Since then, we have covered the Company through:

In that time, Plover Bay has done what it said it would do: grow revenues, expand margins, and hand back the excess. FY25 was no different on the financial front. But the simultaneous announcement of a proposed spinoff of the North American business onto Nasdaq was not something anyone had penciled in.

Or was it? In our FY24 write-up, we noted:

With a majority of its business (64% of revenues) and growth (38% yoy) coming from the US, to us, we think it could be advantageous to do a secondary listing in the US to enhance liquidity, tap into a different shareholder base, as well as increase overall visibility for the business.

Pyramids and Pagodas write-up: Plover Bay Technologies (1523.HK) - A milestone year with strong growth and expanding opportunities

Management has gone one step further than a secondary listing; they are proposing full separation. We think the logic is sound, but do execution complexity and economic trade-offs deserve more scrutiny than the market has given them? We’ll look to unpack both the numbers and the strategic pivot.

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Another year of profitable, capital-light growth

Revenue growth of 11.4% looks modest compared to FY24’s 24% clip, but this number deserves context. Management revealed on the earnings call that tariff-related uncertainty caused Plover Bay to halt US shipments for approximately 1.5 months during Q225. For a Company where North America represents 59% of revenue, that is a material headwind that was entirely self-imposed out of prudence. At a monthly US revenue run rate of roughly USD 6.4 million, the lost revenue from the halt is likely in range of USD 8-10 million. Adding that back implies a normalized revenue growth rate closer to 18-19%, which is fully consistent with the Company’s historical trajectory.

More importantly, profit growth significantly outpaced revenue growth. This is the hallmark of the Plover Bay model: each incremental dollar of revenue carries higher margins because of the growing software and subscription layer sitting on top of the hardware. Net profit margins expanded to nearly 35%, and ROE hit 79%, numbers that would make most enterprise hardware companies envious.

Where the revenue growth is (and isn’t)

Mobile First Connectivity remains the engine, now representing 56% of total revenue. Starlink-related products contributed to the strong volume growth here, with management noting they now cover Starlink’s entire product line and are developing “companion products”, integrated boxes combining Starlink antennas with 5G routers (like the Peplink Antenna Max S).

The standout is Software Licenses at +33.6%, validating the thesis we have been tracking since our first write-up: that recurring and subscription-based revenue is the real prize. Total recurring revenue reached USD 37.6 million, or 28.9% of total sales, up from 27.6% in FY24. The subscription take-up rate jumped to 38.6% from 34.2%, and devices with active subscriptions increased 25% yoy. The contract liability backlog (essentially prepaid future revenue) stands at USD 38.5 million, up 20% yoy, providing strong forward visibility.

The geographic mix tells the more nuanced story. North America’s 2.1% growth is entirely attributable to the Q2 shipment halt. Had the Company shipped normally, North American growth would likely have been in the low-to-mid double-digits. Meanwhile, EMEA surged 27.6% and Asia jumped 36.0% and these are not small bases anymore. EMEA growth is driven by some hefty contracts: hypermarket chain across 42 locations in France, a major EU infrastructure project where Plover Bay displaced a close competitor, and growing traction in tele-operations for mining equipment.

This geographic diversification is the foundation for the spinoff thesis and, critically, it means the Retained Group (ex-North America) is not the “leftover” entity that some investors might assume. More on this below.

The margin flywheel continues to roll smoothly

Gross margin expanded 210 basis points to 57.0%, driven by:

1. Favorable product mix shifting toward higher-end routers

2. Economies of scale in high-volume models

3. Recurring revenue at 93% gross margins contributing a larger share

The margin chart from the presentation shows a steady upward progression across its combined hardware margin, while recurring revenue margins remain above 90%. As the subscription layer compounds, this structural margin expansion should continue.

On the cost side, total operating expenses rose to USD 22.1 million from USD 20.6 million, but as a percentage of revenue actually declined from 17.6% to 17.0%. R&D spend increased 18% to USD 10 million (7.7% of revenue), reflecting investment in new products and AI capabilities. Selling expenses actually fell, from USD 4.3 million to USD 3.7 million, demonstrating the efficiency of the channel partner model.

Management was candid on the call about rising component costs, particularly for RAM and storage. However, they deliberately avoided price increases to entry-level products, because these are the gateway to multi-year subscriptions. For high-end models, they indicated the market would accept price increases without issue. This pricing discipline is a classic Plover Bay move: protect the installed base expansion, and monetize through software over time.

Balance sheet is clean as a whistle

The Company fully repaid its bank borrowings during the year, leaving it with USD 67.4 million of gross cash and zero debt. Operating cash flow was USD 52.2 million, comfortably funding the USD 44.3 million in dividends paid during the year.

Total dividends declared for FY25 were USD 49 million against net profit of USD 45.4 million, implying a payout ratio of approximately 108%, which underscores the commitment founder Alex Chan has always articulated: distribute excess cash, reinvest only where it compounds.

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The Company is fairly well covered by the local sell-side, but we see a wider story that is potentially missed as quarterly earnings don’t capture what happens when the rules of an entire energy sector will be re-written over the coming decade. The consensus view is simple: GASMIA trades a ~6% yield with limited growth at near fair value. Yet, we think this framing misses a fundamental shift that is underway. Between now and 2030 beyond, Malaysia’s gas market is slated to fully liberalize with subsidies to unwind and new infrastructure reshaping competitive dynamics.

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Understanding the business

GASMIA operates as a blend of a regulated utility and a competitive trading business and can be broken down into three business units.

1. Gas Malaysia Distribution (GMD) – “The toll road”

Think of GMD as operating pipelines which function as a toll road for gas. The Company owns over 3,000 km of medium-to-low pressure pipelines across Peninsular Malaysia. The vast majority of the gas that flows to industrial customers, whether sold by GASMIA or competitors using their pipelines, pays a toll.

The Energy Commission (Suruhanjaya Tenaga, or “ST”) sets GMD’s toll revenue using a formula that guarantees a return on assets:

Allowed Revenue = (Regulated Asset Base × 7.3% WACC) + Operating Expenses + Depreciation + Taxes + Unaccounted Gas

This is classic utility regulation. GMD invests in pipelines, the regulator allows a 7.3% return on those assets, and customers pay tariffs that cover costs plus profit. The more pipelines GMD builds, the higher its allowed revenue.

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Founded in 2009 as a trading arm of the Sunda Group (“Sunda”), Softcare with a market cap of around USD 2.6 billion, has evolved into a local manufacturing champion in Africa. It has captured a 20% market share by volume, built eight local production plants, and established a robust distribution network on the continent – advantages that are not easily replicated in Africa’s highly relationship-driven FMCG sector.

The Company derives the majority of its sales from Africa. Its strategy moves beyond treating the continent as a simple export destination. By localizing production, it provides low-cost diapers in a market of unparalleled demographic scale: Sub-Saharan Africa accounts for 36% of global births, yet diaper penetration sits at just 20%, compared to 70-86% in developed markets.

Softcare listed on HKEX in November 2025 at HKD 26.20, and now trades at HKD 32.76 (as at 18 December 2025), roughly 25% above the IPO price. At current prices, does the opportunity still exist?

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From Yancheng to Lagos – A contrarian bet on a forgotten continent

In 2000, as China’s export engine roared toward Western markets, husband-and-wife team Shen Yanchang and Yang Yanjuan, formed Sunda and looked decisively South. From their base in Guangzhou, they focused on Africa – a region many multinationals considered too poor, fragmented and difficult.

Their education began in the chaotic, vibrant markets of Nigeria. Starting as a trader of general merchandise, Sunda navigated unreliable supply chains and learned that in Africa, business is built on layered, personal relationships and a keen understanding of opaque regulations. They discovered a fundamental truth: the company that masters the complex, multi-tiered distribution puzzle owns the market.

Rather than relying on established top-tier distributors, Sunda took a harder path. They went directly into communities to cultivate smaller, second-tier agents and local shop owners. They supported these partners by absorbing initial product losses, helping build out retail shops, and running local advertisements – a grassroots strategy that steadily wove a deep, resilient, and uniquely loyal sales network.

This distribution-first philosophy became Sunda’s foundational moat. By 2004, the Group had planted its flag with an overseas subsidiary in Ghana, marking the start of a physical presence that would expand across the continent.

For years, Sunda operated on a classic trade model: import goods from China and sell them through its hard-won African network. However, the limitations of this approach (high tariffs, long shipping times, and currency risks) soon became apparent.

The Group’s pivotal strategic shift was to localize production and the value it created set the stage for a major corporate reorganization. To raise funds and expand the footprint further, Sunda carved out this business into a separate entity named “Softcare Limited” that listed in Hong Kong in November 2025.

Africa’s hygiene paradox: Immense penetration gap amid demographic tailwinds

Softcare’s own financials, while compelling, don’t tell the full story. The Company is uniquely positioned to tap into the vast underserved African market, where hygiene products are still in the early stages of adoption. That gap, combined with rapid population growth, urbanization, e-commerce growth, and shifting social norms, is what makes the macro story a key differentiator in Softcare’s value proposition.

This baseline convergence drives steady, predictable market growth. Frost & Sullivan projects the African baby diaper market to grow at 6.8% annually to USD 2.9 billion by 2029, with sanitary pads growing even faster at 7.2%. These projections don’t require economic miracles, but rather the gradual normalization of consumption patterns.

The Company states that the African market for its products is worth USD 3.8 billion and is growing at 6.8%, expected to rise to 7.9% in 2029, positioning it well against peers specializing in lower growth markets like in Europe (0.7%), US (1.2%), and China (1.2%), where populations are ageing and distribution networks are mature, and the products are hardly novel.

The opportunity is stark: while 36% of global births occur in Sub-Saharan Africa, baby diaper usage sits at just ~20%, compared to 70-86% in developed markets. Sanitary pad penetration is only ~30%.

Demographics maintain consumer base growth

Africa has the youngest demographics and fastest population growth of any continent. 14% are under the age of four, 60% are under 30, and population growth of ~2.4% offers a steady pipeline of diaper demand. With over 30 million newborns annually, the baseline market expands even before penetration gains are factored in.

Urbanization and e-commerce unlock access

While Softcare’s distribution reach is expanding beyond large cities, these hubs themselves are seeing population influx. According to the UN, Africa’s urban population is projected to double to 1.5 billion by 2050, with 64% living in cities. Urban households have easier access to retail outlets, pharmacies, and e‑commerce platforms, while rural logistics can add 30%+ to product costs.

E-Commerce itself is also a promising direct sales avenue for Softcare, with channel expansion noted among the Company’s strategic platform. Adoption is only just taking off, and user numbers are already growing at 17.9% CAGR according to the US International Trade Administration. A quick review of leading platforms showed their brands already have healthy representation online, although in many cases they appear sold by third-party distributors.

Rising incomes drive premiumization

The World Bank expects Africa’s consumer spending to reach USD 2.5 trillion by 2030, up from USD 1.4 trillion in 2015. Softcare’s core markets show steady GDP per capita growth. While not world-beating at first glance, the figures are solid: Ghana (3.7%), Senegal (4.4%), Côte d’Ivoire (3.4%), Kenya (2.5%), Tanzania (2.6%), and Uganda (3.3%). As incomes rise, an increasing number of consumers will switch to higher quality diapers and pads with comfort, absorption, and skin‑friendly materials.

The Prospectus claims that sustainability concerns are driving demand for eco-friendly products, but we see this as more PR spin than reality in these price-sensitive markets.

Sociocultural shifts to drive sanitary product adoption

Softcare’s sales of menstrual products are also set to benefit from shifting cultural attitudes. In many African countries, women stay home from work or school due during their periods due to social taboos. Awareness campaigns and NGO initiatives are breaking the stigma and urbanization and growing GDP are driving more women into the workforce, driving general demand uplift for sanitary product on the continent.

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Our first successful foray into Indonesia was state-owned miner PT Aneka Tambang Tbk (ANTM.JK, ATM.AX; “ANTAM”), covered in our 2023 deep dive with an update in July 2025 (~83% total return).

ANTAM’s growth story remains intact and valuations undemanding, but we have since trimmed the position with an eye on other opportunities to park some of our Rupiah loot.

The Indonesian plastics player covered in the piece is another byproduct of Altraman’s recent work in this space. Last month’s Shandong trip report, where we highlighted a discounted Chinese wood panel manufacturer poised for regulatory upside in a sector marred by overcapacity.

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Local resin trader turned packaging titan

Founded in 1979 by a humble resin trader, Djonny Taslim, Panca Budi is an integrated manufacturer and distributor of plastic packaging and resins that has evolved into Indonesia’s integrated plastic packaging leader, listing on the IDX in 2017 with a current market cap of ~ USD 220 million. It manufactures and distributes products like food-grade bags, heavy-duty sacks, and resins, serving everyone from street vendors to multinationals such as Coca-Cola (KO.N).

With 12 factories and 6 warehouses across Indonesia and Malaysia, boasting 157,000 tons of annual capacity and a workforce of over 5,600, Panca Budi holds niche leadership in consumer packaging. Plastic packaging drives 67% of revenue, with the other 27% and 6% coming from resins and other products, respectively. Domestic focus (85% of sales) insulates from export volatility, with export markets including the UK, Germany, the Netherlands, Spain, UAE, Nigeria, USA, and Taiwan.

Indonesia plastic paradox: Growth and catch-up potential amid green gripes

Indonesia’s plastic packaging industry, valued at USD 10.47 billion in 2025, is expected to grow at a 6.7% CAGR to USD 14.45 billion by 2030. The landscape is fragmented, with thousands of small players and no single firm dominating more than a small fraction of the market. Reliable data is scarce in this space, but based on public sources and historical reports, Panca Budi is a leading local player among mid-tier firms, though it trails multinationals.

At the subsegment level, data from 2018 indicates that Panca Budi held a ~32% share of the plastic consumer packaging market, including nearly half (47%) of the market in the Greater Jakarta region. While access to new data has been limited, we suspect the Company has either maintained or grown its market share further given trajectory of its revenues and earnings.

The sector stands as a bellwether of progress and peril, where urbanization and consumer booms collide with environmental imperatives in Southeast Asia’s largest economy. Dominated by packaging, resins, and end-products for wholesale and retail trade and heavy industries (~40% of GDP), surging demand juxtaposes evolving regulations curbing pollution.

Indonesia’s per capita plastic consumption has risen from 17kg in 2018 to ~29kg in 2024, reflecting brisk business for packaged goods and e-commerce. However, the average per capita plastic consumption across ASEAN, Japan, and South Korea sits at ~67kg, highlighting ample headroom for growth and convergence as incomes rise.

If Indonesia continues on its development trajectory (and recycling policies emulate those of regional peers), consumption is likely to approach levels seen in Malaysia and Thailand (38kg and 45kg per capita, respectively).

Even without aggressive anti-plastic policies, economies with stricter regulations exhibit higher plastic consumption, with Singapore leading the region by this metric. Policies often target leakage from plastic recycling chains, e.g. banning single use plastics (SUPs), rather than demand suppression. Consumption has continued to grow in Singapore, Malaysia, and Thailand despite SUP and plastic import bans, largely off the back of robust FMCG and e-commerce activity.

Indonesia’s plastic policies emphasize reduction of SUP use, reuse, and circularity through a mix of national roadmaps, phased bans, and producer accountability. The approach favors incentives and education over penalties, with measures targeting import restrictions, mandatory recycling funding, and content standards. Local initiatives complement national goals, aiming for substantial waste cuts and increased use of recycled materials by the end of the decade.

These ambitious milestones position adaptive players well. For Panca Budi, alignment comes via recycling (subsidiary Politek Grin Packindo produced 11,040 tons of rPE/rPP in 2024, ~7% of output), appealing to eco-conscious clients. Stricter enforcement supports Panca Budi’s integrated model, helping it manage costs and market shifts more effectively. Domestic focus (85%) insulates the Company from import bans elsewhere, accelerating growth in underserved East Indonesia.

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In the process – unearthing an interesting investment thesis buried beneath the rubble of China’s overbuilt wood panel sector. While most players struggle amid overcapacity and razor-thin margins, one vertically integrated manufacturer is quietly ticking along despite industry headwinds, thanks to tightening environmental standards, rural distribution dominance, and enviable financial discipline. In a market where survival often hinges on political favor and access to subsidies, this Company is innovating with potential to emerge as a rare winner in China’s industrial reshuffle.

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Private markets, public crossovers, and the art of squeezing blood from stones

As some readers may know, my (Altraman) job revolves around private markets, or in industry parlance “Merchant Banking”. This sounds glamorous until you’re grinding through mid-market deals in today’s risk-averse climate. Asian SMBs and early-stage ventures are still reeling from COVID and are in need of repositioning, restructuring, capital, and yes, sometimes rescuing. The irony? This should be prime time for problem-solvers. The discounts are there for the patient and bullish on a turnaround story. Bringing investors around to this view can be tricky – liquidity is hoarded, risk appetites are anorexic, and the "wait-and-see" brigade has never been more populous. The gap between theoretical opportunity and executable reality has never felt wider.

In these testy waters, businesses need alternatives to attracting capital. Value-added services, such as establishing strategic relationships, business development, and local market insight can reduce friction around capital raising. Hence, when opportunity to do just this in China’s northeastern rustbelt beckoned, I jumped at the opportunity.

Merchant banker's homecoming? Maotai, particleboards and China’s green industrial machine

The trip to Shandong was my first extensive sojourn to the Mainland since COVID (excluding short hops across to Guangdong province). My last China trip before the pandemic was as an equity analyst chasing the dairy and infant formula gold rush, when China's consumption story still sparkled with infinite potential.

This time, I arrived as a strategic advisor to a small foreign tech venture hawking an improbable alchemy: transforming plastic waste into industrial adhesives for wood panels. The assignment was straightforward – ink an MoU with one of Shandong's particle board giants. The execution, as always in China, was anything but.

What followed was a masterclass in the three currencies that actually grease China's industrial wheels:

• Political capital,

• Baijiu tolerance, and

• An eye for subsidies.

Days blurred together in a whirlwind of municipal government and business meetings where the agenda always seemed secondary to the ceremonial Maotai shots. Between toasts with cadres who could drink me under the table before breakfast, I glimpsed the machinery behind China's version of industrial policy.

While the Party leadership in Beijing changes every five years (in theory), the real action for dealmakers happens at provincial and municipal levels, where rotations follow a less synchronized rhythm. Newly appointed local government officials typically operate on 3-5-year tenures, but with a critical nuance – their "achievement clock" starts ticking the moment they arrive, and every new leader is on the lookout for showcase projects.

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Today, we mark our third anniversary with a performance snapshot: an honest accounting of what’s worked, what surprised us, and what continues to shape our thinking.

A sincere thank you to our supporters – many of whom we are fortunate to call friends, colleagues, and fellow travelers on this journey. While content production has taken a dip due to personal and professional reasons in the past few months, we remain committed to pushing out a high-quality content every 4-8 weeks.

Our subscription pricing is deliberately set at the low end of the spectrum to avoid the pressure of churning out content for content’s sake. The pyramids weren’t build in a day, and neither are our best ideas – but we are still laying bricks.

That said, we are proud of the evolution of our content over the past three years, including our track record of organic idea generation and finding emerging market opportunities. The goal isn’t to flood inboxes but to ensure each piece counts – whether that’s through interviews with business leaders and investors, ideation from travels, macro musings, or by putting our own capital to work based on these insights.

A mix of eclectic trades, long-shot bets, and the occasional multi-bagger (with mercifully few lemons) has made the journey worthwhile.

Performance doesn’t always reveal itself quarter by quarter – it unfolds over time, in subtle signals and stubborn convictions. As we step back and examine the numbers, we aim not just to tally returns, but to understand what they reflect about our processes. What surprised us most? That some of our “least consensus” names outperformed despite initial discomfort. What challenged us most? Knowing when to trim winners and reallocate – especially in thin liquidity pockets. Each lesson has quietly reshaped how we evaluate opportunity cost.

If our cadence resonates, subscribe for future insights. If you’re new, scroll through the archives. The story’s best told in chapters.

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VaNeck Gold Miners ETF (GDX)

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Since our initial analysis in March 2022, VaNeck Gold Miners ETF (GDX; “GDX”) has delivered a 42% total return, with much of the rally driven by a confluence of macroeconomic, geopolitical, and structural factors – particularly the resurgence of gold as a preferred hedge against global instability. Before 2022, GDX had lagged behind physical gold, but the ETF has since closed this gap, benefiting from strong ETF inflows as investors sought liquid exposure to gold and improved sentiment as mining stocks realigned with soaring bullion prices.

1. Record gold prices fueling miner profits

   Gold has soared to all-time highs in 2025 (>USD 3,300/oz as of today), providing a powerful tailwind for gold mining companies. Unlike physical gold, miners offer operational leverage, meaning their earnings expand disproportionately as gold prices increase, given relatively fixed production costs.

2. Cocktail of geopolitics, central bank buying sprees, and dollar weakness

   EM central banks diversifying: Emerging market central banks have been aggressively diversifying away from US treasuries since the start of the Russia-Ukraine conflict. Western powers’ weaponization of the Dollar and the seizure of Russian assets abroad had an unintended consequence: it signaled to the world that FX reserves abroad are not immune to geopolitical risks. This realization, among other factors, has driven central banks to accumulate gold at record levels. The Federal Reserve’s pause on rate hikes in late 2024 coupled with a softening the Dollar have further bolstered gold’s attractiveness.

3. Weakening confidence among the world’s central bankers in US fiscal stability

   A recent UBS survey of global central bankers highlighted a growing unease with traditional reserve assets and monetary policy stability. Key findings include:

   1. Half believed a US debt restructuring is inevitable.

   2. Two-thirds expressed concerns over the Fed’s independence amid politicized fiscal policies.

   3. Nearly half question the reliability of US economic data, signaling eroding confidence.

   4. While 80% still view the dollar as the dominant reserve currency, many view gold as the top-performing asset through 2030.

This shift has prompted institutions to increase allocations to gold as well as emerging market assets, as hedges against stagflation and geopolitical risk.

For now, we think GDX continues to stand out as a high conviction vehicle on sustained gold demand – driven by monetary uncertainty, de-dollarization trends, and persistent global instability.

We hold shares in VanEck Gold Miners ETF (GDX).

China Jushi (600176.SH)

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China Jushi (600176.SH; “Jushi”) was one of our earliest investments driven by an emerging markets lens, inspired by our on-the-ground experience in Egypt. While the thesis – a vertically integrated Chinese fiberglass leader with global scale (20-25% market share) and cost advantages – remains valid, thus far, the stock has returned a disappointing -3% total return since our initial write-up.

Where our thesis stumbled was around the unexpected challenge of Egypt's currency crisis. The EGP's sharp depreciation significantly eroded revenue from Jushi’s local factory, despite its strategic importance for tariff hedging and renewable energy infrastructure. We maintain conviction in Egypt's long-term infrastructure demand but acknowledge that margin compression (from rising costs), China's property sector downturn, and global fiberglass oversupply have outweighed the Company's advantages in high-end product specialization in the near term.

We are seeing some encouraging signposts this year that may signal an inflection point. Jushi has successfully implemented 15-23% yoy price increases on key products like wind blade fibers, coinciding with China's 19% yoy growth in wind capacity – a combination that should drive margin recovery. Furthermore, Egypt’s currency crisis has eased and GDP growth is on the up and clipping along at 4.3%.

Simultaneously, the AI-driven boom in data centers is pushing up demand for some of Jushi’s products. We see room for potential re-rating should price hikes stick and its offshore (including Egypt and the US) facilities provide a geopolitical hedge and revenue diversification. The stock trades at a forward blended P/E and EV/EBITDA of 14.5x and 9.8x respectively, with a dividend yield of 3%.

We hold shares in China Jushi (600176 SH).

Pax Global (0327.HK)

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Pax Global (0327.HK), a leading electronic payment terminal provider, has delivered a 19% total return since our initial write-up, with the bulk coming from dividends and the recent share price recovery. The Company faced significant challenges over the past two years, with revenue declining 25% and net profit plunging 44% over the 2022–2024 period. This downturn was driven by softening global demand for payment terminals, particularly in Europe and the US (51% of sales), and market maturation in LATAM (31% of sales). The stock hit 52-week lows of HKD 3.97 in August 2024 (briefly trading at a 12% yield) but has rebounded notably since April 2025. This recovery appears likely to be driven by:

1. Cautious optimism ahead of H125 earnings: We don’t think there are any major upside surprises to be expected in the near term other than revenue stabilization, margin improvements and continued corporate activity.

2. July 2025 leadership changes: The Chairman assumed the dual CEO/Chairman role after the incumbent CEO’s resignation earlier this month, reducing executive compensation costs by USD 3.1 million. Notably, the four top executives (including the outgoing CEO) collectively cost USD 7.37 million in 2024 (8% of net profit).

Perhaps more to trickle through to shareholders? Let’s see…The stock trades at a forward blended P/E and EV/EBITDA of 8.2x and 3.5x respectively, with dividend yield of 8% (assuming last year’s dividend is maintained).

We hold shares in Pax Global (0327.HK).

Aneka Tambang (ANTM.JK)

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Our deep dive and investment in PT Aneka Tambang Tbk (ANTM.JK, ATM.AX; “ANTAM”) marked our first – and certainly not last – foray into Indonesia. While our initial timing proved a bit premature, with 2023 results falling short of expectations, we recognized this as a multi-year story from the outset. The Company's diversified operations and hidden optionality provided conviction to weather short-term volatility, including the opening of a large nickel matte facility Pomalaa, among other value-added projects.

ANTM's dramatic turnaround gained momentum through 2024, culminating in record revenues of USD 4.22 billion (+69% yoy), powered by two key drivers:

1. Gold's breakout performance, leveraging both safe-haven demand (>USD 3,300/oz) and distribution through its digital platform.

2. Strategic cost restructuring that transformed the balance sheet to a net cash position in H224.

This operational momentum accelerated into this year, with Q125 revenue surging 203% yoy to USD 1.6 billion and net income multiplying tenfold to USD 142 million. Preliminary Q225 data suggests another record quarter, potentially supporting enhanced shareholder returns.

While our original nickel-centric thesis remains valid – evidenced by record production and progress in EV partnerships (notably with Contemporary Amperex Technology (300750.SZ; “CATL”)) – gold has unexpectedly emerged as the dominant profit driver (83% of Q125 sales). The market has increasingly priced ANTAM as a gold proxy, though its nickel optionality retains significant value. With substantial reserves and government alignment, ANTAM is strategically positioned to expand its EV value chain partnerships. The Company plans to secure additional funding for its CATL joint venture, targeting projects that could add 10 million tons of nickel ore sales volume by 2027 through downstream development. The stock trades at a forward blended P/E and EV/EBITDA of 11.3x and 7.2x respectively, with dividend yield of 5%

We hold shares in PT Aneka Tambang Tbk (ANTM.JK).

Alibaba (BABA.A, 9988.HK), TSMC (2330.TW) and SK Hynix (000660.KS)

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When NVIDIA Corporation’s (NVDA.O, “NVIDIA”) AI boom ignited market euphoria, our back-to-basics approach targeted key suppliers trading at cyclical lows has paid off.

• Alibaba (BABA.A, 9988.HK; “Alibaba”) (cloud/application layer)

• Taiwan Semiconductor Manufacturing Company (2330.TW; “TSMC”) (chip fabrication)

• SK Hynix (000660.KS; “SK Hynix”) (AI memory)

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Mobile operators bear significant upfront costs building cell towers to enhance network coverage, and later recoup investments from selling data plans and other services to customers. After many years of heavy investment, Hutchison Telecom has claimed a decent slice of the Hong Kong market. Hutchison Telecom, with a market cap of HKD 4.77 billion (USD 615 million), is a subsidiary of CK Hutchison (0001.HK; “CKH”) and holds a 17% share of the Hong Kong mobile network market. It operates under the brand “3 Hong Kong”. Locally it’s the second largest telecom operator by customers behind China Mobile and provides mobile and fixed-line services.

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Taking in the positives amid a lackluster performance

In FY24A, Hutchison Telecom’s total revenue decreased by 2% yoy to HKD 4.78 billion (USD 616 million). Local service revenues, which accounted for 60% of total revenues, declined slightly by 4.3% yoy to HKD 2.88 billion (USD 371 million), impacted by competitive pressures from the value-driven segment.

On a positive note, within just a year, the proportion of Hutchison Telecom’s subscribers on 5G packages also grew from 46% to 54% due to extensive promotion of its 5G subscription services, while the monthly churn rate remained steady at 1%. Hutchison Telecom’s customer base also increased by 17% yoy to 4.64 million, along with a 30% yoy increase in roaming revenues to HKD 684 million (USD 88 million), which accounted for 14% of total revenues. This growth was largely driven by a 36% yoy increase in its total outbound roaming revenue (Hong Kongers going abroad and buying data packages from Hutchison Telecom), signaling a return to pre-pandemic levels.

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Plover Bay manufactures routers and sells subscriptions for always-on 5G connectivity, accessible from anywhere in the world. Put simply, the Company leverages satellites to deliver internet to far flung corners of the earth or for one-off use cases. For example, mines in the desert, research bases in Antarctica, or disaster zones, and increasingly for planes, trains, and ships.

In this piece, we cover Plover Bay’s FY24A results and earnings calls (announced 27 Feb 2025) as a follow up to our coverage of the Company last year, when we met and interviewed its Founder Alex Chan:

and detailed their FY23A results:

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As of today, the stock is up over 100% since we started writing about the business and remains undemanding at a forward P/E of 15x with anticipated earnings trajectory of low-twenties-high-teens over the next couple of years. Shares had a nice run-up into the result, but have remained about flat since then.

Robust growth on a solid foundation lays the groundwork for more to come

Early-on in the call, management hinted at positive momentum for the first two months of 2025, reinforcing expectations for continued organic growth. The trajectory also aligns well with product interest trends for Peplink. Our good friend @ArenaManCapital creatively noted an almost 1-to-1 correlation between Plover Bay’s revenue versus a smoothed simple moving average for Google search interest in the Company, providing a helpful indicator on the Company's performance.

A quick search of media and public social media mentions of Peplink also shows 68% growth YoY.

The Company achieved record overall revenues and profit, with strong growth in recurring revenues from subscription-based software licenses (up 12.4% YoY) and warranty and support services (up 6.4% YoY). These segments now make up 29% of the business. The subscription take-up rate increased to 34% from 31% last year. Management aims to grow recurring revenue to around 35%. Recurring revenue, partly deferred due to hardware sales growth from the previous year, showed modest growth in FY24A, reflecting FY23A’s equipment growth. A stronger pick-up is expected this year, driven by a 30% YoY increase in 2024 equipment sales.

Reflecting confidence in its financial health and trajectory, Plover Bay declared a second-interim dividend of HKD 13.37 cents, along with a special dividend of HKD 5.65 cents to reward shareholders. In the first half of the year, the Company had already distributed a dividend of HKD 10.83 cents, resulting in a full year dividend payout of 111%. At current price levels, the stock is indicating ~6% dividend yield on a forward basis assuming continued earnings growth trajectory and a base payout of 90%.

Strategic partnerships drive expansion

One of the most significant drivers of Plover Bay's growth has been its cooperation with Starlink, which has strengthened through new enterprise-focused solutions.

According to management, the Company has been expanding its channel partner network, now exceeding 400 partners, to deepen its presence in markets such as transportation (aircraft, trains, vessels), mining, and construction. These partnerships will continue to enable seamless mobile connectivity in remote and challenging environments.

Additionally, the Better Together program with T-Mobile allows the bundling of 5G plans with Peplink routers, further enhancing adoption and providing customers with integrated solutions.

Product innovations continue to set Plover Bay apart from competitors

The Company continues to diversify its product offerings to align with evolving market needs:

• Starlink-compatible solutions: A growing range of products integrate with the Starlink ecosystem, making low-earth orbit (“LEO”) satellite deployments simpler and more accessible. Management commented that there is robust demand for these solutions, particularly in maritime and remote enterprise applications.

• Switches and data plan business: The December launch of switches has yet to generate significant revenue, though enhancements based on channel partner feedback are underway.

• SpeedFusion: Embedding data plans in devices is gaining traction as a scalable and recurring revenue model.

• Antenna business growth: After a slow start in 2019, the Company’s antenna business is now seeing steady expansion.

• Edge computing: Offering simplified deployment for IoT and managed service providers. With global IoT connections growing at a 16% CAGR, this represents a significant opportunity. Management specified that capabilities are still early-stage but could significantly differentiate Plover Bay in the future.

Competitiveness and supply chain help the Company navigate geopolitical risks

Unlike competitors that either lack certification across multiple regions or do not focus on Plover Bay’s niche connectivity solutions, the Company continues to dominate in specialized verticals.

Due to this unique positioning, Plover Bay has some impressive flagship deployments. For example, the Royal Caribbean (RCL.N) cruise line uses the Company’s devices across its entire fleet. The US government has approved Plover Bay’s routers for airlines, providing a significant growth runway (pardon the pun). Another notable deployment was on fire services vehicles during the 2024 LA fires, building good press around the Company as a reliable partner for the US public sector.

Indeed, many may wonder if the Company suffers from the negative connotations of being a China-based tech company. Unsurprisingly, concerns over US tariffs were raised in the earnings call, but management clarified that the Company remains largely unaffected due to its Taiwan-based supply chain and efficient operational model.

One area where Plover Bay may be underselling its potential is in the developing world. Much like how some countries skipped landlines for mobiles, and more are leapfrogging traditional power grids to distributed solar, internet connectivity is another area where such leapfrogging could occur.

A joint Peplink-Starlink solution installed for telcos in Africa has replaced costly fiber links and satellite earth stations, achieving speeds of 200-350 Mbps while significantly reducing operational costs. We believe such trends are likely to provide significant tailwinds for the Company in the medium to long term. This also provides a hedge against US tariffs targeting Taiwan, but so far these are only being discussed for chip exports.

Another overlooked aspect that was noted, but not thoroughly addressed during the call is the opportunity to engage with the broader consumer (retail) market. Although Plover Bay’s applications are primarily B2B-focused, there is significant potential to access and penetrate this market with their high-quality technology products. This is an area the team is actively exploring and in the pipeline in the coming years.

Looking ahead, the sky is the limit

With strong financials, expanding partnerships, and a focus on innovation, Plover Bay remains optimistic about 2025. The Company prioritizes product competitiveness and R&D investment over short-term financial engineering, emphasizing organic growth rather than artificial revenue inflation. Plover Bay sits on a solid net cash position of ~8% of its market cap – the Founder remains very open to M&A opportunities, but as noted in our interview with him last year:

Our mindset around M&A is evolution from organic growth to view connectivity-as-a-service holistically. As opposed to acquiring distributors or other networking firms of similar sizes, I prefer seeking out partnerships or acquisitions demanding reliable connectivity to continue building and strengthening our customer base.

Even small opportunities can be interesting to us, due to our experience integrating remote teams globally. Financial risk is low as deals would be pursued for synergistic value creation rather than because there is private equity backing forcing the Company to do it. When evaluating M&A, I prioritize cultural compatibility and strategic fit on top of financial metrics. Deals enhancing Plover Bay's solution scope in new industries or markets are most appealing.

Shareholder value ultimately remains the priority. In the same light, the Board and I will always entertain attractive overtures that fully recognize Plover Bay's intrinsic worth – these are assessed objectively on how they serve shareholder interests. However, the priority remains scaling operations through continual reinvestment in technology and staff. Simply accepting premium bids that undervalue long-term potential or disrupt our strategic roadmap would not be sufficient.

Pyramids and Pagodas interview with Alex Chan, Founder and Chairman of Plover Bay Technologies (1523.HK)

For a Hong Kong-listed company, Plover Bay remains a star-performer among the pack, in what has been a depressing and lackluster market. The shares are not as cheap as it once used to be, particularly from a valuation perspective. With a majority of its business (64% of revenues) and growth (38% YoY) coming from the US, to us, we think it could be advantageous to do a secondary listing in the US to enhance liquidity, tap into a different shareholder base, as well as increase overall visibility for the business. Of course, that said, we do not have any foresight of whether management plans to do this, but reckon if they did proceed with this, it probably would be very well received, contrary to more mature names attempting the same.

In any case, Plover Bay’s ability to deliver repeatable, scalable results makes it a standout player in the evolving connectivity space. Many will be watching closely as the Company continues to shape the future of seamless mobile networking.

Full disclosure: We hold shares in Plover Bay Technologies (1523.HK).

Disclaimer: This research piece above is for informational, entertainment, educational, and/or study or research purposes only. The information contained herein or discussed does not, should not, and cannot be construed as or relied upon and, for all intents and purposes, does not constitute or provide professional financial, investment, or any other form of advice. This research does not and should not be construed as an offer to sell or the solicitation of an offer to buy any securities or any other financial instruments in any jurisdiction, including where such actions are illegal. This research is not intended for publication in jurisdictions where it would violate laws. The research does not consider individual investment objectives or financial positions and merely expresses the opinions of its authors. Any investment involves taking substantial risks, including (but not limited to) the complete loss of capital. Every investor has different strategies, risk tolerances, and time frames. You are advised to perform your own independent checks, research, or study, and you should consult a licensed professional before making any investment decisions. The assumptions and parameters discussed or used are not the only reasonable ones, and no guarantee is given for their accuracy, completeness, or reasonableness. No promise is made that any indicative performance return will be achieved. The research is derived from public information sourced by Pyramids and Pagodas. No representation or warranty is given for the reliability, completeness, timeliness, accuracy, or fitness of this research, nor is any responsibility or liability accepted for any loss or damage. The authors (Pyramids and Pagodas) shall in no event be held liable to any party for any direct, indirect, punitive, special, incidental, or consequential damages arising directly or indirectly from the use of any of this material.

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Macau was the most internationally visited city in 2016, when it welcomed over 31 million tourists. This has since decreased due to the pandemic, competition from new gaming destinations, and crackdowns on money laundering in China, but it remains a top 10 global destination (18 million visitors in 2024).

A turnaround appears to be underway, with arrivals rising 26% YoY in 2024. In 2022, COVID-19 lockdowns in China raised doubts around casino license renewals and increased debt. However in 2022, licenses for Macau’s six casino operators – Sands China (1928.HK), MGM China (2282.HK), Galaxy Entertainment (0027.HK), Wynn Macau (1128.HK), SJM Holdings (0880.HK), and Melco Resorts (MLCO.OQ) – were renewed for 10 years.

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High debt levels continue to spook investors and many concessionaires have yet to restore their net debt-to-equity ratios to pre-2020 levels. Yet these operators are addressing debt levels amid a a gradual recovery in the industry.

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We believe potential reconstruction efforts (with an estimated price tag of USD 400 billion) present significant opportunities for Turkish companies – especially in sectors such as construction, cement, steel, and logistics. We outline how one company may have been overlooked in the post-Assad Turkish construction equities rally, with a brief look at its performance in a market with similar geopolitical considerations, as well as the how-to and pitfalls of investing in this market.

Before we dive into that, we emphasize that this article is based on best case scenario thinking, based on hopes that the shaky coalition of rebel forces can cooperate in governing Syria, whatever form that may take.

We would need to see a sustained reconciliation among major factions, stabilization of economic indicators, as well as full international recognition of a new government and buy-in to reconstruction efforts before acting on the idea outlined below. Such progress is by no means a given after a decade plus of traumatic conflict, nor are they impossible. The Syrian people’s hard-earned victory deserves, at the very least, some level-headed optimism.

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How is Turkey uniquely positioned in Syria’s new landscape?

Turkey has been a key power broker among Syrian opposition groups during the 13-year civil war and has now openly vowed to help rebuild the country. Ankara was one of the first countries to reopen its embassy in December, and its foreign minister and intelligence chief were the first foreign dignitaries to meet with Syria's de facto leader Ahmed al-Sharaa.

However, there’s no denying that the group which spearheaded Assad’s ouster, Hay’at Tahrir ash-Shaam (“HTS”) wasn’t exactly Ankara’s winning horse in this race. Prior to the regime change, the relationship between Turkey and HTS was marked by pragmatic coexistence despite ideological differences.

Turkey’s support for HTS rivals (other rebel groups more willing to do Ankara’s bidding, i.e. fight the Kurds and stop refugee flows) created a frosty relationship without direct confrontation. While Turkey designates HTS as a terrorist group, it tolerated its governance in rebel-held areas to maintain stability and deter Syrian government advances. Turkish diplomats cozying up to HTS now suggests much of this is in the past anyway.

Turkey is now cozying up to the HTS-led government in Damascus. HTS will undoubtedly need to bring Turkish-backed rebel factions into the government if they want a smooth relationship with their most politically and economically influential neighbor.

Turkish construction companies look set to outpace local and international rivals in Syria

So, what is the return on Turkey’s longstanding investment in Syrian opposition factions if they can all get along and start the hard work of rebuilding Syria?

With a direct line to much of the newly appointed political leadership and broad public support, Turkish companies are likely to get preferential treatment when it comes to the tender process or licensing for private ventures. They are also no strangers to the Syrian market, and had an extensive presence before the war, so it will be a homecoming of sorts. Reports from contacts on the ground in Damascus say Turkish goods are already flooding the market and there is concern that local industries can’t compete.

Syria’s limited manufacturing and construction capacity was essentially decimated by the war (save for Assad’s narco-state amphetamine empire) – it’s unlikely that major domestic players will step in anytime soon. We believe Turkish construction and materials companies would be the logical go to for large scale infrastructure work, particularly for ramping up Syria’s severely diminished oil production capacity, badly needed to shore up the new government’s finances.

Turkey's construction companies have long established themselves as dominant players in the Middle East. Their ability to deliver complex projects, such as airports, bridges, refineries, and hospitals, has earned them a reputation for reliability and cost-effectiveness.

The Gulf states (particularly Qatar, Saudi, and the UAE) were also key backers of the Syrian rebels, but had fewer boots on the ground, were less consistent, and failed to win hearts and minds—a topic worthy of its own analysis. Despite their financial resources, which may bankroll much of Syria's postwar reconstruction, their companies are poorly positioned for direct involvement.

Without shared borders, Gulf states must rely on Jordan or lengthy sea routes for trade and logistics, while Iraq remains an unreliable transit option due to security concerns and strained relations. Moreover, their limited domestic capacity in construction, oil services, and manufacturing often leaves them dependent on Turkish companies and materials for infrastructure projects.

Investors piled into Turkish construction on Assad’s downfall, but may have overlooked some gems

The day after the regime fell on 8 December, shares in Turkey's largest construction, cement and steel companies rose by 5-10%. Since then, we have largely seen sustained positive momentum across these companies, although we note Syria is not the only factor at play here.

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Management was taken over by Ka-shing’s son Victor in 2018 and has shown signs of creating shareholder value since then, particularly by buying up depressed assets overseas and turning them around – in his own words:

“We are in an advantageous position now with choices. Currently, we have a number of investments overseas, generating double-digit returns. And when opportunities present themselves in Hong Kong and should the need arise, we can generate substantial liquidity from these assets to take on very large projects in Hong Kong or the Mainland.”

Victor Li, H124A interim call

Yet as with all Hong Kong conglomerates, sentiment is poor and there is an inherent discount to this stock. Even without applying any discount, the share price reflects fair value for overseas non-property holdings and REITs, investors seem to have written off the potential for a longer term rebound in the HK / China property market.

Case in point – even looking at CK Hutchison (0001.HK), the market isn’t rewarding high quality businesses with no local property exposure. CK Hutchison owns an array of high quality (albeit low returns in the current environment) overseas infrastructure assets and benefits from recent catalysts such as the merger between its two subsidiaries Vodafone UK and Three UK .

CK Asset benefits from a well-timed overseas shopping spree, which saw it picking up high quality infrastructure, utilities and hospitality assets just before COVID-19 and the China property downturn. We feel CK Asset has been dragged down by the resulting negative sentiment around Hong Kong property conglomerates, as most of its revenues come from overseas non-property businesses. On the property front, we feel CK Asset has been unfairly penalized over the China real estate downturn, as the business historically took a conservative approach to Mainland real estate and this part of the business remains profitable.

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Mr. Salvador Escaño, the driving force behind Pryce, shares how he built one of the Philippines’ largest gas distributors from humble beginnings. He emphasizes the business's staying power – customers remain loyal to Pryce due to high switching costs and its extensive B2C distribution network. The pandemic illustrated that domestic demand for LPG is inelastic, even amid energy price volatility. Pryce's business model demonstrates remarkable long-term resilience, fueled by the unaffordability of electric cooking systems, the lack of piped gas networks throughout the archipelago, and new regulations poised to drive market consolidation.

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This piece concludes a two-part Series covering Altraman’s recent trip to Manila, sharing economic insights and highlights of meetings with three locally-listed companies. In Part 2 of this series, we provide some high level insights into the Philippines’ booming gaming industry and share highlights of Altraman’s investor meeting with the country’s largest local casino operator.

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In the vibrant Philippine gaming industry, we found one casino operator particularly poised to capitalize on the growth story. With higher growth rates, less competition, and lower taxes than Macau, now may be an opportune moment for value investors looking to cash in on the gaming boom. With a strategic focus on expansion, the operator opened another casino this year in Quezon City, which looks set to be a major driver of group revenues over the few years should it follow a similar growth trajectory to the group’s flagship property in Entertainment City.

Bloomberry places its bets on the Philippines’ rapidly expanding gaming market

The Philippine gaming industry continues its meteoric rise, with gross gaming revenue (GGR) projected to grow at a 3-year CAGR of 17% from PHP 201 billion (USD 3.4 billion) in 2023 to PHP 320 billion (USD 5.44 billion) by 2026. One company has emerged as a dominant player in the market, namely Bloomberry Resorts Corporation (BLOOM.PS, “Bloomberry”; market cap of USD 1.89 billion). Founded in 2008, the Company has quickly established itself as the number one integrated resort and casino operator in the country, anchored by its flagship property, the acclaimed Solaire Resort & Casino (“Solaire”). 

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We will be releasing a two-part Series covering Altraman’s recent trip to Manila, sharing economic insights and highlights of meetings with three locally-listed companies. The first piece provides a glimpse of the country’s past, present, and future amidst enduring inequalities and details two of the investor meetings.

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Navigating the juxtaposition of progress and poverty in Manila’s uneven landscape

This was not my first time in the Philippines – over 10 years ago, I had spent some time in Clark, Angeles and Tarlac to visit family friends based there. At that time, my recollection of Manila was miniscule, but the city now certainly feels much more densely packed, with malls multiplying and the skyline growing at an impressive clip. 

Until recently, the Philippines was referred to as the ‘sick man of Asia.’ Despite being one of the region’s wealthiest economies post WW2, it was quickly leapfrogged by Japan and South Korea due to decades of mismanagement and corruption. However, this century, growth driven by remittances, business process outsourcing, and light industry have improved the situation somewhat. Today it is Southeast Asia’s fastest growing economy. The Philippines macro situation was well covered by Michael Fritzell from in his own travel diary last year, so we will avoid repetition. However, it must be said that despite impressive growth figures, there are still deep-seated societal and infrastructural bottlenecks that are holding the country back.

The stark disparity between Manila’s luxurious developments and impoverished areas underscores the Philippines’ wealth inequality. Despite growth in Makati CBD and Bonifacio Global City, poverty persists and inflation is chipping away at already-precarious livelihoods. Long-standing political dynasties continue to feature prominently on the political scene. The education system, failing to offer social mobility, further exacerbates this issue.

My anecdotal experiences on the ground reinforce the notion that meaningful progress remains elusive. Significant reforms and a shift away from the interests of the political elite will be necessary to truly transform the Philippines and address the stark inequalities witnessed. The work ahead remains daunting, but awareness of the realities on the ground is an important first step.

Exploring the pulse of Manila’s financial hub and a visit to the Exchange

With its notorious traffic jams, haphazard driving and ramshackle side roads, renting a car in Manila is no small feat for the uninitiated, but seeing this all first-hand and having (some) freedom of movement allows one to see the country’s reality up close.

My first stop was at Bonifacio Global City, the heart of Manila’s bustling commercial centre. A meeting with the senior corporate team at the Philippines Stock Exchange (PSE.PS, “PSE”; market cap of USD 274 million) provided valuable insights into the transformation underway at one of the oldest, but smallest exchanges in the region (282-listed companies). 

Despite its history, the PSE’s growth has been hindered by regulatory speed and low liquidity. A significant shift has been the diversification of its ownership. Once broker-owned, it now includes institutional investors like retirement and government pension funds, bringing new expertise and capital to aid PSE’s growth. Another positive development is that the Marcos administration appears to be more focused on capital market developments than predecessors, which historically oriented towards more populist social welfare policies.

The PSE faces low liquidity, with 80% of trading from institutional investors (split evenly between local and foreign). They’re working with the authorities on a tax reform to cut transaction costs from 60 bps to 10 bps, but its status is unclear as it moves through Congress and the Senate. To boost retail participation, they’re introducing robo-trading services, leveraging GCash (payment app with 88 million local users) for stock trading, helping to boost trading accounts by 21.2% in 2023 alone. As with other developing markets, we like when we see retail investors starting to pile in, as it provides a general uplift for valuations and liquidity. The PSE is also reducing board lot ranges and removing minimum funding requirements. New indices, derivatives, and index futures are being explored to diversify offerings.

The PSE’s revenue growth may be limited this year due to a modest pipeline of 6 IPOs and FPOs (follow-on public offering), which is a major source of income. The PSE is working to incentivize public listings by reducing costs and requirements, even for unprofitable companies. To enhance engagement with smaller and mid-cap companies, the PSE is partnering with platforms like Bloomberg for quarterly briefings and exploring support for overseas roadshows and investor outreach.

An area to watch closely is the PSE's depositary revenue, which accounts for roughly 25-30% of its total revenues PHP 1.4 billion (USD 23.9 million) in FY23A. The exchange is currently operating at a daily average turnover floor of PHP 5-6 billion (USD 85-100 million), with its prior peak being PHP 10 billion (USD 170 million). In the near term, the PSE is targeting a return to this prior peak. However, the exchange believes that once the friction costs are reduced, it is possible to generate 3 times the current trading volume. This could be a decent catalyst for the PSE and position its depositary revenue segment to become an even bigger recurring revenue piece for the PSE.

PSE’s main capex is for maintaining and upgrading its core trading, clearing and settlement systems. It plans to remove older systems and invest PHP 500-700 million (USD 8.6-12 million) over three years for derivatives business infrastructure. Annual trading engine maintenance is budgeted at PHP 50-60 million (USD 850,000-1 million). PSE is exploring acquisitions to expand services and drive efficiencies. It expects a PHP 1.69 billion (USD 28 million) windfall from a subsidiary sale, which could fund these initiatives. Nevertheless, PSE is not short of funds, with a net cash position of PHP 3.9 billion (USD 68 million). It employs around 130 staff and recognizes the need for more to support growth.

In terms of shareholder returns, the PSE has historically maintained a dividend payout ratio in the 80-90% range, despite a stated policy of 50%, reflecting a yield of 4-5% at current levels. The stock trades in-line with the Singapore Stock Exchange (SGXL.SI) at an estimated forward P/E of 20x, and 23% and 27% discounts to Bursa Malaysia Berhad (BMYS.KL) and the Hong Kong Stock Exchange (0388.HK).

We will keep an eye on PSE’s growth story. While their initiatives are promising, the timing of these catalysts appears to be more medium-term. Should the stock experience further downside and there is tangible progress on developments, it could become a more compelling investment opportunity.

Industrial zone of Quezon City lies a 60-year old Filipino family business scaling up specialty chemicals

My next stop took me to an industrial zone in Quezon City, where I met with the Head of IR of D&L Industries (DNL.PS, “D&L”; market cap of USD 761 million), a 60-year-old family-owned business making waves in the specialty chemicals industry. The Company has built a reputation as an R&D-led producer of food ingredients, personal and home care products, and raw materials for plastic and aerosol products. With a diverse customer base that includes well-known brands such as Boysen Paint, Nestle (NESN.S), Jollibee (JFC.PS), and McDonald's (MCD.N), D&L has established long-standing relationships spanning decades. Over 70% of the Company's sales are to consumer-facing companies, with competing customers also sourcing from D&L.

Guided by a strict policy of no in-laws and a requirement for family members to have a bachelor's degree and work experience starting from the bottom, D&L is now run by the second generation of the founding Lao family. 62% of the Company is held in a family trust, with individual family members owning an additional 10.4% through open market purchases. This ownership structure ensures that the family maintains control over the business.

D&L runs an “asset-light” model, where it rents its facilities from a property management company operated by other members of the Lao family, which does raise some questions around related-party transactions. However, this approach allows the Company to focus on its core operations, with D&L providing management and shared services to its subsidiaries and affiliates.

D&L’s moat lies in its cost+ model which enables it to maintain fixed and strong (subject to commodity price volatility) margins regardless of top-line performance. Its in-house R&D capabilities also allow the Company to develop innovative specialty chemicals tailored to specific customer needs without sharing them to maintain competitive edge.

The key catalyst for D&L's growth is the scaling up of its Batangas plant. This facility allows the Company to move beyond its traditional role as a raw materials supplier and instead pack and compound products for end-consumers. D&L’s four business segments – food ingredients, oleochemicals and specialty chemicals, specialty plastics, and consumer products ODM – leverage the IP of the Company’s biochemist founders. 

The full scale of commercial operations of the Batangas plant will allow for the opportunistic scaling of high-margin specialty products (HMSP), which currently account for 57% of the business, with the long-term target being a 70/30 mix of HMSP to commodities. As the Batangas plant reaches 60% utilization, which is expected to take a couple of years and more than double the Company's peak revenue, the margins are expected to be on par with the existing facilities. The plant is currently running at a loss, but as of Q124A, this is starting to narrow (loss of PHP 16 million (USD 270,000) compared to losses of PHP 157 million (USD 2.7 million) over the past 6 quarters consisting of pre-operating rental expenses and starting of commercial operations in Q323A).

On the capex front, D&L has about PHP 1-2 billion (USD 17.1-3.4 million) in backlog from the ongoing expansion of its Batangas plant, along with an expected PHP 800-900 million (USD 13.7-15.4 million) in annual maintenance capex going forward. 

The company's working capital metrics show much room for improvement – the cash conversion cycle stands at 133 days, with inventory days at 101, receivables at 56 days, and payables at 24 days. Optimizing these components could unlock further efficiency and cash flow. Notably, D&L's target net debt level is 1.5-2x, but it is currently sitting at 3.1x as of Q124A. De-leveraging the balance sheet is also a key priority for management.

While D&L's management was cautious on providing specific revenue guidance for FY24e, sell-side consensus estimates call for revenues to grow 19% yoy to PHP 39.7 billion (USD 680 million), with earnings expected to increase by 35% yoy to PHP 3.1 billion (USD 53 million). The indicative forward dividend yield is around 3.5% assuming a 50% payout ratio. The stock currently trades at a forward P/E and EV/EBITDA multiples of 14.4x and 10.2x respectively, well below its 5-year average of 21x for the former, suggesting that the market remains somewhat muted on D&L’s prospects despite bullish street estimates. D&L will need to demonstrate consistent execution in the coming quarters for market confidence around its turnaround margin and capacity expansion narrative, which warrants close monitoring from us.

That’s all for now folks. Stay tuned for part 2 in our series, where we delve into an impressive local casino operator gaining market share in the Philippines’ rapidly growing gambling industry.

Disclaimer: This research piece above is for informational, entertainment, educational, and/or study or research purposes only. The information contained herein or discussed does not, should not, and cannot be construed as or relied upon and, for all intents and purposes, does not constitute or provide professional financial, investment, or any other form of advice. This research does not and should not be construed as an offer to sell or the solicitation of an offer to buy any securities or any other financial instruments in any jurisdiction, including where such actions are illegal. This research is not intended for publication in jurisdictions where it would violate laws. The research does not consider individual investment objectives or financial positions and merely expresses the opinions of its authors. Any investment involves taking substantial risks, including (but not limited to) the complete loss of capital. Every investor has different strategies, risk tolerances, and time frames. You are advised to perform your own independent checks, research, or study, and you should consult a licensed professional before making any investment decisions. The assumptions and parameters discussed or used are not the only reasonable ones, and no guarantee is given for their accuracy, completeness, or reasonableness. No promise is made that any indicative performance return will be achieved. The research is derived from public information sourced by Pyramids and Pagodas. No representation or warranty is given for the reliability, completeness, timeliness, accuracy, or fitness of this research, nor is any responsibility or liability accepted for any loss or damage. The authors (Pyramids and Pagodas) shall in no event be held liable to any party for any direct, indirect, punitive, special, incidental, or consequential damages arising directly or indirectly from the use of any of this material.

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GDS Holdings (GDS.O; 9698.HK) (“GDS”) is an owner and operator of data centers in China and Southeast Asia, with a market cap of about USD 1.75 billion (USD 9.50 per ADS as of 17 May 2024 market close). In this brief, we explain how GDS’ share price could improve to above USD 14 if management can improve data center utilization, generate free cash flow and de-leverage debt. Favorable macro tailwinds (e.g. easing of geopolitical tensions, generative AI-driven cloud demand, and recovery of onshore financial markets) could further drive a valuation re-rating.

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TCL’s shares saw a strong bounce at market open and are up 26% today. Overall, the Company saw strong revenue and net profit growth, with its payout ratio landing at the top of their dividend policy range. Our thesis on a positive set of results to drive a re-rating and bridge some of the discount is playing out.

Solid growth in mid-to-high end display sales, as well as from Photovoltaic and Internet businesses

The results highlighted strong expansion of mid-to-high end display sales, rapidly expanding supplementary businesses, and solid emerging markets growth – all trends which we discussed as growth drivers in our previous write up. Standout figures in these areas include:

• Shipments of TCL’s high-end 65-inch+ TVs soared by 35%, accounting for 25% of TCL’s total shipment of smart screens.

• TCL saw 17% yoy growth in emerging markets, with similar figures in North America and Europe. The Company is a top 5 brand in rapidly growing consumer markets like India, Vietnam, and Saudi Arabia. It retains pole position in China, where growth has been sluggish due to obvious macro factors.

• The scale of TCL’s All-Category Marketing and Smart Connection and Smart Home businesses grew a solid 22% yoy as the Company leveraged its single-brand influence and geographically diverse retail channels built up by its display business.

• The true star of the show was the Photovoltaic (solar) business. Founded only in Q222, it has grown at breakneck speed of 1820% yoy to HKD 6.3 billion (USD 805 million) and now contributes a hefty 8% of group revenues.

• The lucrative Internet business grew at 20% yoy on higher gross margin profile (55% in FY23A vs 50% in FY22A) representing 4% of group revenues, and carried around 30-40% of TCL’s profits. A similar trend is expected to continue in FY24e. 

Our segment-specific forecasts largely held up, with Photovoltaic significantly outperforming and All-Category Marketing (household appliances) underperforming. 

Here’s how the make-up of TCL’s business is changing, reflecting the growing importance of supplementary revenue streams over the core display business:

Future strategy to focus on increased profitability, workforce and sales channels synergies, and international expansion

Management highlighted a few key points during the investor conference with regards to the TCL business this year:

• Management wants to maximize operating efficiencies and improve profitability. TCL understands the need to enhance these areas especially when compared to its peers.

  • Profitability to be improved through R&D efforts leading to technological upgrades and therefore higher average selling prices.

  • Introducing flatter leadership to increase decision making efficiency, also aimed at improving profitability.

  • Greater integration between sales channels for household appliances and displays to cut on global marketing expenses, thereby improving margins.

  • Building better synergies between global teams, for example, through secondment programs between geographies.

• The Photovoltaic business will be further prioritized for investment, with management targeting to double revenues to HKD 12 billion (USD 1.5 billion) in FY24e. For now, this vertical is focused on the domestic market, but that could change.

• TCL will also look to upsell customers in developed markets, where the Company already has a strong presence. Emerging markets are more of a volume play for now, but still targeting a mid-to-high end strategy, as TCL aggressively expands its market share.

Our take on the numbers going forward

For FY24e, we expect revenues from TCL’s overall display business to return to growth, carried by its large-sized display business with continued strong performances in emerging markets. TCL’s small-and-medium sized display business should see continued drag owing to the scale-down of its smart mobile business (2/3 of the vertical). The segment should see a contraction in-line with overall industry declines of around -20-25%.

Supplementary revenue streams from the Innovative business are expected to generate around 40-45% yoy growth as a whole, with All-Category Marketing and Photovoltaic to carry bulk of the revenue uplift. Management is also expecting around a double digit growth for its Internet business. We will be keeping a eye on H124e results on how this all tracks

Prior to the release of TCL’s FY23A annual results, the Board issued 82.3 million shares to a 363 persons affiliated with the company. This award will be satisfied in form of existing Shares subject to the achievement of the performance targets set out for the coming three years.

Based on the share award scheme, TCL management will be targeting net profit (adjusted profit attributable to owners of the parent) of around HKD 1.32 billion (USD 169 million) [65% higher then the net profit of FY22A] and have plenty of incentive to do so. It remains to be seen whether this might be a stretch target, but we can certainly see a pathway for TCL’s net profit to return above HKD 1 billion (USD 128 million) this year, which would suggest a forward P/E range of between 6.7x-8.9x based on the current share price (HKD 3.57 as at 2 April 2024).

Another potential tailwind for the share price is coverage – the lack of which we pointed out in our last piece. We note that several Chinese brokers who had previously covered the stock, as well as some of the bigger western banks, attended the conference – a signpost for better coverage.

For an in-depth brief on TCL, readers can refer back to our post on the Company last month.

Full disclosure: Both me @TheAltraman and @Desertfox currently own the stock.

Disclaimer: This research piece above is for informational, entertainment, educational, and/or study or research purposes only. The information contained herein or discussed does not, should not, and cannot be construed as or relied upon and, for all intents and purposes, does not constitute or provide professional financial, investment, or any other form of advice. This research does not and should not be construed as an offer to sell or the solicitation of an offer to buy any securities or any other financial instruments in any jurisdiction, including where such actions are illegal. This research is not intended for publication in jurisdictions where it would violate laws. The research does not consider individual investment objectives or financial positions and merely expresses the opinions of its authors. Any investment involves taking substantial risks, including (but not limited to) the complete loss of capital. Every investor has different strategies, risk tolerances, and time frames. You are advised to perform your own independent checks, research, or study, and you should consult a licensed professional before making any investment decisions. The assumptions and parameters discussed or used are not the only reasonable ones, and no guarantee is given for their accuracy, completeness, or reasonableness. No promise is made that any indicative performance return will be achieved. The research is derived from public information sourced by Pyramids and Pagodas. No representation or warranty is given for the reliability, completeness, timeliness, accuracy, or fitness of this research, nor is any responsibility or liability accepted for any loss or damage. The authors (Pyramids and Pagodas) shall in no event be held liable to any party for any direct, indirect, punitive, special, incidental, or consequential damages arising directly or indirectly from the use of any of this material.

However, the Company has faced macro-related challenges in 2023. At the beginning of the year, management was conservatively guiding flattish revenue growth and gross margin, and operating margin of 17–19%. After 6 months of the year, management further tapered its full year guidance to -10% revenue growth, but with a gross margin improvement to 41–43% and operating margin to land between 16-18%. PAX’s FY23A performance resulted in the following:

• Topline: -17% yoy vs -10% yoy guidance (miss).

• Gross margin: 45% vs 41–43% guidance (beat).

• Operating margin: 18% vs 16–18% guidance (in-line top-end).

The Company’s FY23A results have not quite met expectations, which were, in part, informed by high revenue-base in the previous year, coupled with a tougher macroeconomic environment and increased competition particularly in the LACIS market as more Mainland manufacturers went global owing to domestic market weakness.

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Factors impacting the Company’s trajectory in FY23A

• Challenging macroeconomic environment particularly due to inflation and exchange rate fluctuations, which has slowed the rollout of payment terminals.

• Further focus on high-growth markets has offset some of the decline in sales in other markets.

• Effective cost control, change in sales mix and Yuan depreciation have led to record gross profit margin.

• Recurring revenues from Software as a service (SaaS) contribute a growing, albeit small, share of revenue and is a strategic focus for management (up 26% yoy, up to 4% overall revenue).

• New industrial park to increase manufacturing capacity and allow for a shift away from outsourced manufacturing, enabling vertical integration and improved and sustained margins.

Investing in PAX to capitalize on the shift to cashless societies

According to industry reports, the global payment terminal market reached USD 15.7 billion in 2023, with an expected growth to USD 29.6 billion by 2030, a healthy compound annual growth rate of 9.5%.

Our fundamental thesis on the point of sale (PoS) market remains bullish and we still believe that PAX remains a viable route to capitalize on this growth. According to Nilson Report, PAX ranked third in total shipments behind Chinese peers Newland Digital (000997.SZ) and Tianyu (300205.SZ), but the majority of these two competitors’ shipments are largely within China (under APAC). PAX remains the top global payment terminal provider excluding APAC.

The shift to the cashless economy is well underway in developed markets, but we are only seeing the beginning of this in emerging markets, where PAX is particularly competitive. Throughout the world, the cashless trend is mostly driven by greater efficiencies in tax collection, combating crime, data collection, and as well in labor and accounting.

Growth expected to be more balanced with continued focus on emerging markets

PAX’s FY23A results indicate an increasingly geographically diverse revenue base. Management expects balanced growth across markets moving forward. However, for FY23A, all geographical markets recorded a decline on a yoy-basis, LACIS (-22%), EMEA (-16%), APAC (-20%), USCA (-1%). Changes affecting key markets include:

• Latin America: Slowdown in main market Brazil due to stalling terminal adoption by merchants was partially offset by record high sales in smaller markets (Mexico, Chile, Argentina).

• Middle East and Africa: Sales nearly doubled in the UAE and Kuwait, but offset by longer sales cycle in the larger Saudi Arabian market in 2023. Growth in significant Egypt market remained strong.

• Europe: Sales weakened in Germany, but strong elsewhere.

• APAC: Sales doubled in Japan and quadrupled in the Philippines, but a slower sales cycle saw revenues take a hit in India.

• US & Canada: Sales flat, but notable growth in recurring revenues.

As we highlighted before, nascent payments markets like Egypt, for example, continue to hold promise given that the country has the highest growth rate for card payments and consumer spending in the Middle East with only around 4% of overall consumption being cashless. A similar story is playing out in markets like Mexico, Chile, Argentina and the Philippines, where PAX has recorded strong performances during the year.

We think temporary and structural slowdowns in mature western and bigger emerging markets such as Brazil and India, where terminal adoptions have stalled and competition is becoming deeper, will continue to play out in FY24e, thus growth recovery may remain tapered. PAX’s further focus on high-growth markets will continue to offset some of the decline and flat sales performances expected in certain markets. PAX’s new product lines this year have also been well received and are expected to contribute to revenue growth.

Further augmentation and upselling of SaaS is a key to stickier revenues

In our previous study of the Company, we also pointed out that one of the common misconceptions of a terminal provider like PAX is that they only generate one-off sales.

“PAX essentially operates as an R&D and wholesale outfit, primarily outsourcing manufacturing. This focus on R&D allows the company to keep abreast of the latest technological (e.g. contactless, QR codes, and biometrics) and regulatory dynamics (e.g. security, financial compliance, and data management) driving demand for payment terminals.

These developments mean that selling hardware such as payment terminals is by no means a one-off sale. In fact, merchants usually need to replace terminals every 3-5 years as the aforementioned technical and regulatory dynamics necessitate upgrades.”

From our PAX study in November 2022

While churn is inevitable during replacement cycles, merchants are generally disincentivized to make the change due to switching costs and system compatibility requirements.

One of the bright spots in PAX’s earnings is in the growing number of MAXSTORE (SaaS platform) connected devices from 8+ million in FY22A to 11+ million in FY23A, generating HKD 106 million in revenues. Recurring revenues from SaaS and maintenance and installation services contribute a growing, albeit small, share of revenue and is a strategic focus for management (up 26% yoy, up to 4% overall revenue). The further augmentation of MAXSTORE will lead to stickier customer relationships and enabling competitor (non-PAX) devices to connect to the platform should bode well for PAX payment terminal conversions as well.

Major capex cycle completed, improving dividend payout ratio and share buybacks

During the earnings call, management highlighted two major achievements: the newly built PRC Headquarters in Shenzhen and the completion of the Pax Smart Terminals Industrial Park in Huizhou. These projects not only free up cash but also enable increased manufacturing capacity and vertical integration, leading to improved margins. However, no significant working capital improvements are expected for FY24e. Inventory and receivables days were 213 and 137 days, respectively, in FY23A. While the former increase was due to reduced US advance purchases, the latter remains within its historical range. If the dollar weakens (with 3 cuts expected in 2024), we may see shorter customer repayment times.

A key question is whether we can expect improving shareholder returns vis-a-vis buybacks and increased dividend payout in FY24e and beyond. Although, as usual, management avoided discussing future dividend and buyback policy, the trend in this area has certainly been encouraging, particularly over the past four years. Despite a decline in sales in FY23A, the Company increased its payout ratio to 41% of net profit.

Over the course of 2023, PAX continued its share buyback program, repurchasing around 13.8 million shares valued at over HKD 84 million. Despite a less-than-stellar performance last year, we believe this, along with stable and/or growing dividend payouts, should continue to contribute to the stock’s stability and wider investor interest.

It is noteworthy that in PAX’s AGM last year, the Company issued a mandate and is authorized to repurchase up to 107,981,500 shares, representing 10% of its issued share capital. However, management did not comment on any specific targets for buybacks during the earnings call.

Strong long term prospects for PAX’s stock, underpinned by inherent value, buybacks, and dividend policy

PAX’s share price has remained flat since their results announcement, reflecting the long-term underlying value of the stock. Currently trading at a 7% historical dividend yield based on a share price of HKD 6.17 (as of 28 March 2024), PAX hasn’t seen the expected double-digit revenue and earnings growth lasting into FY23A. However, we believe that management is capable of restoring growth. Positive developments, such as increased dividend payouts and consistent buybacks, will further enhance stock and shareholder value.

Management’s guidance for FY24e includes 5-15% revenue growth with improved gross and operating margins (43-45% and 18-20%, respectively). Assuming a net profit growth of 10% per annum (historically averaged over 17% growth), a stable dividend payout ratio of 41%, and a forward exit yield of 7%, the estimated IRR over a 3-year horizon is 18%. This falls within our previous target range for the stock. PAX currently trades at a roughly 61% and 77% discount to (median) domestic and global peers, respectively (5.6x and 2.8x), on a blended 12-month forward P/E and EV/EBIT basis.

Full disclosure: Both me @TheAltraman and @Desertfox currently own the stock.

Disclaimer: This research piece above is for informational, entertainment, educational, and/or study or research purposes only. The information contained herein or discussed does not, should not, and cannot be construed as or relied upon and, for all intents and purposes, does not constitute or provide professional financial, investment, or any other form of advice. This research does not and should not be construed as an offer to sell or the solicitation of an offer to buy any securities or any other financial instruments in any jurisdiction, including where such actions are illegal. This research is not intended for publication in jurisdictions where it would violate laws. The research does not consider individual investment objectives or financial positions and merely expresses the opinions of its authors. Any investment involves taking substantial risks, including (but not limited to) the complete loss of capital. Every investor has different strategies, risk tolerances, and time frames. You are advised to perform your own independent checks, research, or study, and you should consult a licensed professional before making any investment decisions. The assumptions and parameters discussed or used are not the only reasonable ones, and no guarantee is given for their accuracy, completeness, or reasonableness. No promise is made that any indicative performance return will be achieved. The research is derived from public information sourced by Pyramids and Pagodas. No representation or warranty is given for the reliability, completeness, timeliness, accuracy, or fitness of this research, nor is any responsibility or liability accepted for any loss or damage. The authors (Pyramids and Pagodas) shall in no event be held liable to any party for any direct, indirect, punitive, special, incidental, or consequential damages arising directly or indirectly from the use of any of this material.

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TCL has leapfrogged Japanese and Korean competitors in the TV market, largely by vertically integrating where others haven’t. It is honing in on the more premium large-screen segment – previously the exclusive domain of Korean and Japanese brands. TCL's technological strengths, cost-effective panel production, and leading position in rapidly growing emerging markets should allow for strong ongoing growth despite a challenging macro climate in its home market.

TCL will announce FY23e earnings on 28 March 2024. The stock has limited sell-side coverage, but sell-side expectations are for the Company to return to a 10% topline growth to around HKD 79 billion (USD 10 billion) with a net profit of around HKD 669 million (USD 86 million), in range with TCL’s net profit guidance of HKD 600-700 million (USD 77-90 million).

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The full-year results came on the heels of our well-received interview with the Company’s founder and CEO, Alex Chan, in which he shared his insights on leadership, vision, and growth prospects. For those of you who didn’t tune in. Plover Bay manufactures routers and sells subscriptions for always-on 5G connectivity, accessible from anywhere in the world.

Overall, the Company delivered robust financial performance in FY23, though its revenue growth sat at 8.4% (market expected mid-to-high teens growth), but net profit also increased a respectable 24%. The stock is up 13% since the results announcement yesterday. We believe this reflects the underlying value of the Company and its long-term sustainable growth prospects. Plover Bay's strategic focus on partnerships, supply chain resilience, and commitment to shareholder value through dividends seem to position it well for long term appreciation.

Let's delve into the factors influencing this and explore their strategic moves for the future.

Factors that impacted revenue growth in FY23

• High velocity sales approach: Special pricing and discounts offered to partners to secure deals impacted near-term revenue.

• Partner-centric focus: Prioritizing partners' margins over short-term revenue, treating them as extensions.

• Macroeconomic volatility: Strong USD affected demand in non-USD countries, leading to prolonged purchase decisions.

• Geopolitical and economic uncertainties: Broader uncertainties caused some demand to be deferred.

In summary, maintaining the high-velocity approach and partner economics was prioritized over aggressive short-term revenue targeting.

Plover Bay's relationship with Starlink

• Integrated solution: Signing on as Starlink’s first authorized technology provider to provide bundled solutions, enhancing reliability and easing deployment for customers.

• Early mover advantage: Plover Bay getting their foot in the door and hopefully entrenching the relationship offers a compelling value proposition.

• Revenue potential: Management is optimistic about this arrangement’s contribution to future revenues as it gains traction.

As covered in our interview, Plover Bay seeks to differentiate itself through its cooperation with Starlink and unsurprisingly, this featured extensively on the earnings call. According to a company press release, Plover Bay’s Peplink solutions have already been deployed alongside Starlink satellite terminals on a large cruise ship, greatly increasing reliability and speed of onboard connections and reducing costs. While still nascent, management is bullish this will contribute materially to revenues in the future as the integrated solution gains more traction.

Supply chain resilience

Plover Bay management mentioned that its practice of outsourcing to reliable tier 1 contract manufacturers in Taiwan has mitigated supply chain risk. Common chips used are from Qualcomm, which are standard WiFi/cellular connectivity components. Input costs are expected to remain steady this year.

Revenue growth and margin expectations

• Targeting the next USD 100m revenues: Emphasizing network effects, partnerships, and organic growth over to achieve this milestone faster.

• 20%+ revenue growth target: Management hopes to return to this rate achieved in previous years. While the team understands that they did not achieve its topline target in FY23, they also recognized that their approach was operationally sound given the macro and geopolitical backdrop. They won’t compromise to reach short term targets based on unsustainable actions or decisions.

• Maintaining margins: Expectations of sustained high gross margins. Input costs not expected to change in 2024 barring black swan events.

Qualitative expectations are for a return to faster top-line growth alongside continuation of industry-leading margins, through balancing organic efforts with initiatives like partnerships. 20% revenue growth appears to be a high internal target, but a fairer assessment is for mid-to-high teens growth trajectory and continued expansion of the Company’s recurring revenue base, which they themselves seem confident about. It is noteworthy that for FY23, 30.4% of overall revenues are recurring (subscriptions etc.), up from 23.4% in FY21.

Sustainable dividend policy

• Shareholder value: Excess cash returned to shareholders through consistent and substantial dividends.

• Steady dividends: Dividends maintained to signal confidence in profitability, unlikely to be reduced for M&A unless a major opportunity arises.

• Owner-operator structure: Prudent decisions guided by maintaining ownership culture within the management team.

• Historical 90%+ dividend payout ratio: Demonstrating commitment to shareholder returns over the past six years (97% payout on FY23).

In essence, Plover Bay aims to pay a reliable and high dividend supported by its consistent profitability, balancing shareholder returns with funding organic growth.

Full disclosure: We hold shares in Plover Bay Technologies (1523.HK).

Disclaimer: This research piece above is for informational, entertainment, educational, and/or study or research purposes only. The information contained herein or discussed does not, should not, and cannot be construed as or relied upon and, for all intents and purposes, does not constitute or provide professional financial, investment, or any other form of advice. This research does not and should not be construed as an offer to sell or the solicitation of an offer to buy any securities or any other financial instruments in any jurisdiction, including where such actions are illegal. This research is not intended for publication in jurisdictions where it would violate laws. The research does not consider individual investment objectives or financial positions and merely expresses the opinions of its authors. Any investment involves taking substantial risks, including (but not limited to) the complete loss of capital. Every investor has different strategies, risk tolerances, and time frames. You are advised to perform your own independent checks, research, or study, and you should consult a licensed professional before making any investment decisions. The assumptions and parameters discussed or used are not the only reasonable ones, and no guarantee is given for their accuracy, completeness, or reasonableness. No promise is made that any indicative performance return will be achieved. The research is derived from public information sourced by Pyramids and Pagodas. No representation or warranty is given for the reliability, completeness, timeliness, accuracy, or fitness of this research, nor is any responsibility or liability accepted for any loss or damage. The authors (Pyramids and Pagodas) shall in no event be held liable to any party for any direct, indirect, punitive, special, incidental, or consequential damages arising directly or indirectly from the use of any of this material.

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The stock trades at net cash (8% market cap) with a forward blended P/E of 10x, EV/EBITDA 7x, EV/Sales of 2.5x. Plover Bay is a strong dividend play backed by solid operating cash flow. We expect management to maintain 80-90% payout, reflecting an 8-9% yield.

With the company starting to turn heads in the investment space (see ’s October 2023 coverage on Plover Bay at Asian Century Stocks), we wanted to highlight an additional perspective – in the Founder’s own words. We were fortunate to meet Alex Chan 1-on-1 and wanted to share his insights on leadership, vision and how these attributes continue driving Plover Bay’s strong operational execution and future trajectory.

Mr. Chan has reviewed and approved the text of this article to ensure alignment with his views.

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Can you tell us a bit about your background, how you came to start Plover Bay and the entrepreneurial challenges you faced along the way?

I was born and raised in Hong Kong back in the late 60s. I was lucky enough to discover my passion in electronics during my teenage years. Those were the days when digital electronics and the PC industry started to emerge. In those days, my hobby was to build computers and enhance them with various new parts. Later, I started to connect to bulletin board systems (BBS), much like today’s discussion forums, with dial-up modems. This allowed me to connect with a group of computer enthusiasts for learning and sharing.

After my graduation from the Hong Kong Polytechnic, predecessor of today’s Hong Kong Polytechnic University, I joined Dow Jones Telerate, a US company, as a network engineer. The company operated a proprietary global data network to provide real-time financial information to bulge bracket investment banks and brokers back in those days, which as you can imagine, is very mission critical. Being a network engineer gave me the opportunity to learn data communications and networking in a mission critical environment.

After working there for a couple of years, I started a network system integration business. The business brought cutting-edge networking technology products from the US to Asia. We brought back products including Ascend Communications, Alteon Networks, etc., the pioneers of the Internet era and helped our customers build the very first internet service providers in Asia. During the mid to late 90s, commercial internet started to boom in Asia and our business was pretty successful, up until the internet bubble burst. The experience of running a network system integrator gave me valuable insights into product development. However, I had no experience in managing a company during an industry downturn.

While we enjoyed fast growth in the mid 90s to 2000, there have been many painful lessons during the spiral downturn from 2001 to 2005. I learned that wishful thinking is not a solution to recover the business back to its glory days. When business environments change and evolve, those at the helm must quickly come up with new perspectives, understand the dynamics and make the essential changes before it becomes too late.

The business was started in 2006 with the proliferation of Wi-Fi, mobile broadband, and contract manufacturing. At that time, SD-WAN and wireless networking looked very promising. This has been an exciting journey as technology keeps evolving and new opportunities keep arising.

As the leader of your business, what would you identify as your leadership style and management approach? How do you motivate and inspire your team? How do you foster a culture of innovation within Plover Bay?

When you bring in people who really love what they do, you don’t need to motivate them very much. They are self-motivated and they’ll keep finding new ways to improve things.

We also encourage team members to take ownership. We currently employ around 200 staff, of which 70% are programmers, engineers or technicians. I typically break staff into smaller teams of 8-10, giving them speed, passion, and conviction and avoiding bureaucracy. Decision making is pushed down to frontline teams that understand their products, services, and clients best. Each of our engineers have full ownership of a few products from the very beginning to the after-sales process. They do a great job developing the initial features, adding new features over time, and polishing the platform over time, and they are proud of the product that they created. They then take the lessons learned and bring it over to a new product.

Of course there is also the monetary aspect. One of the biggest reasons we went public was to provide a way for staff to visualize the hard work they put in over the years. Even now, every new recruit gets a decent amount of share options after their first annual review. Seeing the results of your work translate into the company’s share price is a strong motivator. The share price is more like an indicator to “visualize” how we are playing in our favorite game.

When most team members are focusing on their best game, the personal ego is less important and naturally everyone becomes a team player. 

I encourage a passion-led culture and solutions-oriented thinking. While results are important, I believe building the right culture takes precedence over short-term targets. This means we can nurture top talent that shares the company's long-term vision. This is front-and-center in our hiring – we give opportunities to those from diverse and unconventional backgrounds and those that might have been overlooked by other companies due to stumbling blocks they may have faced in their careers.

At Plover Bay, we see mistakes as learning opportunities and a necessity for progress. Conviction and execution are key irrespective of whether a project succeeds or not. I would rather we progress towards a goal than dither over different courses of action. I give staff a lot of autonomy but won’t hesitate to intervene if this autonomy is not used to drive progress.

In what ways do you continue to challenge yourself and the organization?

When you enjoy the game so much, you want to do it better everyday. You are willing to try new approaches and run new experiments. This is where most of our innovations come from. We make mistakes, and this happens pretty often. But one great thing here is that we accept failures and we learn fast. 

This is not only coming from myself, many of our key team members feel the same way. We just enjoy building something. This something could be the product, the service, the supply chain, the internal system, and the functionalities that could make our customers, partners more happy. People here build something from nothing, and that is highly rewarding. 

This may come to a surprise to many people - it’s actually not easy to find a workplace that offers stability while providing an ambitious environment to let you do things better and better. There is also a great side effect which is monetary return.

In its annual reports, Plover Bay has often mentioned that it will continue to improve its operational efficiencies. Can you give us an example?

A few years ago, we greatly expanded our backend system team and also added a digital innovation team. One example of what the team did was automating the order and shipping processes. Here, the backend team consolidated the information from our own backend, the courier’s portal and our accounting system, and using this, they developed a customized shipping portal. Before this, our shipping team had to input the same information (eg. shipment address) in three separate systems. The new system frees up a few hours for each shipping team staff member every day. It also reduced the chances of errors which would require more time to fix.

We constantly look for changes and improvements in our products, processes. We always ask ourselves, is there a more efficient way to do it? This is the foundation behind our continuous product and operational improvements. A lot of times, this is where our innovations come from.

What are your long-term strategic priorities and growth vision for Plover Bay over the next 3-5 years?

Plover Bay has historically been growing at around 20% a year. We have done many things to make this happen. In the past, we said that going from 4G to 5G would drive down the cost of mobile data and encourage the adoption of mobile networks among enterprise networks. In 2023, 5G routers will likely exceed 20% of all the routers we shipped.

Earlier this year, we became Starlink’s Authorized Technology Provider, an official recognition that Peplink’s products will work with Starlink equipment. This allows us to tap into Starlink’s growing user base of enterprise customers, especially in the maritime, emergency services and mining industries. Our products complement Starlink well. Users can use our devices to bond Starlink with other networks, or even multiple Starlinks, which vastly improves reliability and performance. Users can also manage a large number of Starlink dishes through our management software, and we have a large network of approved Starlink resellers offering full support to those enterprise users.

We also said that we wished to grow recurring revenues to over 30-35% of our revenue. Recurring revenues have a software margin profile and are a lot more scalable than hardware. We have been growing recurring revenues in a few ways.

First, we have been growing the pool of potential subscribers. Peplink routers can be thought of as gateways to our ecosystem. Once a user purchases a Peplink router, there is a decent chance of the purchaser becoming a subscriber, with potential for future repeat purchases, or even the chance to scale to a much bigger deployment. So, it makes sense for us to forgo a small amount of upfront margin in order to accelerate the future growth pipeline.

Second, we are also increasing the value propositions of our subscriptions - both by giving a better deal or adding plenty of extra features, such as SpeedFusion Cloud, which was a metered service in the beginning but has been turned into an unlimited service. We also added major features such as InTouch (allows users to manage non-Peplink devices connected behind a Peplink router), better integration with Starlink, Peplink eSIM, and more.

These two factors have been driving our recurring revenue growth. Our subscription “take up rate” - which measures the share of devices currently paid for with a subscription, has been inching closer to 30% each month, from around 25% about two years ago. The number of registered devices in our system (i.e. the potential subscription pool) has almost doubled since the beginning 2021.

Then we are also creating new services, such as the Peplink eSIM data plans (previously SFC LTE service) which was launched in 2021. The service now accounts for over 2% of our total revenue in 1H23, and is highly recurring with a strong margin profile.

To sum up, we are confident that all these developments will help us maintain our mid-to-high teens growth annually on our business model and continue to expand our recurring revenue base.

How will evolving technologies shape the company’s growth vision and influence its product offering going forward?

Going forward, connectivity technologies will keep evolving. We are still in the early years of moving from 4G to 5G, and people are already starting to talk about 6G. There are also new players like Starlink, who bring us affordable satellite service. Then we will also have OneWeb. There will be more and more connectivity options… more and more network providers.

Low earth orbit (LEO) services such as Starlink are a game changer. It dramatically expands where you can connect. More and more areas will be covered by low earth orbit satellites. In the LEO satellite space, we continue to make noise. In late 2022, one of the world’s largest cruise ship companies deployed our solution to bond multiple Starlinks together for their whole fleet. Fast forward to January 2024, we are pleased to announce that we have become Starlink’s first Authorized Technology Provider, boosting our visibility and profile. We expect the agreement to bring us many more exciting opportunities in remote places that require reliable connectivity.

We’ll continue to take innovative approaches to make our solutions affordable and accessible to everyone, making Peplink a low initial investment plus an affordable on-going annual subscription package for everyone and all industries.

What are your perspectives on capital allocation, balance sheet management, and R&D investment? How do you evaluate M&A and other expansion opportunities?

Plover Bay is a true owner / founding team managed listed company. For one, many employees are actually shareholders of the company, and they are obviously in it for the long term for the reasons I mentioned earlier. This real tangible ownership in the business drives their mentality to be more like an owner than an employee. Furthermore, our shareholders are an integral part of our growth journey, and are rewarded for their long-term commitment - Plover Bay has consistently maintained over 90% dividend payout ratio over the past six years.

There are many successful large corporations. If we look into these companies as an adult, Plover Bay is still a teenager. The way that a teenager grows and focuses would be very different from a mature adult.

For instance, large companies’ executives are typically appointed by the board, with the majority of their pay structure coming from bonus payout based on certain objectives. Incentive structure may be primarily linked to the financial growth of the company during the year, or even the next quarter, while considerations for long-term substantial growth matter less.

This overemphasis on near term performance may lead to over leveraging, negative cash flow, pile up of receivables, over-hiring with layers of management that hugely affect the efficiency of the company. Over time, this becomes a culture problem deeply entrenched in the company. Being a founder-led company sets us apart from large corporations and family businesses, we constantly strive for excellence and seek out fresh talent bringing new perspectives.

With this mindset, we are open to investing in complementary markets, technology, and even applying our mindset and execution to refresh businesses that can create new value with a different approach.

Our mindset around M&A is evolution from organic growth to view connectivity-as-a-service holistically. As opposed to acquiring distributors or other networking firms of similar sizes, I prefer seeking out partnerships or acquisitions demanding reliable connectivity to continue building and strengthening our customer base.

Even small opportunities can be interesting to us, due to our experience integrating remote teams globally. Financial risk is low as deals would be pursued for synergistic value creation rather than because there is private equity backing forcing the Company to do it. When evaluating M&A, I prioritize cultural compatibility and strategic fit on top of financial metrics. Deals enhancing Plover Bay's solution scope in new industries or markets are most appealing.

Shareholder value ultimately remains the priority. In the same light, the Board and I will always entertain attractive overtures that fully recognize Plover Bay's intrinsic worth – these are assessed objectively on how they serve shareholder interests. However, the priority remains scaling operations through continual reinvestment in technology and staff. Simply accepting premium bids that undervalue long-term potential or disrupt our strategic roadmap would not be sufficient.

How will succession planning preserve the founder-led, ownership mentality that has driven success while cultivating the next generation of visionary leaders?

To ensure business continuity in case of unforeseen events, we have developed an internal succession plan, taking into consideration the fact that many team members are shareholders of our company. We continue to embrace a very entrepreneurial mindset, willing to take risks on new products, new markets and new approaches. As a company attractive to those with a “builder” mentality, we attract talent that looks beyond monetary return. When our teams excel at something, this reflects in our values and success. Naturally, this founder-led, ownership mentality will sustain itself over time.

Full disclosure: We hold shares in Plover Bay Technologies (1523.HK).

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