Observations from official meeting:
What I first noticed was that the average attendee was a middle-aged caucasian man. Number of attendees was roughly 30 excluding the staff of 'BoardRoom'. I arrived late and caught the closing of Paul Beddie's speech (PB). From memory he stayed to script. The mood was initially subdued with no questions when Riad Tayeh (RT) and Nicholas Aston (NA) ran through the resolutions which generally received overwhelming support, mainly due to proxy votes. Roughly 400 million proxy votes were already in favour of most resolutions with a remainder of 50 million votes open and a select few against/abstaining (this information can be obtained in the Results of Meeting).
The most notable event in the official meeting was before its closing when a major shareholder (40 million shares) commented on how he wanted more action and future announcements from the board to justify his support of the new company i.e what was there to stop shareholders from jumping ship post-consolidation. David Matthews (DM) and PB subsequently approached him after the meeting and engaged him in detailed discussion.
Conversations:
The majority of shareholders left after the conclusion of the official meeting which gave me an opportunity to have detailed discussions with the board and CEO.
1) Future of KKL
The directors were very optimistic about KKL's future because not only is the Malaysian project almost completed ('imminent'), with other RFID tag/transport solutions in the pipeline (Argentina!) but they are pleased with the potential synergies and growth that Isity will bring. RT was pleased with Isity's decision to take up performance shares instead of cash. DM was genuinely excited about the available opportunities available to Isity's business (SmartBuildings + Municipal Scale Infrastructure Projects) and that was reflected in his enthusiasm in our conversation. When asked about the ideal future for KKL, DM focused on how the company would have grown exponentially thanks to the revenue boost (minimum 100 million in FY2020), and in particular how the nature of the revenue would no longer be lumpy (sales of tags) and instead be recurring (royalties, contracts). This is especially encouraging as good businesses require consistent revenue to grow. He also made a very good point about the difficulty new technology companies have disrupting incumbents. Although KKL's BOR technology is superior and a more cost-effective solution to the E-tags currently in use on tollroads in Australia, the E-tag companies are already well-established so this business avenue would not succeed. Instead, DM believed that there were other ways of disrupting incumbents by either approaching different clients (Isity's approach of targeting certain cities in China based on their willingness and openness to new technology) or alternatively, taking advantage of niches in the market, hence CertainID.
2) CertainID
DM reiterated how potential increased revenue from the acquisition of Isity would fund the research of CertainID. When pressed about potential competitors such as Apple and Samsung's biometric fignerprint scanner on their phones, and alternative technologies such as Smart Contracts (powered by blockchain), DM was able to sell the unique value proposition of CertainID and explain its competitive edge in industry. In particular, he noted that blockchain technology while relatively secure is rather complex and on the other hand, the fingerprint scanners on Apple and Samsung phones retain the biometric signature and are still susceptible (WannaCry and Petya hacks only make the need for greater protection of our personal information more imperative). He argued CertainID would be simple yet cater to the security needs of modern society citing multiple examples of unprotected transactions and establishing the market for CertainID. I confirmed with RT that CSIRO's position regarding the dollar-to-dollar funding for CertainID had not changed.
3) Nature of business
I pressed RT on frustration of some shareholders regarding the delays to projects in the South-East Asian regions. He stressed that Western and Asian cultures have fundamentally different ways of doing business. Western societies prefer immediate results (an example being sales of tags) whereas Asian cultures focus more on the establishment and development of strong business relationships. In other words, KKL's future in Asia is dependent not on how many tags are being sold but how many strong business relationships are created which in turn open the road for future growth.
4) Announcement frequency
I also pressed RT on the lack of announcements in the past year and in general. He emphasised how doing business in Asia is heavily dependent on the discretion of the client such that any major announcement by KKL, in its position of a publicly listed company, to the market requires the permission of the client. So it is not a case of the board "sitting on their hands and doing nothing" but rather they are not able to make major announcements on a frequent basis (and this is compounded by the processes in Asian business). In other words, patience is key.
5) Daytrading effects (dark pools)
There was extensive discussion about the post-market trades with volumes less than marketable parcels (most notably the $12 trade). The directors shared the frustration of holders, being unable to track down the responsible trader (hidden behind pseudonyms). Instead, they hoped that the 10 to 1 consolidation would mitigate the effects of potential daytraders or algorithms and encourage genuine investment in the future.
6) CEO - David Matthews
Before speaking with DM, RT commented on the advantages that DM had brought to the team, namely DM's ability to "get deals". This can be attributed to DM's experience working in Asia and his previous roles at IBM and Accenture. It was an absolute pleasure speaking to DM and during the conversation, he came across as genuinely passionate about the company. When asked about his rationale for taking shares as compensation, he explained that 1) he viewed it as a personal opportunity and 2) he had great faith in KKL (with something along the lines of "I'm not here as a fly in and out to take the money and run"). DM is not a salesman, he is someone who gets things done quietly.
Sometimes its hard to see the value of a company like KKL. It's been daytraded, pumped and dumped and beaten up in every way possible on the ASX (in fact recently it was deemed the worst stock in a HC poster's portfolio). However, being able to speak to the CEO and feel his enthusiasm and passion for the business is one of the most reassuring things for a shareholder.
Overall conclusion:
I am optimistic about the future, after being a shareholder for over three years and finally being able to meet the directors and CEO in person to understand their motivations, hopes and plans for KKL in the future. As per Paul Beddie's speech today, there is over 1.3 billion dollars worth of projects in Isity's pipeline and if the synergies between KKL and Isity are realised, combined with successes in the RFID business, we are looking at a very valuable company in the future.
KKL is a moonshot at being the next big technology company but boy am I happy to be on this ride.
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