YPB Group (YPB) is in the early stages of commercialising its patented, non-destructible, anti-counterfeiting technology used for brand protection and product authentication. YPB raised A$3.7m at IPO (A$0.20 per share) and a further A$6.3m (A$0.30 per share) by way of placements. The company has three contracts expected to generate total revenue of CN¥318m (A$66m) over four and a half years. Our DCF valuation of A$0.37 per share assumes that the current contracts are rolled over. Further value should be created through contract wins (A$0.08 per share for every $10m of additional revenue) and profitable growth in operations.
YPB has developed a three-pronged strategy designed to offer a beginning-to-end solution to brands and governments combating counterfeiting. YPB has leveraged off its certified business status in China to secure key contracts for its patented, invisible, non-destructible tracer and scanner technology. It is poised to develop its Brand Reporter technology platform which identifies, tracks and reports counterfeit products within supply chains and at point of sale. It will also seek to utilise the expertise in its two recently acquired businesses – security consulting and print management – to sell corporates and governments the whole anti-counterfeit process from embedded tracer to its smartphone solution for counterfeit detection.
YPB is in the early stages of developing its business strategy. It has successfully secured an estimated A$26m in revenues over the four- and five-year terms of two of its contracts. YPB has also secured a three-year contract for its tracer and scanners with the Guangdong National Tax Bureau for the bureau’s printed tax receipts, which is forecast to deliver another A$40m in revenues. Our forecasts only include these contracts and an assumption that they roll over. Brand Reporter and the print integration business offer potential upside to earnings and valuation
A further capital raise of ~A$10m will fund cash requirements in FY15 and FY16. This may overhang YPB’s share price near term, but should assist in stock liquidity by expanding the current ~25% free float. Our DCF valuation of A$0.37 per share is underpinned by secured contracts (A$0.22 per share) and contract renewals (A$0.15 per share). Upside is expected from new contracts (A$0.08/share for every A$10m of additional revenue) and profitable operations.