20170804-信达国际控股-亚博科技控股-08279.HK-Alibaba_lottery,_and_more_than_lottery_11页_1mb

AGTech Summary

Core Content

AGTech is a company that has established itself as a key player in the Chinese lottery market and is now expanding into games and entertainment. The company has formed strategic partnerships with Alibaba Group and SF Express, and has also entered into a joint venture with PAYTM to tap into the Indian market. AGTech is currently operating as the exclusive lottery platform for Alibaba Group and Ant Financial Group, and has launched several innovative lottery products and games.

Main Points

1. Partnership with Alibaba Group

• AGTech became a subsidiary of Alibaba Group in August 2016 after a subscription agreement with Alibaba Holding and Ant Financial.
• AGTech is now the exclusive lottery platform for Alibaba and Ant Financial, with profit sharing on a 50:50 basis.
• AGTech leverages Alibaba's extensive user base, cloud computing, big data, and payment systems to enhance its lottery and gaming services.
• The company has integrated its lottery products into Alibaba's platforms, including Taobao and Alipay.

2. Physical Distribution through Rural Taobao

• AGTech has piloted the distribution of Sports Lottery products through the Rural Taobao network.
• Rural Taobao, an O2O initiative, aims to serve rural areas with physical POS and last-mile delivery centers.
• As of end 2016, there were approximately 28,000 Rural Taobao POS nationwide, with a target of 100,000 by 2020.
• Store owners can earn extra commission by selling lottery products, which is expected to drive adoption.

3. Joint Venture with SF Express

• AGTech formed a 50:50 joint venture with SF Holding called "SF Lottery" to develop new lottery products.
• "SF-Themed Instant Scratch Lottery" was approved as a national lottery product by the Ministry of Finance (MOF).
• The product includes innovative features like a self-service redemption QR code and an additional lucky draw QR code for advertising.
• It has been launched in Guangdong, Jiangsu, Hunan, and Jiangxi, with a positive market reception, especially among young women.

4. Expansion into Games and Entertainment

• AGTech was awarded the operation rights for "Two-on-One Competition Poker" and "Guan Dan Competition Poker" by the Chinese Chess and Poker Centre.
• These games are positioned as mind sports, offering real money prizes for skilled players.
• "Two-on-One Competition Poker" has been deployed on Alipay, while "Guan Dan Competition Poker" is set for release in 2H17.
• AGTech also launched a non-lottery social gaming platform called "Lucky Buy" on Taobao, which allows users to earn bonus points through shopping coupons and use them for games and rewards.

5. International Expansion

• AGTech has formed a 45:55 joint venture with PAYTM Holding to develop and operate mobile games and user engagement activities in India.
• PAYTM, with 225 million users, is a leading mobile payment platform in India and an associate of Ant Financial.
• This partnership is seen as a significant step towards AGTech's international growth strategy.

6. Financial Overview

• AGTech has incurred operating losses for over 5 years due to heavy R&D costs and regulatory challenges.
• However, with the support of Alibaba Group and SF Express, the company is expected to see improved financial performance.
• The income statement and balance sheet indicate a significant increase in total assets, particularly after the joint venture with Alibaba.

7. Potential for Growth

• If the PRC government reopens online lottery sales, AGTech is expected to benefit significantly.
• The company is also expanding its games and entertainment segment, which could become a new growth driver.
• The synergy with Alibaba is expected to gradually reflect in AGTech's financial results, helping to transform the company into a more diversified and profitable entity.

Key Information

• Company Name: AGTech
• Partnerships: Alibaba Group, SF Express, PAYTM
• Products: Sports Lottery, SF-Themed Instant Scratch Lottery, Two-on-One Competition Poker, Guan Dan Competition Poker, Lucky Buy
• Market Potential: Expected growth through Rural Taobao and online lottery resumption
• Financial Performance: Previously in losses, now showing potential for improvement with new ventures
• Strategic Positioning: AGTech is evolving from a pure lottery company into a broader games and entertainment provider

Analysts and Contact Information

• Analysts:

  • Hayman Chiu - Research Director
  • Kenneth Li - Senior Research Analyst
  • Lewis Pang - Senior Research Analyst
  • Wilfred Yuen - Research Analyst
  • Chloe Chan - Research Analyst
  • Johnny Yum - Research Assistant

• Contact:

  • Lewis Pang: lewis.pang@cinda.com.hk | (852) 2235 7847

Rating and Disclaimer

• Rating Policy:

  • Stock Rating: Buy (Outperform HSI by 15%), Neutral (Between -15% ~ 15% of the HSI), Sell (Underperform HSI by -15%)
  • Sector Rating: Accumulate (Outperform HSI by 10%), Neutral (Between -10% ~ 10% of the HSI), Reduce (Underperform HSI by -10%)

• Disclaimer: This report is prepared by Cinda International Research Limited and is for informational purposes only. It does not constitute an offer to buy or sell securities and is not a substitute for independent judgment. The company cannot guarantee the accuracy or completeness of the information provided.