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Alibaba’s Next Crown Jewel – Alibaba Group Holding Limited (NYSE:BABA)

Alibaba’s next crown jewel in the making

In August 2016, Alibaba Group (NYSE:BABA), China’s biggest e-commerce giant, purchased a controlling stake in a little-known HK-listed company called AGTech (OTCPK:AGTEF, 8279 HK). AGTech is a twelve-year-old company and China’s largest lottery technology service provider. Since the acquisition in August, there have been several transformational business developments, but the market has not taken notice of any of them. AGTech is either completely off investors’ radar, or investors are choosing to ignore these significant events in the company. This period of confusion or ignorance is an exceptional opportunity to own Alibaba’s next crown jewel before the world discovers its immense potential. Buy AGTech.

What did Alibaba buy in AGTech?

Alibaba bought the industry’s best-in-class team of seasoned veterans with 20+ years of experience, expertise, and proven track records in running the lottery business in China with the highest ethical values.

  • AGTech is China’s largest lottery content, hardware, and service provider with the biggest footprint, currently working with 29 of 30 provinces in both national Welfare and Sports lottery governing bodies.

  • The company has been consulting many provincial authorities on how to implement and run various lottery businesses. Many of these consulting relationships are still strong and will serve to open doors in the future.

  • It brings excellent relationships with world’s best gaming companies that are anxious to expand their relationships. Scientific Games, IGT, Aristocrat Leisure, Ladbrokes, and MicroGaming, to name a few.

  • AGTech is the only company in the history of the Chinese lottery industry to have two virtual sports lottery games approved for national distribution by the Ministry of Finance. (Lucky Racing in 2013 and e-ball in 2014.)

  • It is the only public company to have successfully passed the much-scrutinized industry audit that lasted 2.5 years that kicked out many public companies out of the industry for corrupt business practices.

  • AGTech’s expertise in Lottery and Gaming is proving to be a great strategic fit for many key businesses of Alibaba and Ant Financial. To make “The Wall” of Alibaba Group is an important distinction that AGTech has accomplished in a very short period.

What do Alibaba and Ant Financial bring to the table?

AGTech has full access to everything Alibaba and Ant Financial Group have, including Taobao, T-Mall, Alipay, Asia’s biggest cloud computing capacity, direct access to 500 million-plus mid- to upper-class Chinese consumers, and the largest distribution infrastructure in China. Alibaba’s leading position in payment gateways in many Asian countries could open many doors for AGTech’s products and innovations.

In a nutshell, the vast resources of Alibaba and Ant Financial Group are transforming AGTech from a lottery company to an integrated technology and services company engaged in the lottery and mobile games and entertainment market with a focus on China and other international markets. Investors who understand what’s happening could take advantage of the current mispricing of the company.

Green Shoots are out

AGTech’s Q2 results (released on August 11, 2017) show the new initiatives beginning to contribute to the company’s top line and already making up 31% of the revenue. The significance of this is that a number of initiatives were either in pilot phase or started very late in Q2. Also, the biggest opportunities haven’t even begun to get going. The speed and scale which Online/Mobile business can generate will determine the window of opportunity investor have to buy AGTech cheap.

The Chinese Lottery Market

At the end of 2014, China’s lottery market grew to be the 2nd largest in the world with Gross Gaming Yield (GGY) of RMB 192 billion ($31.5 billion) and projected to maintain 20% CAGR over the foreseeable future. China achieved this impressive growth with just 7.5% of its population playing lottery versus about 42% for similar developing countries. The resumption of online lottery sales and approval of new mediums like mobile smartphones will allow the industry to tap into new consumers and grow even faster.

Growth of Regulated Lottery Market

2014 Sales: RMB 382 billion / Gross Gaming Yield: RMB 192 billion

CAGR 1987-2014: 32%

CAGR 2010-2014: 23%

Despite high growth, China has the lowest GGY/GDP ratio in the region of just .26% versus .64% for Japan, .85% for Vietnam, 1.23% for Singapore, and 1.37% for Hong Kong. Such a low ratio looks rather odd given their affinity for gambling, but experts believe this number is telling us that there is an enormous underground market not being captured in the official data, which spells big opportunity for the government (tax revenue) and licensed service providers. Studies have shown that the underground market is anywhere between 5x and 10x larger than the regulated market.

Only the provinces are allowed to conduct lotteries. Despite the insufficient availability of lottery products (mostly picking numbers), the market has been proliferating after hitting the inflection point 10 years ago driven by rising discretionary income, Chinese consumers’ healthy appetite for gambling, and government support (lottery proceeds are a significant source of funding for provincial governments).

Both Welfare Lottery and the Sports Lottery have a national brand and oversight/regulation, but the day-to-day operations and management of sales effort are organized at the province level. Provincial administration centers, whether Sports or Welfare, do not get involved in selling lottery tickets – they approve individuals (usually mom-and-pops) to run dedicated lottery stores and sell tickets and pay such people a sales commission – around 5-6%, which varies according to volume (incentive around a volume of sales). The administration centers are also responsible for marketing and other costs associated with running the lottery.

In recent years, the government centers have augmented their store network by signing retail agreements with companies that have no physical stores but which promise to use national internet channels to sell lottery tickets to be processed in the province for which they are working. This is done in exchange for a commission – the same concept as for the regular store owners. Since the marginal cost to the admin centers of internet sales in this model is lower than in the store environment (marketing responsibility is with the website), typically the commissions are set very high (>10%).

The internet channel has expanded the provinces’ potential market beyond their borders. However, recently, internet channels have come under government scrutiny.

Audit and Reform

The reason why we stopped the lottery data at 2014 was that, at the beginning of 2015, to bring much-needed structural reform by initiating a nationwide surprise audit of the industry with a focus on internet sales. There was no official reason given for the audit. Investigative journalists have reported many irregular activities. The allegation of misappropriation of the tax funds, contracts distributed without transparent tender process, suspiciously anonymous winners of large prizes, delays in drawings, volume aggregators not submitting bets for processing, concern over how the internet sales channels were developing, etc. In March 2015, the government ordered the suspension of all internet lottery sales activities until the reform was complete. Since the suspension, growth has slowed significantly. In 2015, sales declined by 3.6% to RMB 368 billion, before picking up 7.3% to RMB 395 billion. Before the suspension, lottery sales grew 23% CAGR (2010-2014), with internet sales taking up close to 25% of overall sales but growing three times faster than traditional channels. Lower sales mean lower tax revenue for provincial governments, so there is an incentive for everyone involved to see the sector resume its growth trend.

What was wrong with the Internet Lottery System?

No national IT platform (back-end system) – Many industry insiders have been saying for years that without robust national IT platform, it was impossible to track the flow of funds, and it was only matter of time until someone found ways to exploit the system for selfish gains. The audit confirmed many cases of abuse and allegations reported by journalists.

Distortion of tax revenue – Although, they have a national supervisory structure, the lotteries have been a mechanism to generate tax funds at a provincial level. Provinces are supposed to remit 50% of the taxes to the national level, with the remaining 50% staying locally. The admin fee is 15%, and the prize payout ratio on average is 58% (varies from <50%-73% depending on the lottery product purchased). So on average, 13.5% of the face value of a ticket is provincial tax revenue. This tax is meant to stay in the province where the play takes place (in the same way that the income of the New York State Lottery should not be used to fund works in, say, Alaska). The current internet model described above completely undermines this idea.

Waste – This is a zero sum game when viewed from a national level: all provinces sign deals with websites and can take customers from one another, i.e., a resident of Fujian may buy a ticket on a website that has an agreement with Shanghai to process that website’s tickets. Meanwhile, a resident of Shanghai purchases a ticket from another website that has a deal with Fujian. Two tickets have been purchased, both are processed in the “wrong” province, and hence, the commission has turned out to be 10%, not 5-6%. There is a functioning internet channel in the Chinese lottery market, but each and every transaction is attracting 2x the commission levels. That money could be going to prizes or taxes – it need not go to third-party websites to create needless competition between provinces for identical products (a ticket is a ticket is a ticket).

Missing money – Province or regulators could not verify that all online sales are being booked, and there have been several allegations of missing lottery proceeds. This is a HUGE issue.

Best practices – The current business model did not work. This system failed to protect vulnerable players (underage, problem players, etc.), it failed to prevent potential undesirable activities such as money laundering, and it could not protect IPs. You couldn’t even verify that all the websites were reporting all the revenue. The controls were too weak. The authorities had no choice but to ban all internet sales in their current form.

May 24, 1017 – A new beginning

Fast forward two years, China Welfare and Sports Lottery Management Center announced a significant personnel change. This change marked the end of the audit and signaled the resumption of the lottery business. A month later, in June, the Ministry of Finance also appointed the new Chief Director for Lottery, completing the new leadership appointments at the three important divisions, and they are ready to carry out the directives from the top. Many are expecting new policies after the 19th Party Congress in the fall.

AGTech, the sole survivor

The audit that lasted more than two years has decimated the industry. Many of the past lottery “high-flyers” have either lost their license, contracts, or are facing criminal prosecutions. Notable ones are:

  • 500.com (lost a pilot license to sell lottery tickets online and is unlikely to get it back during the next go-around)
  • REXLot Holdings (lost its exclusive license to provide computer terminal games to the Welfare Lottery and is facing legal issues)
  • China LotSynergy (Lost exclusive mobile lottery game trial license in Jiangsu Province & facing bribery charges)

AGTech came through the government audit with flying colors, and after satisfying Alibaba’s extensive background checks and review that lasted six months, it became Alibaba and Ant Financial Group’s subsidiary and an exclusive lottery platform with a mandate to build China’s biggest and the best lottery/gaming business.

Major Growth Drivers

“The transformation of AGTech from a lottery company to an integrated technology and services company, engaged in the lottery and mobile games and entertainment market with a focus on China and other international markets” was not just a slogan. In less than a year since Alibaba’s acquisition, AGTech has quickly developed several key initiatives to drive significant growth.

Lottery Ticket Distribution

Channel #1: Taobao Retail Centers

AGTech is working with Taobao to build infrastructure to sell lottery tickets throughout the Taobao Retail Centers (TRCs). TRCs are large rural warehouse/distribution centers for Taobao.com online wholesale/retail customers. Currently, 1,000 TRCs are selling lottery tickets as a pilot program. AGTech plans to expand this number as quickly as the training of the store owners will allow. Longer term, Alibaba plans to set up more than 200,000 TRCs by 2020, and AGTech plans to have lottery terminals in all the TRCs where it makes business sense. By comparison, the Sports and Welfare Lottery each has 100,000 standalone lottery shops generating more than $65 billion in lottery ticket sales. China became the biggest lottery market in the world in 2016 with less than 9% of the population playing lottery games, versus 60-80% for other developed economies. The growth prospect for the lottery distribution business is massive.

Channel #2 JV with Shun Feng Group (China’s top-rated delivery company)

On May 15th, the Ministry of Finance approved AGTech and SF Group’s distribution of branded scratch lottery tickets. This approval is the first of its kind.

SF Group is the best in the industry, but it is also one of the most expensive delivery companies. AGTech management proposed an ingenious idea to SF Group. “Rather than discounting RMB 1 per package to customers which isn’t much, why not offer them a free scratch lottery card for a chance to win RMB 100,000 as a part of a new customer loyalty program?” SF Group management loved the idea.

SF Group has more than 330,000 delivery personnel making approximately 7 million deliveries every day. That’s over 2.6 billion packages a year, and this number is growing rapidly. In addition to giving away scratch lottery tickets, SF agents will be incentivized to sell additional scratch lottery tickets as they deliver packages. This joint venture can generate billions of RMB sales of scratch lottery tickets each year. The JV will receive 10% fee, with 6% going towards sales and support staff, giving the JV 40% gross margin. Each scratch ticket will also have a “second chance drawing” for various prizes, where consumers can download an app to scan the scratch card’s barcode, and AGTech will retain all that valuable customer data. Initial feedback from the field is extremely positive, and sales volume is exceeding all expectations. A full roll-out is in the works.

Channel #3: Taobao.com

Taobao and T-mall have over 100,000 merchants. Just like the deal with Shun Feng Group, AGTech is working with the major retailers to offer lottery tickets to their customers as a loyalty program to reward and retain loyal customers.

Channel #4: Alipay and T-Mall loyalty program

Clients of Alipay and T-Mall will be able to trade reward points for lottery tickets. This original program started in May for platinum clients of Alipay but became so popular they quickly rolled it out to the rest of the customer base. I would love to trade in my useless credit card points for a chance to win millions. I have no doubt these loyalty programs will generate a tremendous amount of publicity and business.

Online Poker Tournament

In May, AGTech received an exclusive 5-year license to operate online and offline tournaments of China’s most popular poker game, Guan-Dan. There are three essential elements to this license.

  1. For the first time in China, players can play for real cash winnings.
  2. Winners will receive a “Master” status from the Ministry of Sports. Those with this status will be treated as national sports elites and can represent China to attend world sporting events.
  3. AGTech can sub-license the game to other operators, giving them an opportunity to gain market share quickly.

There are already 150 million avid Guan-Dan Poker players in China, ensuring massive participation in tournaments. There are other sites you can go to play Guan-Dan, but only one site will pay out your winning in cash and where the Ministry of Sports will recognize you as the master. I’m sure corporate sponsors are lining up ready to pay big money to gain exposure to these players and followers.

The crazy thing is, the stock didn’t move on the back of this incredible announcement. Asian investors have no idea what this opportunity is worth because they have no reference point, and foreign investors don’t know AGTech yet. Given the brand name, infrastructure, and the footprint of Alibaba, the scope and the scale of success will be substantial, and so will the share price appreciation once the light bulb goes on in investors’ heads. Guan-Dan tournaments will be launched in Q4.

Online/Mobile Social Games

AGTech has taken over Alibaba’ gaming business and has launched a game platform called “Lucky Buy” in March. The games sit on Taobao and Alipay sites. Lucky Buy offers various mind games (Mahjong, Chess, Poker), games of chance, random draws, and games you may find in casinos. Given the resources available to AGTech, 500 million upwardly mobile consumers and payment gateways (cashout available to consumers), management seems very confident that they can succeed in developing the social games business.

Lottery and online games seem radically different activities, but in the back end, the technology that goes into selecting random numbers in the lottery is very similar to coding games with countless (somewhat random) outcomes that players may find themselves while playing. One could argue that video games and lottery are cousins.

When you look at the businesses Alibaba and Ant Financial are building, you can see how AGTech’s business and technology can easily fit into leverage and supercharge many areas of the group’s platform. On July 25, 2017, AGTech announced a JV with India’s Paytm. Paytm (40% owned by Ant Financial) is one of India’s biggest e-commerce companies, offering consumers everything from online chat, banking, shopping, travel/hotel booking, and even purchasing movie and commuter tickets. It has over 230 million customers. AGTech will be offering online/mobile games to these 230 million upwardly mobile, tech-savvy consumers.

If other markets are any guide, mobile/online games will be a huge category on their own in India, and for AGTech-Alibaba having a strong local payments provider as a partner from the start is going to be a huge advantage.

Resumption of online lottery ticket sales

Simply put, this has been the “Instant multi-billion dollar market cap booster” in the days following the announcement.

Before the ban on online lottery ticket sales in early 2015, Alibaba Group was the biggest player with close to 20% online market share, while generating somewhere between $200 and $400 million pre-tax profit in 2014). This time, when internet lottery sales resume, the distribution will be handled by few major e-commerce players, and there is no doubt that Alibaba-AGTech will be the biggest player with the largest market share.

Now that the industry audit is complete and new senior management is in place, industry experts all agree that good things are ahead for the industry. Interestingly, with 2018 being the World Cup year, there is growing expectation that internet lottery sales and online sports betting may resume early next year. Of course, AGTech and Alipay are ready to run their online lottery distribution business tomorrow. Fingers crossed.

What is AGTech worth? $5 billion+

At this juncture, the sum-of-the-parts (SoTP) methodology appears to be the best way to put numbers around these initiatives. The key projects we outlined above will require time to ramp up and gain momentum. Many of these initiatives are so new to China, I don’t think anyone has a good grasp as to how quickly and how big these businesses can grow. But one thing is for certain, the speed and magnitude of growth of the online and mobile businesses will be breathtaking.

AGTech has been going at a breakneck speed and is finally beginning to speak to investors about the details of the rollout and the road map of many initiatives. No one would be surprised to hear that the company itself is challenged to determine exactly what it has and what it expects. Management will no doubt share the most conservative of estimates. This period of “information gap” is an opportunity for investors with a better understanding of the online lottery and global gaming business to take advantage and accumulate AGTech.

Lottery Ticket Distribution: $2 billion+

Channel #1: Taobao Retail Centers

Channel #2: JV with Shun Fung Group (China’s top-rated delivery company)

Channel #3: Alipay and Taobao.com

In 2017, China is on pace to generate over $65 billion in lottery ticket sales. 54% of this will be from Welfare Lottery products and 46% will be from Sports Lottery products. Both lottery authorities distribute lottery tickets through 200,000 dedicated standalone lottery shops.

Channel #1

If we take the simple average of $320,000 of gross sales per shop ($64 billion divided by 200,000 stores) and apply that figure to the distribution channel #1, Taobao Retail Centers, we get some impressive numbers.

  1. $3.2 billion gross sales for 10,000 TRCs ($320,000 x 10,000)

  2. $32 billion gross sales for 100,000 TRCs ($320,000 x 100,000)

  3. $48 billion gross sales for 150,000 TRCs ($320,000 x 150,000)

  4. $64 billion gross sales for 200,000 TRCs (320,000 x 200,000)

Let’s be very conservative and say the company gives 6% of the 8% fee to TRC owners and splits 2% with Taobao. We are looking at gross revenue of 1. $32 million, 2. $320 million, 3. $480 million, 4. $640 million. Scaling up will be the key here, but given the fact that Alibaba already has the Master Agreement with all the provincial lottery authorities in place, and you only need to plug in lottery terminals in each TRC, the ramp-up should be quick as soon as the current pilot program is done. The market will be happy to pay 20x gross revenue of this category.

Channel #2

Shun Feng Express has over 330,000 personnel making 7 million deliveries each day, i.e., 2.6 billion deliveries a year.

The delivery personnel will have a handheld device that will give instant verification of winning tickets, and winners will see their money in their e-wallet in a matter of seconds. If the initial feedback from the field is any indication, we could be looking at billions of RMB in sales each year. For example, one delivery rep sold over RMB 1,000 worth of scratch tickets in a single day. Easy access to consumers made this possible. Shun Feng also set up a scratch lottery ticket kiosk at a few of its package storage centers, and one booth sold over RMB 10,000 worth of scratch ticket in a single day. Perhaps management should change the business model and start selling lottery tickets door to door rather than delivering packages?

Channel #3

Working with Alipay customers and Taobao merchants to use lottery tickets as their part of the loyalty program will be an easy annuity-like business for AGTech with minimum capital and effort. AGTech is also using this initiative with Alipay to firm up the technology to support nationwide online lottery ticket sales when it resumes.

Online Poker Tournament License: $2 billion+

5-year exclusive rights to run both online and offline Guan-Dan Poker tournaments nationally is a game changer. Right now, investors have no details about the marketing plans to gauge the magnitude of this opportunity, because this has never happened before in China. There are over 150 million avid Guan-Dan Poker players in China. For the first time, players will be able to play for real cash. Winners will also earn “Master” status, which is a national sports elite status issued from the Ministry of Sports allowing the players to represent China to attend and compete in world sporting events. Management believes this will play a big factor in drawing players to the site.

Poker Star, an Israeli company, generated over $2 billion in revenue from small “rake” fee and was able to make $700 million in profit. Investors will be happy to pay 15x-20x profit for such a business. I would think AGTech, with a built-in customer base of 150 million avid Guan-Dan Poker players, direct access to 500 million mid- to high-income Chinese consumers and Alibaba’s infrastructure support, and the ability to sub-license the game to other game platforms, can eclipse Poker Star’s numbers in no time.

Along with Guan Dan, AGTech received the second license to run another poker game called Two-on-One, or Fight The Landlord (FTL), with 14 other operators. FTL gives players an opportunity to play two hands to beat the dealer and is the most popular poker game in China. The company is using FTL to test out its online poker platform to make sure that everything runs smoothly before launching Guan-Dan in Q4. Some operators will do anything for just the FTL license, but AGTech is using it merely as a test tool before launching an even bigger game, Guan-Dan. Oh, and don’t forget about the sub-licensing opportunities.

Social Games: $500 million+

The joint venture with India’s Paytm is worth $500 million in equity in a worst-case scenario, according to industry experts. The company is shooting to launch version one of games in Q4, hopefully ahead of Diwali, India’s biggest holiday.

The social game platform AGTech launched in March through the Taobao and Alipay apps, called “Lucky Buy,” is seeing steady downloads without any promotion efforts by the group. These games do not compete with Tencent (OTCPK:TCEHY, 700 HK) and its MMORPG games. Instead, AGTech will offer various mind games, games of chance, random draws, sports, and other games you may find in casinos. Given the resources available to AGTech, particularly the choices of payment gateways (cashout) available to consumers, management seems very confident that it can continue to develop the company’s social games business both in China and elsewhere.

Currently, when you play games, you can accumulate points or virtual currency for future plays and that’s about it. But, if you play games offered by “Lucky Buy,” you can convert your winnings to a gift certificate that you can use to purchase products at participating Taobao merchants. AGTech’s monetization is a big differentiator that will serve to attract many players. The company is getting ready for an aggressive promotion campaign soon.

Resumption of online lottery ticket sales: $5 billion+

This is the “blue sky” scenario that can quickly double or triple the valuation of AGTech. Resumption of internet lottery sales is a “when, not if” story. We just don’t know when Beijing will resume online lottery sales, so we are not adding this business to the value of the company at this time.

Before the ban of online lottery sales in March 2015, Alibaba made more than $200 million in pre-tax income in FY 2014 on approximately 11% online market share (some say it was double that). This time, Beijing will only allow a handful of mega e-commerce companies to sell the product, and given the progress and footprint Alibaba has made in China even over last few years, a 20%+ market share, or $500 million+ pre-tax profit, is very doable. This business would be worth 20X pre-tax profit at a minimum.

While reading through the company’s second-quarter results, there is a definite change in the tone when describing the possible timing of resumption of online lottery sales. A growing number of industry experts are expecting this to happen in 2018, which is also the World Cup year. I am sure we will hear more on this after the conclusion of the 19th National Congress meeting in the fall.

Investment Risks

Regulatory risk: The government decision to tighten state control and reduce private sector participation in the lottery industry, limiting the use of online/mobile games and lottery product sales.

The Chinese government firmly believes qualified private sector participation is healthy and necessary for the market and motivates participants to come up with new and innovative products and ways to increase sales. The continued success of Tencent and NetEase (NASDAQ:NTES) and other online entertainment companies is proof of this. I also expect the government to reduce the sector participation to a small number of mega-industry participants for greater transparency and control.

The longer it delays the resumption of internet sales, the government will only be hurting itself by not collecting the tax revenue, forcing the game underground and making it riskier for citizens, while making illegal operators wealthy.

Execution risk: Execution problems. Unpopular games, technical glitches, bad user experience, etc. could affect the size and or trajectory of sales.

Key man risk: Chairman John Sun has been instrumental in creating AGTech’s corporate vision, securing government approvals and executing the company’s business game plan. If AGTech loses John, it will be a setback, but not a major one now that the company is part of Alibaba Group.

Conclusion

The industry audit in 2015 was an important watershed event that restored the strength and integrity of the Chinese lottery industry. Now, with the audit complete and the new leadership in place, Beijing will focus on expanding the business. This audit has also created an enormous entry barrier that will make it nearly impossible for new players to come into the industry.

Since 2006, John Sun has patiently built a fully integrated, highly scalable lottery business platform. He put together the most experienced professional team in the sector with the highest ethics and principles. The nascent nature of the Chinese lottery industry has tested the faith of investors along the way, but John and his team have never taken their eyes off the ball and have continued to build their path towards success. Now, with the resources of Alibaba and Ant Financial Group, AGTech has quickly transformed from a lottery company to an integrated technology and services company engaged in the lottery and mobile games and entertainment market with a focus on China and other international markets.

Winning the Ministry of Finance approval to distribute private-label scratch lottery tickets (Shun Feng Group) and a 5-year exclusive license to operate Guan-Dan Poker game online for a cash prize is a significant accomplishment. No will disagree that AGTech is already well positioned to become one of the biggest players in China’s Lottery and Gaming industry. The joint venture with India’s Paytm to offer online/mobile games to 230 million upwardly mobile, tech-savvy consumers separates AGTech from all the other Chinese gaming companies. Not to mention the millions of dollars of profits to come.

Lack of concrete guidance (I don’t think the company has a good grasp as to the speed and magnitude of growth for many of these initiatives because it’s the first time we’ve seen it in China and India) and large cap being in vogue has placed AGTech between the cracks. Those that follow the company are saying, “I will buy when I see the real traction and momentum of revenue.” The problem here is, by the time we see the evidence, the stock may be out of reach, and although we all say “I will be happy to pay 50% higher for certainty,” it’s difficult to pull that trigger when the time comes.

The Chinese lottery industry is the second biggest in the world with sales of $65 billion. China generated this impressive figure with less than 9% of the population ever having played lottery, versus 60-80% for developed countries. We have an opportunity to get into the company on the ground floor while there is confusion in the market and lack of faith in management’s ability to execute, which is misplaced. My recommendation is to start accumulating the stock here with the expectation that revenue will pick up momentum as the scale and speed of the online/mobile business model of AGTech takes off.

M. Han

MNS Global Advisors, LLC

Money Never Sleeps

Disclosure: I am/we are long AGTEF.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I am long shares of AGTech in the Hong Kong market (8279 HK).

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