Singapore eCommerce Company to Benefit from eSports Boost

By  Joey Ho  |  Shares Investment  &ndash   Thu, Aug 18, 2016 3:30 PM SGT

Companies:

• $ MM2 Asia
• Yuuzoo Corporation Limited

With the gaming industry making waves across the globe, we take a look at Singapore-listed  YuuZoo Corporation (YuuZoo), which seeks to strengthen its position as a leader in China&rsquo s eSports sector.

The Business

Founded in 2008, YuuZoo combines e-commerce and social networking to create a third generation social networking service which is able to monetise online interactions for brands.

The group which grows its international business through a network of franchisees and partners now has access to over 118 million registered users across 164 countries.

On 12 August 2016, YuuZoo&rsquo s shares last closed at $0.163 per share, translating to a year-to-date loss of 15.5 percent. With the group&rsquo s shares having traded between $0.265 and $0.124 over the past year, the current price is 38.5 percent below the 52-week high and 31.5 percent above the 52-week low.

China&rsquo s Booming eSports Market

eSports, which involve competitive tournaments of video games, especially among professional gamers, has experienced strong growth across the globe. According to SuperData&rsquo s latest report on the eSports market, Asia remains the dominant region with an eSports market valued at US$328 million. The estimated value of the global eSports business is currently US$892 million and is expected to exceed US$1 billion next year.

In China, e-commerce giant Alibaba Group (Alibaba) recently launched AliSports World Electronic Sports Games (WESG), the world&rsquo s highest paying eSports tournament, with 1,200 planned events this year across 15 cities in China. Alibaba has since invested US$15.5 million in the tournaments which boasts a record payout of US$5.5 million.

AliSports Partnership

On the back of the eSports growth in China, YuuZoo&rsquo s Chinese joint venture, YuuGames, has signed an agreement with Alibaba to manage and run AliSports events throughout China and six other countries in South-east Asia.

While the actual value of the multi-million dollar contract has not been disclosed, YuuZoo is expected to gain a significant number of users while generating additional revenue from promotional fees, advertising revenue as well as e-commerce sales.

The partnership with Alibaba boasts strong tailwinds for YuuZoo as it builds a road for YuuZoo to discuss other opportunities with the Chinese powerhouse. Alibaba has also commented that in addition to the WESG, the group will also hold other eSports competitions, likely to result in additional business for YuuZoo.

As the WESG only commenced in April 2016, we might only see contributions coming in the next few quarters.

Strong Financial Position

While we are often favorable towards net cash companies, YuuZoo takes our preference to a new level.

As at 1H16, YuuZoo boasts a debt free financial position with total liabilities of $3.7 million comprising entirely of trade and other payables. While the group&rsquo s cash and short-term deposits stood at $4.8 million, making up just 19.7 percent of total current assets, the level is sufficient for the operations of the company.

In addition, the group&rsquo s debt free position lowers investment risk in the company as it is isolated from effects of interest rate movements. With such a financial position, the group is likely to be able to source for funds should the need arise, as well as obtaining funds at a lower cost.

Attractive Valuations

Currently, YuuZoo is valued at a trailing price-to-earnings (P/E) ratio of just two times and 0.9 times price-to-book. Similar participant in the industry,  mm2 Asia, is currently valued at a staggering P/E  of 46.1 times.

Although this could be partly attributed to the fact that YuuZoo has yet to declare any dividends, considering the strong bottom line growth, the group&rsquo s maiden dividends may not be too far.