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Substantial CRM SaaS Market Potential Validated by Tencent Strategic Collaboration Company Overview

iClick Interactive Asia Group Limited was founded in 2009, headquartered in Hong Kong, and listed on Nasdaq in 2017 under ticker ICLK.  The company operates as an independent online marketing technology platform that possesses omnichannel marketing capabilities, and is a provider of enterprise data solutions connecting global marketers with audiences in China. ICLK has been engaged in programmatic advertising-centric digital marketing businesses to provide digital marketing, data analysis, display solutions, software development, and other services.

ICLK was led by two experienced executives in China’s TMT industry.  The CEO holds a PhD in computer science from Tsinghua University, and is an ex-Tencent engineering expert for technology development.  The company has a very strong shareholder base, e.g. Baillie Gifford – one of top shareholders of Tencent and tesla, Fidelity Management & Research, Fidelity International, Barings, Manulife, etc.

The company serves customers worldwide, and has international business presence since its inception.  It also has strong partners in SE Asia, e.g. BTS And VGI in Thailand, making it interesting for ICLK to handle ChinaAsia cross border business and expansion.

With a decade’s experience in decoding profiles of 940 million customers in China, ICLK has expanded its footprint into CRM SaaS business since late 2018 to address merchants’ demand for O2O integration, data analytics and other CRM SaaS fields. In FY19, the company generated SaaS business revenue of near US$200mn with an adjusted EBITDA of near US$6mn under the Enterprise Solution segment, which contributed approx. 5% of its total revenue, and has grown more than double to over 10% in 2020, in a COVID-19 world where digitalization is accelerating the imperative, and private domain traffic is becoming an increasingly important channel for merchants to grow their business.

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Investment Highlights

Tencent-related preferred status warrants valuation upward revision – Along with Weimob and Youzan, iClick is recognized as a core SaaS provider to Tencent’s mini-programs. iClick’s Tencent-related preferred status should warrant upward valuation revisions to bring its share prices on a par with Weimob and Youzan, especially measured by P/S and EV/S ratios.

Cash-cow marketing-tech business augmented by SaaS enterprise solution – On top of the cash-cow business in marketing technology, ICLK’s high-margin SaaS business in enterprise solution offers huge growth potential.  The company has been making money, putting it in a resilient position in a volatile market and macro environment.  ICLK’s enterprise solution business is already growing rapidly, accounting for over 10% of total revenue in 2020, and is expected to grow more than double year-over-year, reaching 20-30% of total revenue in 2021.

Tencent strategic collaboration for SaaS-based smart applications co-developments – ICLK and Tencent International Business Group (TIBG) join hands to co-develop SaaS-based “Smart Retail” and “Smart Travel” solutions, as well as promote “Smart Conference” via Tencent Cloud conference solutions.  putting the company on path to embrace abundant long-term opportunities ahead.

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Investment Details

I. iClick was named Tencent IBG’s Platinum Partner. In Jefferies’ report dated in August, iClick is regarded as the core SaaS provider to Tencent’s mini-programs, along with Weimob and China Youzan.  Nurtured on its close relationship with Tencent, iClick is installing mini-apps on Tencent’s WeChat platform, setting the company up for abundant long-term opportunities ahead.

Though still early in monetization of enterprise solutions, being regarded a preferred status related to Tencent likely will put iClick’s valuation on par with Weimob and Youzan.  Basing on the closing prices on Oct. 8, Weimob and Youzan stocks were traded at a Price over Sales (Trailing 12-month) ratio of 10.92x and 13.22x respectively, while CLCK was traded at a P/B ratio of merely 2.07x.  Such wide valuation gap should warrant an upward revision in iClick’s stock price to bring its valuation on a par with Weimob and Youzan, implying tremendous upside potentials.

China Renaissance initiated a research report on ICLK with a BUY rating with a price-to-gross profit-derived target price of $12.9 in September, following AGP (Alliance Global Partners) raising the target price to $12 from $10, and implying a near 80% upside from Oct. 8 closing price.

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II. Leveraging vast amount of consumer data to successfully expand into the high-growth, high-margin B2C CRM SaaS Enterprise Solutions market.

As a programmatic advertising industry leader in China having generated US$641mn (+60% YoY) in gross billings over 3000+ advertisers, gathered data of 940 million Chinese consumers, and a decade’s experience in decoding consumer profiles, iClick is well positioned to take shares in the CRM SaaS enterprise solutions market.

Backed by strong data insights, ICLK entered enterprise solutions in 2019, where the SaaS product is built on WeChat mini-program technology architecture, enabling customers to fully explore the e-commerce functions embedded in WeChat mini-program, and should ultimately provide a subscription to iClick’s data management platform.

As users value the company’s ability to track changing online consumer behaviors in China, demand for ICLK’s AdTech platform continues to grow. Early demand trends for ICLK’s enterprise solutions business are very promising, and are expected to continue accelerating.  With the capital from equity offering raised recently, the company has a lot of dry powder to ramp its high-margin enterprise business even faster.

Analysts from Jefferies, AGP, and China Renaissance all agreed that ICLK’s SaaS business has huge growth potential.  This enterprise segment of SaaS is set to grow tremendously in the next 2-3 years, well positioning the company to capture the substantial upside.

ICLK’s enterprise business has three times gross profit contribution than the marketing technology business, which is already a cash-cow.  Rapid enterprise ramp is expected to drive the company’s revenue and profitability growth. Enterprise Solutions business segment revenues are expected to reach ~28% of total revenue in FY22, up from the current 10% and growing at a ~120% CAGR over FY19-FY22E.  Subsequently, management increased its adjusted EBITDA guidance to $9$12 million, up from $7$10 million.

ICLK’s marketing technology is a cash cow business. Together with the high-margin SaaS business, the company’s financial condition is getting even stronger and resilient, despite in a volatile macro environment.

III. iClick and Tencent announced strategic collaboration on smart solutions co-developments.

iClick and Tencent are at the onset of join-hands to co-develop SaaS-based “Smart Retail” and “Smart Travel” solutions, as well as promote “Smart Conference” powered by Tencent Cloud conference solutions. This is the first initiative iClick and Tencent have collaborated on, following iClick being named Tencent IBG’s Platinum Partner, with the promise of more cooperative opportunities in the future.

The SaaS-based offerings are part of iClick’s newly developed Enterprise Solutions, which integrate Tencent Cloud’s AI, chatbot and facial recognition technology to empower WeChat Mini Programs. The new solution will enable brands to effectively create more business opportunities in international markets, through comprehensive consumer intelligence benefiting from iClick’s supreme data capability that covers 98% of Internet users in China.

With experience as a pioneer in providing SaaS-based solutions for the retail/travel industries, together with Tencent’s massive ecosystem and advanced technologies, iClick’s bespoken SaaS solutions are well positioned to benefit from the huge international retail and travel market potential, where SaaS solutions provide a powerful way for overseas marketers to reach the massive number of Chinese outbound consumers.

As part of this agreement, iClick will also leverage its customer base to serve clients with smart conferencing solutions through Tencent Cloud Conference platform. Built on Tencent Cloud’s cutting-edge technology and experience, Tencent Cloud Conference is widely used in various business events, bringing online, digital, and paperless experience to customers’ efficiently organized corporate events. iClick will also accelerate promotion of its Marketing Solutions in Asia as the Company continues its evolution into a fully integrated marketing and enterprise cloud platform.

The new solutions will initially be available in Hong Kong, South Korea and Thailand, followed by further expansion to additional APAC countries in the future, affirming the company’s conviction in the substantial upside potential of its Enterprise Solutions. Particularly throughout the global COVID-19 pandemic, iClick has gained recognition from clients, especially in challenging industries such as travel and retail.

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