kms8717

PG business temporarily books the cash that ultimately needs to be paid back to the merchants, so NICE's cash balance is a bit overstated - accounting for this ST liability, I estimate the net cash or the excess cash to be around 140B Won, about 70% of market cap. Current FCF yield is about 25-30%, so in a normal operation circumstance, much of this cash should be distributed back to the shareholders. But as I may have explained before and you may as well know, the current gov is creating a huge uncertainty in the local payment market that it wants to shift from the current credit card based payment system to a mobile pay system like China), and NICE wants to be adequately loaded to adapt to this new potential change - either to sustain the lead or completely dominate the industry once the direction is set. Government aggregated all the mobile pay players in one consortium under the "ZEROPAY effort," and wants to negotiate with the VANs to support this mobile pay in the existing VAN machines, but the compensation is just too low for the VANs to move forward - and meanwhile the gov is blaming the card industry and pushing down the processing fee, so many VANs are struggling. It is the Gov that's running out of time. Polls are falling, and despite all the noise that ZEROpay created, it's being bashed and derided. No one uses it. Without VAN's support, it cannot move any further. Long story short, NICE may have to acquire another VAN that loses out in this environment(KSNET recently took out all the operating cashflow as dividends. Maybe they're trying to sell its business?), or install new signpads that reads NFC, Blooths or whatever to accept mobile payments. This will require capital. While the future is still a bit unclear, NICE feels confident that they will continue to be relevant in any environment, and despite the earnings decline, they increased dividends. Yes it could have been bigger given the cashflow, but given what's going on, I think it was adequate. And it''s moving forward to be more of a data company. I may be repeating, but I think this has a Square-like potential selling for less than 6x '19 P/E, 30% '19 FCF Yield. My favorite reward/risk skew in Korean market currently.

Hi- I haven't seen the app, but based on the disclosure and my discussion with the IR, it sounds like they're following Square's path. it probably includes a dashboard with sales summary, stats, analysis of the near-by similar merchant sales, and third party software. Although this subscription revenue is a small part for Square, this is a fast growing segment, and it makes Square - merchant relationship stickier as well as win new businesses - a source of its double digit multiple(vs. NICE's 6.5x?). Stoneco's case seems a little unique in that half of its revenue comes from "financial income revenue", which is extending credits to the merchants. I am of the view that processing revenue + app subscription revenue is more sustainable. 2019 will be a year when I&T's business really evolves into a healthier one.

4Q revenue was weak YoY because the competitor KICC had a temporary processing trouble in 3-4Q17 which NICE processed, so the base was high. 4Q18 SG&A was high because of the continued pressure in ISOs, NICE incurred some impairment on the prepaid expenses that they've made to the ISOs. I believe the margin squeeze to be temporary. What's more important IMO are two things: 1) NICE granted its C-levels 3yr stock options for the first time in its history to align with the shareholder interests. Despite the earnings decline in '18, they also increased dividend this year. 2) NICE added new lines of businesses including a) Tax-refund b) Merchant app. As many of NICE's merchants are making growing number of transactions for the Chinese travelers, there's an increasing need and growing market for tax refund biz, which NICE can do very easily utilizing the existing merchant network and payment infrastructure. Secondly, the merchant app is a step toward transforming the current, simple processing business into a data business, generating subscription revenue and further diversifying the revenue stream - derisking itself from the gov pressure on the processing fee. I strongly believe now is a very attractive time to be overweight in I&T.

No news articles yet, but the conversation seems to be going well. http://www.nicenpay.com/ Above site is newly updated - there you can have a glimpse at their payment app which supports most of the major card companies. The payment app can be used in offline, pc online, and mobile. I&T is starting to be more talked about among the locals in the investment community websites.

Resuscitating an old thread once more. Now is probably an interesting time to take another look at GRVY. A good analysis of the company and on the current investment opportunity was shared on Seeking Alpha last December. Share price rose but is back down to where it was then. https://seekingalpha.com/article/4227458-gravity-co-ltd-ready-second-growth-cycle Company's core asset is a globally-beloved "Ragnarok" game IP. The stock was hot in the early-mid 2000's PC era, was sold to Gungho at around ~$750mm market cap back in '08. With the company mismanaged and the PC era coming to an end, the stock slumped substantially, and has been a popular playground for net-net play. After a long drawdown period, the stock came back to life in ~2017 as the company started to monetize the IP again under the new mobile era. The new game Ragnarok M(obile) has been released one country after another, being ranked among the top wherever it was launched - the most recent release has been in South East Asia and NA/SA, the biggest contributor to the 4Q18 income statement, to be announced shortly. The stock has shown some repeated pattern of volatility prior to earnings release since 2017 - and with investors not quite certain on the size of South East Asia gaming markets(traditionally low ARPU) and how it'd affect the Q4 earnings, the current drawdown presents an interesting opportunity IMO. Company is prepping for Japan launch, the market with one of the highest mobile game ARPU/size and where Ragnarok Online PC game has been one of the steady best sellers for the past 16yrs. It's not difficult to imagine why the game(characterized by cute/colorful/anime-like features) would be popular in Jpn. Moreover, there is another game based on the IP being developed(almost ready for release as it's currently awaiting 4th CBT) and that will be published by TENCENT. Grvy is having its best year since inception, but 2019 and onward will be even bigger with Tencent publishing in China and all the countries where Ragnarok M has been the top grossing. I am of the view that the current ~$260mm market cap does not fully reflect the value of the globally popular IP with a growing earnings momentum and the improving situation in Chinese mobile game license approval process. Would love to hear what others think on the opportunity. Thanks.

KICC has been the traditional #1 until NICE went past them - and I think the discount has to do with some sort of inertia, which I don't deem sustainable. - There was some view that NICE benefited more from the "smaller, more frequent" pay trend, due to its heavy mom and pop store percentage in its client portfolio. Therefore market feared the reversal of this trend(change in VAN fee structure from fixed to variable) would hurt them more. We've observed in the past three years that this was not the case - during this time, NICE shifted its customer mix to reflect the new fee structure. Mom and pop stores account for only ~20-25%. - KICC has participated in the internet bank(which gained quite a bit of traction in '15) by owning a tiny equity ownership. Also it has some investments in PE/VC, but this is very small part of their assets. - NICE VAN's van business is bigger and more profitable, and so is their PG business(#4 after KG Inicis, LG Uplus, and NHN KCP). KICC does not have strong, fast growing international presence as NICE does. - Despite small, NICE VAN pays dividends. It will increase its dividends to better align with shareholders. - As far as I know, NICE subs don't announce dvds in December, but do in ~Feb just like all the other SK-listed companies. Expecting dvds to increase across the board. Thanks

Charlie You got the translation right. In Korea, it is culturally and legally very hard to lay off employees. So even though the card/processing fee pressure has been mostly passed onto ISOs for almost a decade now, ISOs have been bearing all the pain by just cutting wages. With the minimum wage increase hitting them at the same time, they simply can't sustain the current structure anymore. VAN(ISO) industry has hit the tipping point so to speak. This is a reason why the industry didn't expect another violent card fee cut and NICE cautiously expected the P trend to reverse from next year. This seems unlikely. Therefore my conservative estimates. However, a chance for consolidation also went up at the same time, and I&T is positioned well for this. On your second question - VANs revenue comes from both card authorization and transaction acquiring(roughly split 80%/20%). Acquiring revenue goes mainly to ISOs as cost. Card companies are approaching some large merchants who they can link their systems and internalize the acquiring process. As the card industry pressure continues, card companies are trying to increase that percentage, while VANs(for their ISOs) challenging that. Yet, whether or not this happens, net effect on VAN itself is practically zero. Thanks

Former chairman Kim had an engineering background but somehow had a great knack for business, and built this group by mainly purchasing various financial infra bizs. He definitely was the leader of the firm, but he knew about his health situation well for years and prepared for a leadership transition under the new CEO Choi - they've been Co-CEOs for yrs. Choi and Kim's wife are NOT related. I am not worried about overhang but rather expecting better shareholder alignment through increased dvd from the holdco as the family needs to pay inheritance tax over the next 5yrs. It is a big amount (~$100mm) but the family doesn't want/need to sell down shares to keep the controlling stake. I believe the son is on a VERY long-term process to be tested for taking on the leadership role. That said, I do expect the decision making power will somewhat shift from the holdco to each subsidiary going forward. My take is that Kim was somewhat conservative in terms of sub's biz expansion, while he was aggressive in making investments from the holdco(mainly into manufacturing). Kim's main legacy are manufacturing investments made 2012~2015 into ITM(2nd battery protection-for phones and EVs), BBS(high-performance wheels also targeted for EVs), and LMS(EV and Battery casing). These investments all went through J-curve, but now they're starting to contribute meaningful earnings - which sellside is just starting to show interests. Each firm IPOing starting from May 2019 will shed some light on these firms. In terms of VAN, the unit growth and pricing expectation I shared was my most conservative estimate. But they're ready to expedite the consolidation by choosing inorganic growth path and also they have room to cut costs on the agency side. While data biz naturally fits Info Service, NICE holdings don't favor one sub to another, and they put emphasis on balance among them. As political stance got tougher on the VANs, they've put many holdco key staffs into NICE VAN this yr, and NICE VAN is internally very focused on monetizing the transaction data. Info svs's growth rate has been slowed down, but the new Mydata biz is expected to add some fuels. Of them all, I do believe I&T and Holdings to be the most misunderstood ones with a favorable risk/reward skew.

Thanks Packer. A link to NICE Holdings' IR presentation(http://eng.nice.co.kr/nb0810.nice). As you mentioned, it's of decent quality, and NICE(previously very timid on IR) changed its stance since the chairman passing last year(now doing HK/Singapore IR conference, etc.) When OK POS was originally acquired, it was viewed more as a hardware biz. NICE TCM(simply ATM biz then) needed a new growth driver, and it made sense that TCM's nationwide A/S network provides service for OK POS(just as they're doing Kiosk too). But I&T spends its $ to agencies to install these POS machines and as S/W angle becomes more and more important for POS/VAN biz, NICE I&T is ramping up its effort to directly contract with merchants to concede data to I&T. With this S/W aspect as I&T's main focus going forward, this should reduce I&T's discount. Nonetheless I agree with your view that TCM is interesting with ATM as a cash cow(cash usage decline to plateau now that the demand for payment method that protects privacy is there) while growing with parking/kiosk(left-wing gov aggressively raising minimum wage as a tailwind) NICE Info Svc(CB) is interesting too with prospect of evolving into a financial data platform for individuals. Gov is aggressively removing regulatory hurdles to promote more fintech bizs on the CB front(called "Mydata" biz). Some of the major legal hurdles to be overcome this Feb. My expectation is that In Svc(with its dominant position in CB biz) will extend its leadership to this new Mydata biz(gathering all the financial acct info, Credit info of individual's into one platform and incur ad revenue for various financial products) Because of these interesting subs, I find NICE holdings to be interesting too. All the subs have strengthened their respective market positions over the years, but stock did not reflect it because some of its manufacturing investments(mainly ITM and BBS) overshadowed the growths in the subs. Subtracting almost ~$20mm out of the group's ~$70mm net income over many years. Given that both manufacturing companies are turning around from the J-curve this year, '19 fw P/E is only high single digit, for what I believe to be a stably growing financial infra group with data biz and international(SEA) expansion providing upside potential.

Replying to Charlie and Packer- 2015-2018 3Q: was the previous 3yr credit card fee cycle, where NICE VAN fee was also negotiated down 2019 starts a new 3yr cycle - 10-12% was the average credit card fee cut imposed by the gov, and I'm expecting van fee to be cut by a similar magnitude (as it's been the case past) - how will they make up for this 10-12% cut in P? NICE VAN M/S growing from 18% to 20%(hypothetically) would be 10% growth in Q, offline payment market naturally grows at ~2.5%, and on the cost side, van agency cost can alledgely drop by 1/3 (http://news.mk.co.kr/newsRead.php?year=2019&no=51547), etc. I think NICE VAN biz's moat is not so different from the acquirers/processors outside Korea - economies of scale, trusted brand, seamless payment experience, supporting all types of payment is the most important. It's been heavily relationship-based biz, now the industry is adding/imporing S/W to differentiate and build stronger moat. NICE group's collective 30% M/S compares very favorably against any #1 processing player in other countries. Their presence both offline and online is adding O2O scale synnergy too in their cross-marketing. The card app slide from the 2018 IR presentation is actually a different thing called "App-card," which is NICE dominating(almost a monopoly) mobile card payments because it provides the backend service. One can infer NICE VAN's good relationships with the card companies and good R&D capabilities in the payment space. ICT players(represented by Kakao) and Zeropay(ACH type) effort by the gov are quite a threat for "card companies." Card companies are really feeling the pressure and want to combat this in a collective approach - but they need a 3rd party because of conflict of interests (which is why VANs originated in the first place). NICE seems to be the perfect candidate who can roll this out. Keeping an eye on the further development on this front - but upside here seems quite big. Great points raised by Packer on NICE group's interesting bizs all helping each other in some ways - yet this is paradoxically a reason why NICE VAN seems to be heavily discounted. NICE TCM providing OK POS sales/installment/mgmt services originally made sense, because they provide A/S services to different types of hardwares they sell nationwide, but POS biz should come under NICE VAN. Currently the way group biz is structured, it's not so obvious that NICE VAN will own/benefit the lucrative POS payment data. I hear group mgmt is thinking hard about reshuffling group bizs to optimize and maximize efficiency. On Vietnam and Indonesia - it seems that NICE's relationship with the Vietnamese gov is quite strong. Insiders often talk about replicating NICE's same financial infra bizs in Vietnam - includes Offline VAN service and Online PG. Both will start in 2019. Because of gov support, I think development here could be quicker than Indonesia. Indonesia saw quicker advancements in e-commerce than Vietnam, so the PG industry emerged earlier. So NICE started a local JV here to have a foothold, but with good technical expertise and good partnerships with local Korean ventures, they quickly rose to #3. I believe leapfrogging in the payment space has more to do in the offline side. You still need PGs to serve as a main gateway to assume some credit risk of cyber merchants and provide multiple ways to payment methods by serving as a intermediary. Despite looking really meager in terms of revenue generated from Indonesia, it's actually because their accounting is net revenue(backing out bank fees vs. Korea where they do gross revenue), so the revenue is actually about 6-8x larger(think 3%(PG rev)-2.5%(bank fee)=0.5%(net rev)), and operating leverage should come much quicker once fixed cost is all taken care of. Think they're close to achieving this milestone this yr. NICE holdings(034310) is interesting too as a standalone investment, because of this group synergy and their multi-year negative earnings from manufacturing investments are turning around this year(ITM semiconductor, BBS wheel), seems like there won't be any more significant manufacturing investments by the holdco, and the chairman passed away last year so there is no need to save inheritance tax(which is very significant in Korea, companies often deliberately suppressing their own share price to save taxes).

Thank you for starting the thread and your excellent questions. Here's my stab at addressing them. Having spent some time in the buyside both in the U.S and Korea, I have to say the biggest difference is the lack of patient capital. People are swayed more easily by geopolitical factors, a few dominant cyclical industries driving the whole economy, and somewhat whimsical gov hurting the predictability of bizs. Thus retail investors are more short-tempered, and institutional funds mostly don't have lock-ups in place to protect their investments, and their volatile retail money (out)flows causing forced sales, etc. Long way of saying I agree with you that mispricing may tend to last longer here, but catch-up to value(and over-reaction) can also hapen quite instantaneously. I think you'd agree that it's a wrong takeaway to think that value investing simply doesn't work here, but it just requires more patience. Last rate cut was in 2015. The year was significant in many fronts: 1) gov decided that it will only affect the card fees in every 3 years(vs. almost every year) to reduce its influence on the industry and give the industry more time to adjust to new changes. 2) In '15, gov/card/VAN companies fixed the VAN revenue/cost structure a bit - on the revenue side, the card van fee was changed to be variable fee(vs. fixed fee previously). VANs' fantastic run up up till this point was because they benefitted from the smaller and more frequent payment trend. So organic growth rate became more of a GDP type industry. But on the cost side, gov prohibited VAN kickbacks to merchants(cost), which offset the revenue cut. Considering the net effect, NICE did not want this change, but A) it was the gov wish, and B) it was able to negotiate with card companies(given its #1 position in the market) to slow down the impact on the revenue cut by spreading over the fee structure change over 3yrs. The effect of the 3yr P cut ended ~3Q18. Given how significant card fee cut has been over the past 10yrs combined with the fact that the majority of the SMB merchants already effectively pay negative card fees because of tax redemption being outsized than the reduced card fees, VAN industry seemed to have expected fee cut would not resume and may reverse in 2019. Yet Moon regime continues to display questionably strong left-wing policies, and the card companies just experienced another 10-12% fee cut. Given the gov stance, all the talk of blockchain removing "intermediary costs," I think processing companies and card companies alike would have to find other ways to make money to sustainably grow. That's why I mentioned NICE also shifting its strategy to simply grow M/S but to seek other-than-processing revenue. This is a very prudent point. I think the reason why is although VAN service covers the switching function like V/MA, while V/MA are effectively a duopoly, 12-13 VANs in Korea provide not so differentiated service, including the switching. So pricing power is definitely not as formidably strong as V/MA. Plus, although in the U.S card companies pay merchant acquirers and merchant acquirers then pay merchants for the customer transacted payment "while keeping some for itself(MDR)," in Korea card companies pay merchants directly, and pay VANs for their service. So another nuance in terms of why negotiating power is less strong for VANs despite their indispensable service. YET this is not to say it simply is an inferior model - NICE has gathered meaningful M/S enough to really matter in the whole payment system, and I'll explain later what this may mean later. Again, completely agree with you. Many "sth, sth Pay" companies spent hundreds of millions of USD on marketing, even tried to install its own payment hardware, etc., but because you need omnipresence and can't beat card companies' extending credits/pay incentives(partially financed by merchant paid card fees), many of them already gave up and shook hands with VANs to cooperate. Kakao for example. Merchants want one simple solution/hardware. But being a most widely used app, Kakao has a chance to extend its domination to include payment function. Monopolizing a segment in the structure could take all the negotiating power, so this can be a problem. I think NICE found a way to combat this too - explained later. From what I understand, Chinese never had proper payment infra(but high-enough smartphone penetration), so they took on MPM QR method and that became a culture/norm. However, because it causes problems such as fraud, QR phishing, etc. big franchises have already adopted CPM QR/barcode method, which requires a VAN POS-like system. Although Chinese experience makes Korea's VAN infra look poised for disruption, it really is not IMO. Existing infras can simply adapt and evolve. There just hasn't been much incentive to do so because it's been so profitable, but now with some external forces potentially threatening profitability, VANs can go this way. ------ Intentionally left out some answers above to address here. http://www.etnews.com/20190124000317 I think this local article is potentially the key to where NICE is headed. Article says local card companies(including most of the majors) gave up on creating/marketing their card mobile apps and agreed to outsource to NICE for what they call "super app" - which provides QR payment solutions servicing all the major card brands in Korea. Seems like NICE has a chance to own a platform going forward. Card companies agreed on doing this, probably because 1) a fragmented approach will lose to big ICT players like Kakao or Naver or Payco 2) NICE and card companies' interests are aligned in that they all want the credit card to survive 3) NICE can quickly roll out this system to its 30% M/S, but also if it gets popular (by end-users), merchants managed by other VANs will have to extend QR solutions and maybe NICE could leverage this app to win further M/S. What gets stocks to be re-rated could be bizarrely simple at times in Korea, considering how much wait and research effort you put in - once people find themselves using a payment app operated by NICE, they could instantly see it as a fintech company. And in fact, it is a fintech company. They own all the valuable merchant payment data, and they're moving in that direction.

Glad to meet- I'd like to add some thoughts here as a local investor in Korea. I am of the view that NICE I&T is a great value, and potentially a good investment from here. Valuations are obviously low, and it's hard to think it's simply "undiscovered." Rather, it's just widely avoided, and there's no bid and even the sell-side don't really cover. But I believe it is fundamentally undervalued, and when there's simply a perception change, there could be a drastic re-rating and catch-up to value. Obviously the fear is on the fee cut and Alipay-like system disruption(and gov-led Zeropay). My view in a nutshell is that in the next 1-3yrs, company will preserve VAN earnings while PG and also international expansion(Indonesia/Vietnam) adding growth. Gov resets card processing fees every three years, and the new fee structure will be put in place from Jan '19(and stay quiet for at least 3 yrs). Gov one-sidedly imposes card fee cuts, and card companies negotiate with VANs for VAN fees(sort of like Merchant Discount Rate). VANs then negotiate with VAN agencies who are largely independent, 4-5 person organizations(financed by VANs) that actually run around and install/maintain POS/CATs for new/existing merchants (~12% merchants are closed/replaced each year) During the past 4-5yrs when the Gov's pressure on card processing fee got really intensified, NICE I&T(along with KIS - another NICE group affiliate VAN company) aggressively increased their M/S in order to better their negotiating leverage with card companies. Together, they own 30% of the merchant M/S(18%(#1), 12%(#4) respectively). Despite the growth in M/S, NICE I&T's earnings largely stayed flat during this period - because it has not been as aggressive as other smaller VANs in cutting VAN agency costs to fortify their relationships with these independent organizations and increase their VAN M/S. Due to better pay, many agencies have turned exclusive NICE agencies. The recent card fee cut is effectively around -10 ~ -12% on the card companies' revenue. Many smaller VANs' net margin is below that. Meaning, many smaller VANs will die out in this cycle and bigger players like NICE I&T will assimilate M/S. Smaller VANs will put their biz up for sale, and NICE obviously has more than enough cash to purchase them and consolidate the industry further. NICE already has a bigger M/S # than the largest card company Shinhan's does for its card M/S #. Growing NICE's M/S means it's harder for individual credit card companies to aggressively pass on the effect of card fee cut to NICE. NICE nonetheless believes gov's push to cut processing fees will not stop here for good- so their goal is to add another revenue stream, i.e. directly monetize merchants to diversify source of income and raise ARPU. To do this, POS is key. NICE group acquired #1 POS maker OK POS in 2015, who has #1, 50% M/S. POS penetration is around 30%, so that is around 15%, around 50% penetration of NICE's merchant relationships. Globally, processing companies are evolving to "wrap value around transactions." Square in the US is showing all the possibilities with S/W in POS(revenue/inventory management, HR, Compensation, CRM..) - Global Payments, First Data's Clover do similar things, and are well-received by investors. In Brazil, StoneCo earns good percentage of their revenue from providing finance solutions to merchants. As a financial infra group, NICE has all the businesses(credit rating biz, VAN, POS etc.) ready to realize this future better than anyone. From my recent communication with the IR at NICE I&T, strategic direction is to firmly set on this course, and they're willing to acquire to add S/W revenue(which is currently near zero). They're currently sitting on pile of cash - and with disappointingly small dvd, market is not assigning much value to the cash. However, they have shown better than avg. capital allocation capabilities in the past - as illustrated by local PG acquisition in 2015 and Indonesian PG J/V in the same year and increasing equity ownership since then. Recently they've invested in Vietnam operation. Indonesian PG is already a solid #3 player - Indonesia is about 2/3 and Vietnam 1/6 of Korea's GDP, so together should double the TAM for the company. Briefly on Alipay-like system disruption(and Zeropay). QR code succeeded in China because there was no already existing credit card infra. Plus there is MPM(Merchant Present Mode) and CPM(Customer Present Mode) for QR payment. CPM is the one similar to simply handing off cards(QR) to merchants, and this requires hardware infra(POS). Merchants don't like duplicate investments, and it's more economic to add QR solutions on top of the existing POS - meaning VAN can charge card-like VAN fees to these new QR pay players (already doing it for Kakaopay). Even for the gov-led Zeropay, they started off as strongly criticizing VAN for causing extra cost in the system, and now recently announced VANs are essential players for adoption. But chances are Zeropay will never really take off because Koreans are already used to card-infra, and if those really dying to use phones to pay, they use Samsung pay, which does not bypass the current VAN infra. To sum up, As the 3yr cycle of a new card fee structure just begins, the uncertainty of this new cycle is starting to be removed in the VAN industry. VAN consolidation will be expedited, and the leading player NICE I&T will do what it takes to preserve its VAN earnings and set it for a sustainable growth with M&As. PG and International biz will start to add 10-20% of earnings contribution starting this year, and it is growing at almost 100%+ CAGR. There are signs that they'll start increasing the dividends as well. Given the so much potential upside, I find this company to be of great value. Would love to get this thread more active and let many more know of this investment opportunity.