AGBA - These Financial Services Stocks Look Primed For Significant Upside
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As the world’smajor economies grapple with the threat of a looming recession, it hasnever been more crucial for investors to look harder for opportunitieswith the potential for above-average returns.
According to BCAstrategist Roukaya Ibrahim, a recession is still on the way despiteWall Street’s optimism, and stocks are at risk of a steep declinewhen the downturn hits. Ibrahim believes that the economy will likelytip into a downturn before early 2025, and once it does, the S&P500 could fall as low as 3,500, which would take the benchmark indexaround 26% lower from its current levels.
The UK already slipped into a technicalrecession in the second half of last year after its economy registeredtwo consecutive quarters of negative economic growth, according toofficial figures, with the BoE expecting only a slight improvement in2024, if any.
InAsia, however, particularly Hong Kong, the post-pandemic economicrecovery is still going strong, considering it recorded 3.2% growth in2023, partly driven by private consumption. In fact, Hong Kong'sGDP in the third and fourth quarters rose by 4.1 and 4.3 percentyear-on-year, respectively, illustrating the resilience of theeconomy.
It'stherefore not surprising that Asian-based companies have startedgetting on investors’ radar, especially the ones with multiplepositive catalysts that could drive their share price higher.
For instance, AGBAGroup Holding Limited (NASDAQ:AGBA), which is known as theone-stop financial supermarket, provides ‘wealth and health’ toits customers with state-of-the-art technologies and passionatecustomer care. For some background, AGBA has a long and rich history,having been established as far back as 1993 and only going public onthe NASDAQ in November 2022.
Before going public, the group restructured toseparate its legacy broker-dealer business into a platform businessand a distribution business, which today offer unique products andservices composed of:
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B2C: market-leading portfolioof wealth and health products
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B2B: tech-enabled broker management platformfor advisors
Trusted by over 400,000 individual and corporate customers, thegroup now has four distinct market-leading businesses: platformbusiness, distribution business, healthcare business, and fintechbusiness. Essentially, AGBA has become a leading one-stop financialsupermarket offering the broadest set of financial and healthcareproducts in the Guangdong-Hong Kong-Macao Greater Bay Area (GBA)through its tech-enabled ecosystem, enabling clients to unlock thechoice that best suits their needs.
In our view, AGBA Group Holding Limited(NASDAQ:AGBA) has the potential to unlock significant shareholdervalue going forward based on a number of facts.
For starters, the groupis led by top-notch management with deep industry expertise andimpeccable credentials across platform, distribution, healthcare, andfintech businesses spanning over 20 years. The group is also wellexperienced in navigating the stringent regulatory regime in thecountry, having secured national and provincial operating licensessince 2006, which reiterates the group's commitment to operationalexcellence and credibility when it comes to regulatorycompliance.
Thechoice of AGBA’s strategic location in the Greater Bay Area alsoties in perfectly with the fact that it provides an easy and efficientway of capturing huge organic and inorganic growth opportunities,considering that Hong Kong accounts for roughly 13% of China’s $17trillion economy.
So far, AGBA’s unique ‘universal’ one-stop financialbusiness solution platform serving financial advisors, brokers, andfinancial institutions has reaffirmed why the company is primed formassive growth going forward, considering the group is alreadyservicing 16% of the Hong Kong broker market and reaches more than400,000 individual and corporate customers in the GBA.
Also, according to itsrecently released third quarter earnings report for the period endingSeptember 30, 2023, the company generated $41 million in revenue forthe first nine months of 2023, which was more than double compared tothe first nine months of 2022 (up 115%).
On February 15 this year, AGBA GroupHolding Limited (NASDAQ:AGBA) hit a major corporate milestoneafter it announced that it had completed a private placement with aninstitutional investor, AGBA’s Group President, Mr. Wing-Fai Ng, andAGBA’s management team, which raised approximately $5.1million.
This notonly demonstrates the trust and confidence that both externalinvestors and the company’s management have in the company'sfranchise strength and growth potential but also reaffirms itslong-term prospects based on the fact that it was executed at a pricesignificantly above the market price of AGBA ordinary shares.
Unsurprisingly, itseems that the market has been taking note of the company’s recentwins, as illustrated by the stock’s recent rally, which has seen theshare price surge by roughly 35% over the past month alone. However,this could just be the early stages of a much bigger rally,considering the extent of the company’s undervaluation.
While there are nodirect comparable companies to AGBA on the NASDAQ, we believe that themost relevant categories for comparison are insurance brokerage andtech-enabled wealth platforms. According to data from last year,insurance brokerages and tech-enabled wealth platforms had a medianEV/Sales ratio of about 6.5x and 3.8x, respectively, which is in starkcontrast to AGBA’s EV/Sales ratio of just 0.06x based on 2023revenue estimates.
That implies that AGBA Group Holding Limited (NASDAQ:AGBA) stock has significant upside potential once themarket fairly values the company, which currently has a market cap of$35 million. Luckily, that may not be too far off into the futureconsidering that the company expects approximately $150 million inrevenue for 2023.
Also, according to AGBA’s recent press release, the companywill be implementing a number of cost-cutting measures in a bid toreduce operating expenses to further boost growth and profitability.At the same time, the company plans to sell assets from non-coreactivities to support growth. Following these strategic initiatives,AGBA will be well positioned to become a key player in the market andalso be nimble enough to take on new partnerships. Ultimately, webelieve that China's improving macro environment, coupled withAGBA’s refined business model, will help close the current valuationgap.
Anotherstock that has been generating investors' interest is MoneyHeroGroup (NASDAQ:MNY), which operates in the online personal financeaggregation and comparison sector in Greater Southeast Asia. It hasoperations in Singapore, Hong Kong, Taiwan, the Philippines, andMalaysia, with respective brands for each local market. The companymanages 279 commercial partner relationships, and its brands in HongKong and Singapore currently serve about 2.6 million monthly uniqueusers across both markets.
Back in January, the company released its 2023fourth quarter earnings guidance, which further reaffirmed thesubstantial opportunity in Asia for financial servicescompanies.
MNYexpects group revenue to increase by more than 50% year-over-year from$17.2 million in Q4 '22, with Singapore looking set to become thekey growth driver thanks to the 100% increase in revenue contribution.In addition to that, as recently as last week, the company provided acorporate update revealing that it anticipates year-over-year revenuegrowth of 50% in Hong Kong for the month of this year.
Prashant Aggarwal,Chief Executive Officer of MoneyHero, noted, “Singapore and HongKong represent the center of Southeast Asia’s economy. To win inthese markets, companies need to dedicate themselves to maintainingpace with ever-evolving consumer demands through both consistentinnovation and elevated customer experiences.”
That is exactly why thecompany has embarked on building the largest ecosystem of creators,influencers, KOLs, and channel partners throughout Hong Kong andSingapore to further enhance its platform and reach. In addition tothis, by leveraging the latest financial innovations, includingartificial intelligence, MNY plans to introduce a host of new offersand products to further drive growth.
At the moment, the company has a market capof about $92 million, following a massive 97% rally over the pastmonth alone. This suggests that MNY’s valuation may have becomesignificantly richer for most risk-averse investors, meaning they arelikely to remain on the sidelines as they wait for a better entrypoint.
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