So Peak just concluded its conference call. I'll start by saying that Bell really needs to improve its conference call services. I felt like I was playing a game of Pacman at the start, hearing every beep of people joining the conference call for the first 10 minutes. The fact that they don't have a universal mute button made the call a struggle to hear at first, and unprofessional. Don't hold that against Peak. It's not their fault Bell's service stinks. Under no circumstance should Johnson have had to interrupt his presentation to tell people to go on mute. I was prepared for this as I've been on two Peak CCs before and the issues were even worse on the first two calls. Thankfully the latter half of the call and Q&A period was relatively noise-free. One advantage of the call alerts was we could tell how many people were joining and can gauge the interest. I would say I heard at least several dozen beeps, so maybe 50-100 people were attending the call. I also didn't notice anyone sign off until the IR rep concluded the call and the wave of noise returned. That means just about everyone on there stayed until the very end despite it going 10 minutes over schedule. A very good sign.
Now as far as the actual contents of the call:
- I appreciated Johnson thanking the shareholders for their support. I felt like it was in part a message to me for the work I've put in getting the word out on the company. He can repay us by continuing to do what he promises to do.
- As I've stated in the past, the reason that PKK can put together these seemingly "too good to be true" deals is their relationship with one of LongKey's founders, Liang (Golden) Qiu. Johnson confirmed that Golden was the one who introduced Banlan to Peak. When LongKey's business is seemingly put on the backburner indefinitely in favour of getting the Plastic Bank subsidiary up and running, we know that LongKey is on board with it. Johnson has stated that Golden is the front runner to become the CEO/CFO (I didn't hear clearly which one) of the new subsidiary. In my opinion, this also opens up a whole new world of possibilities for LongKey - perhaps it will eventually become consolidated under the subsidiary as well. It makes a lot of sense both operationally (IFS and the Plastic Bank are similar technologies for different industries) and financially (Plastic Bank revenues can help fund LongKey working capital needs).
- Johnson has disclosed that while the bulk of the revenue in 2016 for the subsidiary will be from existing business (~$100M annually), the Plastic Bank revenues are expected to surpass that in future years. That means in 2017 and beyond, we can expect the subsidiary to be in excess of $200 million in annual revenues. The Plastic Bank component is expected to be live by the end of 2016. I didn't hear any changes related to the timeline of the subsidiary itself, so I expect that to be live by the end of March. The Plastic Bank will go after not only Banlan's clients, but clients of other firms, not to steal business away from them and towards Banlan, but to facilitate the credit relationship between Banlan's competitors and their clients. At least that's how I interpreted it.
- The biggest revelation in my opinion is the disclosure that the plan is for all of Banlan's revenues to be eventually under the subsidiary, with subsequent private placements that will allow Banlan shareholders to have a bigger piece of the pie at ever-increasing valuations. This is the first I have heard of it, and should substantially increase the long term valuation. I assume this is something that will be pursued beyond 2016. But it looks like the eventual outcome will be PKK holding a profitable, billion dollar revenue business with over a billion shares outstanding. He also gave a teaser about Banlan's owner ZHWY Enterprises, a company we will be hearing more of in subsequent news releases. Banlan will control a majority of the Board of Directors but that won't change the way the business is run and who is responsible for what.
- The weakest part of the call was when Johnson was trying to explain the delay in the LongKey situation. He took too long, repeating the idea that under the old scenario, $10M in upfront capital and hundreds of millions of shares were needed to onboard the 5,000 manufactures on standby while not being detailed enough on the new plan going forward. Some key questions still remain. How is LongKey doing now? Is the automated process a done deal or still ongoing? What's the upfront capital requirement now, if any? Can they fund a partial roll-out based on existing cash flows? I know LongKey management is on board with the focus on Banlan, but what about ICBC and the 5,000 manufacturers, how long can they wait? I will send him a note asking him these questions and post what I hear back.
- There will be two legal entities set up, one in Wuxi and one in Hong Kong, which will help facilitate the flow of funds from China to international investors. Johnson's tone over any issues related to the flow of funds appeared relaxed and confident. I believe that they have the issue under control which is of particular interest to them because they are foreign investors, in the same boat as any other investor in North America.
- Johnson did an excellent job in addressing the fraud concerns with one word - transparency. He reiterated that the trust and relationships between Peak management and LongKey and Banlan investors has been built over a period of months, years or a couple of decades. He also explained that Banlan, a Chinese company, is giving money and an operating subsidiary to Peak, a Canadian company. In absolutely every single Chinese fraud that has taken place, the money has flowed in the opposite direction from North American investors to shady Chinese operators. There can be no way that this is a fraud, because it is not lucrative to be a fraud. How much sense would it make for Banlan to give Peak $4M then provide a worthless business that causes the stock to go to zero? Banlan would be out $4M.
- Peak is offering the opportunity for investors to visit Banlan operations while it has confirmed Banlan investors will be coming to Canada to meet with investors here.
- Peak is already preparing for an uplisting by ensuring its financial reporting meets NASDAQ's guidelines right now.
- I found it funny when Johnson talked about Banlan's frustrations with the Chinese market where a company's market cap can move 25% or 50% in one day, when we look at how PKK has traded over the past month on much higher volatility. But lets hope the majority of the days will see Peak move in one direction - up!
- Johnson struggled to answer a question on the biggest risk. Clearly he doesn't view the transfer of Banlan's business as the issue so he chose the $4M investment by default. He qualified that heavily though by stating that Golden and the investors at Banlan are close and that he and Golden talk twice a day. Banlan has every incentive to want to get this deal done so it transforms into a publicly traded firm and makes a good return on its $4M investment.
We can all thank this "generational" opportunity that PKK is providing us on a childhood friendship between Johnson and Golden, a man who has built connections with some of China's most powerful businessmen at ICBC and ZHWY Enterprises.