Author Topic: 036800.KQ - Nice Information & Technology  (Read 11770 times)

Poor Charlie

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Re: 036800.KQ - Nice Information & Technology
« Reply #40 on: March 05, 2019, 07:15:43 PM »

I’d like to get your opinion on NICE’s excess cash balance.  Like other payment companies, changes in settlement receivables and payables cause large swings in working capital.  Also, I understand that settlement in Korea is 3 to 4 days, so NICE should have some baseline float as well.  How much of their cash and investments do you consider ‘excess’ funds that aren’t needed to run the business or handle settlement.  In other words, how much cash could they distribute without affecting the business?

Before making any adjustments, I get the following cash and investment balance:

154 in cash + 38 in ST financial assets + 13 in LT investments and receivables = 205 billion won

I ask because with all their excess cash, I would’ve expected a larger dividend and/or bigger buyback program. 

(Note: In my post on NICE's 2018 results, I adjusted Q4 2018 operating margin for a 2.9 billion won impairment.  Upon closer inspection, I believe this impairment was actually a below-the-line expense included in ‘Other losses,’ which increased by 3.3 billion in Q4.  As a result, the operating margin should have been the reported 6%.  Apologies for the mistake.)


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Re: 036800.KQ - Nice Information & Technology
« Reply #41 on: March 07, 2019, 05:07:42 PM »
PG business temporarily books the cash that ultimately needs to be paid back to the merchants, so NICE's cash balance is a bit overstated - accounting for this ST liability, I estimate the net cash or the excess cash to be around 140B Won, about 70% of market cap. Current FCF yield is about 25-30%, so in a normal operation circumstance, much of this cash should be distributed back to the shareholders.

But as I may have explained before and you may as well know, the current gov is creating a huge uncertainty in the local payment market that it wants to shift from the current credit card based payment system to a mobile pay system like China), and NICE wants to be adequately loaded to adapt to this new potential change - either to sustain the lead or completely dominate the industry once the direction is set.   

Government aggregated all the mobile pay players in one consortium under the "ZEROPAY effort," and wants to negotiate with the VANs to support this mobile pay in the existing VAN machines, but the compensation is just too low for the VANs to move forward - and meanwhile the gov is blaming the card industry and pushing down the processing fee, so many VANs are struggling.

It is the Gov that's running out of time. Polls are falling, and despite all the noise that ZEROpay created, it's being bashed and derided. No one uses it. Without VAN's support, it cannot move any further.

Long story short, NICE may have to acquire another VAN that loses out in this environment(KSNET recently took out all the operating cashflow as dividends. Maybe they're trying to sell its business?), or install new signpads that reads NFC, Blooths or whatever to accept mobile payments. This will require capital.    While the future is still a bit unclear, NICE feels confident that they will continue to be relevant in any environment, and despite the earnings decline, they increased dividends. Yes it could have been bigger given the cashflow, but given what's going on, I think it was adequate.  And it''s moving forward to be more of a data company.

I may be repeating, but I think this has a Square-like potential selling for less than 6x '19 P/E, 30% '19 FCF Yield. My favorite reward/risk skew in Korean market currently.

Poor Charlie

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Re: 036800.KQ - Nice Information & Technology
« Reply #42 on: March 10, 2019, 04:54:35 PM »
A few comments:

  • The Korean government has tried things like this before.  They tried, for example, to develop a free tutoring service to compete with the for-profits (Daeko, Chungdahm, Megastudy, etc.) and it didn’t work.  I think it will be even harder to develop a government-sponsored payment system.  In addition to the network effect, there’s also the issue of trust.  When I use a credit card, I know I can always dispute the transaction and get my money back.  You can’t really offer this clearinghouse-like service to consumers with Zeropay.  The incentives just aren’t there.
  • Korea is mostly a credit card (as opposed to debit card) system.  As I mentioned in a previous post, credit offers a lot of benefits to the consumer—float, points, cash back, etc.  Even if the government offers tax incentives (I believe they’re already doing this), it’s going to be hard for consumers to give up these benefits. 

Fee pressure from the government
  • I wonder what the government’s goals are here.  Do they want to get interchange down to par with the EU?  If that’s the case, there’s still a lot of room to go (I understand Korean card-present credit is in the low-1% range).  I don’t mind the government pushing back on fees, but I think they could be more rational about it.  Why, for example, do small merchants pay a lower interchange than large merchants?  Policies like this won’t result in a healthy payment ecosystem.   

Square-like service
  • NICE’s current Square-like product, APPPOS (, looks well-designed.  I wonder if it’s caught on with smaller merchants yet?
  • NICE I&T should work with the other NICE subsidiaries to develop Square-like services.  NICE I&T and NICE TCM could, for instance, work together to build ERP-related software into the merchant’s hardware (maybe they’re already doing this or will be doing it with the merchant app mentioned in their proxy?).  Also, I believe a large amount of Square’s non-transaction revenue comes from third-party loan servicing fees (Square Capital).  Perhaps NICE I&T could work with NICE Information Services on a third-party lending platform? 
  • Without being in the market (or speaking the language), it’s hard for me to assess NICE’s chances here.  It appears like they stay on top of payment industry trends (and have good technology), but I’m just too far removed to know for sure. 

I think NICE’s biggest opportunity is in mobile payments.  Korea doesn’t have a centralized payment network (like MA/V in the US or Alipay/Wechat in China).  If NICE could partner with the major card brands on a mobile payments platform (like the article you linked to suggested), perhaps they could be the company that does this in Korea?