HOMEGROWN CONSUMER electronics distributor Enzer Corporation has bought a Chinese WAP applications developer in a bid to diversify into China’s huge mobile phone market.
S$30 million will be paid for Shanghai Mopie Information Technology Co Ltd (Mopietek), amounting to 6 times FY08 earnings.
Mopietek’s CEO, Danny Tan, has full faith in its mobile phone content delivery business: he has guaranteed Mopietek net profits of at least S$2 million and S$5 million for the years ending 31 December 2007 and 31 December 2008, respectively.
China Mobile and China Unicom have contracted Enzer's new subsidiary to collect payment anywhere in China on their behalf.
China Mobile is the world’s largest mobile phone operator while China Unicom is the world’s No. 3. Together they have close to 500 million mobile phone subscribers.
Prospects are so bright that the Chinese company is working on a NASDAQ listing or on AIM. (Link to criteria for Chinese company's NASDAQ listing)
China has the world’s largest number of mobile phone users: 502 million subscribers or 38% of its population at end June 2007. Subscriber base nationwide was up 10% y-o-y.
China's telecom industry is worth RMB 352 billion, according to China’s Ministry of Information.
Mopietek is one of China's top 20 WAP service providers. The company owns technology and infrastructure to deliver mobile phone content such as multimedia messages as well as WAP and 3G games.
According to a Gartner report, the global mobile games market is on track to grow 50% this year to US$4.3 billion.
It is also licensed to collect payment throughout China on behalf of the developers of such mobile phone content. Danny Tan, who sold Enzer his entire stake in Mopietek, will be staying on as its CEO. He will receive $20 million in cash and the remaining $10 million in Enzer shares.
New core business: China's infocomms industry
Enzer, which lost S$11 million distributing electronics components and selling consumer electronics for the year ended March 2007, will shift its business focus toward China’s information communications industry.
The acquisition of Mopietek comes hot on the heels of Enzer's acquisition of one of China's three private VSAT service providers (story link) this week too.
Enzer's executive director Low Shiong Jin and Danny Tan explain Enzer’s strategic acquisition of Mopietek in a media interview:
Q: Regarding your choice of acquisition target: why Mopietek and why the mobile phone industry?
A: Mopietek is a mobile phone service provider in China, where there is a huge market – the biggest in the world. We think the growth potential is there now that the mobile phone is more user friendly than before.
People carry mobile phones everywhere – it has become very much a part of our lives. Many activities such as entertainment, software download or bill payment can be carried out using the mobile phone.
We are going into this industry because of rising demand in the PRC telecom market. This is driven by increased urbanization and the need for a better communication platform.
Q: Some people may misunderstand that Mopietek’s core business is providing content. Actually Mopietek, as a service provider is upstream to that. Can you elaborate on Mopietek’s business model, namely, what is your position in the value chain in China’s telecom industry?
A: China’s telcos are mobile phone operators who provide mobile phone services.
Mopietek provides value added services to consumers of mobile phone services. Our platform delivers content such as business or auto news, weather forecasts, ring tones or Internet browsing to mobile phone users in China.
Q: Do content providers who develop games or ring tones rely on Mopietek’s platform to deliver their content through telecos such as China Mobile or China Unicom?
A: Yes. We are the service provider. We are their content partner who collects revenue from end users.
Q: Can you elaborate on your system of collecting payment from end-users for content?
A: We are good in collecting money for WAP (wireless application protocol) services invoiced via phone bills on the Internet. We may go into micro payment in Internet banking.
China has a vast population and needs a solution to collect from everyone throughout the nation.
Q: What are the prospects of China’s WAP market? Is Mopietek a market leader?
A: Mopietek has text-based multi-player online gaming technology which allows millions of users to log in to one game on their mobile phone simultaneously. We plan to upgrade our technology to incorporate multimedia: graphics and audio.
We have 2 million subscribers for our leading game. This game has three to four thousand users logging in at any one time.
We are increasing a few thousand new users for our games everyday.
Q: What is the revenue model for online games?
A: It’s recurring revenue. Depending on the subscription plan, we have pay per click, per game or per month.
Q: Why list Mopietek on NASDAQ or AIM rather than in China or Singapore?
A: We are not familiar with the domestic listing environment. Tech companies are better understood at NASDAQ or AIM than in Singapore.
Q: When is the listing likely to be?
A: It is definitely in the pipeline even though we are not in a hurry to raise funds yet. We are not sure how long it will take.
Q: China is accelerating the adoption of 3G (telecom platform) in preparation of next year’s Olympic games in Beijing. How does this impact your cellular mobile service?
A: There will definitely be an increased use of mobile phones and demand for information like game results and scores.
Q: The Olympic games will cause a once-off spike in revenue. What is your growth strategy thereafter?
A: There will be other businesses such as delivery of financial information, education or entertainment.
Q: What other businesses can Mopietek enter?
A: Using SMS we can support identity verification of users who log into Internet banking accounts. China does not have this yet. In Singapore when you want to access your Internet banking account, the computer will request for the password sent via SMS to your mobile phone.
Once that is implemented, we collect revenue for every SMS.
Q: Is SMS user verification exclusive to Enzer?
A: We haven’t got into this market yet. China’s finance industry is moving toward this more secure system in Internet banking and we hope to be part of this.
