$1 Club, page-24654

@sincos I have to disagree with a lot of your sentiment and wording used. The thought that this move was "haphazard" is incorrect. The EIR report was done quite some time ago which would have directly related to this move. This is called due diligence. That to me doesn't seem very haphazard at all.

What about IDSB makes it a dinosaur business? Is it the fact that it was founded in the 80's? By that logic, Apple founded in 1976 and Microsoft founded in 1975 would also be classed as dinosaur businesses as well. Not in the finance sector I hear you say? Ok. CBA founded in 1911 and still going strong today. A business with a strong business model that has been around for three decades means it has done something right. That's one of the reasons this is a good investment. It has a strong established reputation within Malaysia.

Your other point regarding the use of cash. Cash is easily accessible, we see mass money being plowed into new Fintech companies all the time. There's no shortage of cash which can be raised.

When you consider the long term implications of the investment in IDSB there's a few points I believe you're overlooking. Covid has thrown a spanner in the works. The MCO halted onboarding in-store merchants which is a significant number. Generally when landing an in-store merchant there's possibility to upsell to online as well. Travel restrictions also make it difficult to expand into new territories. That's what I would call a strong headwind and difficult to overcome at this point in time. Cash sitting in the bank will not earn very much interest, so it's not working very hard just sitting there. There's only so much money that can be invested in growing the business locally. Which is why the move to spread the investment over two tranches is quite exquisite and anything but haphazard. If IDSB under performs then the 2nd tranche is decreased. If IDSB outperforms expectations then the value of the investment increases however the remaining balance to be paid does not. This leaves $30m AUD remaining in the IOU bank account for continued operations until the 6 months has lapsed at which time the business could raise more capital fairly easily.

Now factor in the BNPL competition that has already started to occur. There was a similar situation with ewallets. An overcrowded market caused Razor, a $15b billion dollar business to shutdown it's ewallet offering because costs were too high. This type of risk should also be considered for the BNPL market. How does a small business like IOU compete in this space without going under? Well the answer has already been presented. They invest in a business model which has lasted three decades. The AG code license held by IDSB allows civil servants to salary sacrifice. There's a lot of safety in that fact. With a 42% stake in the company IOU don't have control of the business but they do have influence on decisions. Do they need control? I mean it's lasted this long because it's been run well so why change it?

In Malaysia loan impairment has reached a 10 year high. This has been caused by the COVID-19 situation. Many citizens can't work and that means they can't pay all of the loan repayments. That means credit risk increases. As you would recall, IOU have partnered with CTOS which takes into account other financial factors for businesses and individuals which opens the door for IOU to service the unbanked portion of the population. When debt risks increase this would be flagged by CTOS. The real killer for a BNPL business is bad debts. This is something to avoid. I would argue that management have factored the increased debt risks now present in Malaysia and have made the best move they could by investing heavily into a secure business in IDSB. The added advantage of this move has also allowed IOU to cross-sell the BNPL product to those civil servants which would have the lowest risk of defaulting.

It's all well and good to have a truck load of cash in the bank to grow the BNPL business but it's a bad move to shoot yourself in the foot when credit risks are at a 10 year peak. There's a lot more to this move than simply spending 90% of cash on hand. This move is about securing the future sustainability of IOU. I wouldn't expect a further announcement clarifying the decision by management. The cards are on the table, it's up to you how you want to play them.