Q3 numbers raise concerns of possible weak Q4
Company says ‘errors’ were made on some financial data
MOL Global Inc, an e-payments company based in Malaysia, continued to face the backlash of disappointed investors as its share price plunged more than 80% from the opening price on its Nasdaq debut on Oct 9, 2014.
Trading of the company’s shares, which were halted on Nov 24, resumed on Monday (Dec 1), and tumbled by 58.8% to US$1.69 per share, with more than 9.3 million shares changing hands.
Based on Monday's closing price on the Nasdaq Global Market, MOL Global’s market capitalisation has depreciated by a staggering US$435 million (RM1.43 billion) since its initial public offering (IPO). It has a market cap of just over US$114 million.
The decline also means that Malaysian tycoon Vincent Tan’s approximately 45% stake is now worth about US$52 million (based on Monday’s closing price), versus US$247 million in early October.
The company’s stock price began its downtrend on Nov 21 after MOL Global made two surprising announcements – that it had rescheduled the date to release its third quarter results to Dec 3, 2014; and that its group chief financial officer Allan Wong had submitted his resignation due to personal reasons.
Its third quarter financial result was initially scheduled to be released on Nov 21 itself.
After MOL Global’s Nov 21 announcement, a few US law firms announced they had initiated class-action lawsuits on behalf of shareholders for alleged violations of US securities laws.
Meanwhile Deutsche Bank, which helped MOL Global in its listing exercise, on Nov 24 announced it had temporarily suspended its research coverage on the stock.
“We temporarily suspend our rating and estimates on MOL Group until further clarity can be provided regarding the company's announcement last Friday (Nov 21) regarding the delayed reporting of 3Q results and the resignation (of) MOL Group’s CFO,” it said in a research report, according to Reuters.
A look at the numbers
For the first nine months of this year, MOL Global registered a net profit (attributable to shareholders) of RM13.62 million, a 19% increase from the RM11.39 million in the same period a year ago. Revenue went up 15% to RM143.45 million. [RM1=US$0.30]
While these figures paint a rosy picture, industry observers are more concerned about the third quarter numbers.
For the third quarter ended Sept 30, 2014, net profit fell by 60% to RM2.43 million, versus RM6.3 million in the third quarter of last year. Revenue rose 5% to RM47.7 million during the same period.
“I think investors are concerned that the same trend could be repeated in the fourth quarter,” said the head of research at a Malaysian-based brokerage, who preferred anonymity.
MOL Global attributed the lower third quarter earnings to the lower gross profit contribution from MMOG.asia and higher employee expenses.
During the third quarter, MMOG.asia’s segment revenue suffered a 36.7% decline to RM3.9 million, from RM6.2 million in the same quarter last year.
“On the gaming front (MMOG.asia), the softness was primarily due to a rapid shift in gaming habits whereby consumers were spending more time playing on smartphones as compared with online [gaming],” MOL Global group chief executive officer Ganesh Kumar Bangah (pic) said in a statement.
“In order to address this, we are expanding our interaction with mobile app stores, game developers as well as other mobile partners,” he added.
The third quarter also saw an increase in MOL Global’s operating expenses by 8.1% to RM20.8 million, mainly driven by higher employee expenses.
Errors in Vietnamese subsidiary’s numbers
The company also announced that there were “certain errors” in revenue as well as direct cost and other ancillary expenses in its consolidated statements for the six months ended June 30, 2013 and June 30, 2014; the three months ended March 31, 2014 and June 30, 2014; as well as the financial year ended Dec 31, 2013.
It further explained that its auditors discovered that its Nganluong Joint Stock Company, its Vietnamese subsidiary, reported revenue from its payment business on a gross basis, and accounted for the corresponding fees payable to merchants being included in direct costs and other ancillary expenses.
“However, the company’s accounting policy is to account for such transactions on a net basis because the company acts as an agent with respect to these revenue arrangements, such as the corresponding fees payable to merchants should have been netted out of revenue and not included in direct cost and other ancillary expenses line items by equal amounts …,” MOL Global said in a statement filed with Nasdaq.
As a result of this error, the company’s revenue had been overstated by RM1.3 million or 1.7% and RM9.3 million (or 9.7%) for the six months ended June 30, 2013 and 2014, respectively.
Also, revenue has been restated by RM2.1 million (4.5%) and RM7.2 million (14.7%) for the three-month period ended March 31, 2014 and June 30, 2014, respectively. For the full year ended Dec 31, 2013, revenue has been restated by RM3.7 million (2.2%).
For more information, please refer to table below:
Meanwhile, the company reiterated that Allan Wong resigned as group chief financial officer due to personal reasons, and stressed that it was not related to any accounting or financial reporting matters.
“The company announced in its release on Nov 20 that Wong, who joined the company in August 2014, tendered his resignation as the group chief financial officer of the company due to personal reasons.
“Wong subsequently met with the company’s independent auditor to discuss the reasons for his resignation, and the chairman of the company’s audit committee also phoned Wong and spoke with him regarding his resignation,” MOL Global said in its statement.
“Wong reiterated in those discussions that his resignation was for personal reasons and was not related to any accounting or financial reporting matters.”
And the good news …
Not all of MOL Global’s business segments are suffering declines. During the third quarter, MOLPoints’ revenue rose 12.7% to RM30.5 million; and MOLReloads’ segment revenue jumped by 48.7% to RM3.6 million. MOLReloads rose marginally (3%) to RM9.4 million from RM9.1 million in the same quarter last year.
“Despite some volatility in the start of our life as a public company, we are pleased to report growth for our core, e-payments platform,” said Ganesh.
“On our core e-payment business and growth front, we achieved several key business milestones during the quarter.
“These milestones included growth for MOLPoints, MOLReloads and MOLPay; the completion of our PayByMe carrier billing acquisition; the signing of a new licensing agreement to launch a game in the Middle East and Brazil, as well as the signing of memoranda of understanding with several major retail chains to execute our gift cards strategy.
“Each of these milestones is vital for our growth strategy to expand into new markets, execute our mobile strategy, grow our online merchant network and accelerate real-world payments in all of our key geographic markets,” he added.
Ganesh also said that these initiatives are “key building blocks” that will help the company become the leading e-payment platform for digital services in emerging markets.
Share repurchase programme
MOL Global also announced that its board has approved a share repurchase programme. This would allow the company to repurchase, at any time during the next 12 months, an aggregate of up to US$15 million worth of shares.
“The company believes that the decline in the trading price of its American Depositary Shares (ADSes) since the announcement on Nov 20, 2014 has been excessive, and that the ADSes of the company represent good value at their last sale market price.
“In view of the aforesaid, the company believes that purchasing its ADSes at reasonable prices is an excellent use of the company's capital and will increase shareholder value over time,” MOL Global said.
Also, the company revealed that Ganesh has informed the board that he has plans to purchase MOL Global shares during the next 12 months at an aggregate of up to US$500,000 worth of shares.
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