX and CAPEX. OMI expects to receive advertising revenues for user clicks to charge advertising agencies ~US$4-7 per 1,000 clicks. OMI will then share the revenues with involved parties for their contribution with TV channels getting 50% of the revenues for sharing the content, 30% to Telkom for sharing its subs base and distribution, 5% to Oona global for sharing the engine platform, and the remaining 15% for OMI itself. Thus in this sharing economy model, OMI essentially bears zero direct costs. The company revealed that it is close to making a similar deal with XL Axiata.
A strong case for OONA TV. We think the OONA free TV model has a very good chance to gain strong traction given current TV evolution trends. Brightcove, a leading US-based software company, specializes in sending video content via the cloud. In its research report, Indonesia is shown to lag viewership in data formats while regular TV remains strong unlike other countries. However, with increasing data consumption, internet TV may become much more popular in the near future. CISCO projects suggest that Indonesia’s Internet video traffic will grow 7-fold from 2016 to 2021, 48% cagr. Total internet video traffic will be 74% of all Internet traffic in 2021, up from 52% in 2016.
NFC tapping SMEs with digital advertising. NFC provides a digital marketing solution with industrial grade displays placed in minimarkets and buildings with elevators. NFC recently acquired 30% in the PT Digital Marketing Solution (DMS) platform which controls advertisements via the cloud. This is in contrast to its main competitor AMG which still uses manual data transfer with USB. Via cameras, the screen collects data such as gender, age range and visitor numbers. DMS will collect data for analytics and adjust content for greater audience appeal.
Each display screen has a capacity of 24 slots which are played throughout the day in turns. Currently, 15 of the 24 slots are booked by corporates, while the other 9 are allocated to smaller businesses through an online bidding process powered by NFC. Advertisers have the ability to bid and acquire ad space on an on-demand basis adding a dynamic element. DMS currently has 19 service points in major Indonesian islands with >4,000 outlets and >5,000 screens. NFC effectively helps SMEs to reach target groups and connect them with well-tuned advertising.