InfoVine (115310): Leading Business With Durable Competitive Advantages Trading Less Than Cash & 5x Earnings

InfoVine has an EV of -75B. In other words, Mr. Market’s offering this market-leading, durable, sticky business for less than free. At the same time, the company trades less than 5x earnings, generating significant cash-flow.

INFOvine.co.,Ltd. operates in the mobile, security, gaming, and entertainment fields. The company offers UBIKey, a mobile phone certificate storage service; and Superpass, a login service. It is also involved in the planning and sale of music albums; development and management of rookie singers and actors; engagement and production of OSTs; management of actors; engagement in TV programs, movies, commercials, entertainment programs, etc.; investment and production of movies; and investment in the multimedia industry, as well as performance and broadcast content production activities.

The company was founded in 2000 and is based in Seoul, South Korea. In short, InfoVine is the LastPass of Korea. They help users protect their personal data, passwords and information via one password for all logins.

InfoVine has an EV of -75B. In other words, Mr. Market’s offering this market-leading, durable, sticky business for less than free. At the same time, the company trades less than 5x earnings, generating significant cash-flow.

InfoVine has two business segments:

1. Mobile Phone Certificate Storage
2. Game Development

While I don’t really care about the game development company, it’s worth nothing that it brings in some (albeit lumpy) cash at the end of the year. Regardless, we get both businesses for less than free. I can’t be too picky.

The Mobile Phone Certificate Business

Here’s how management breaks down their Mobile Phone Certificate business:

Currently, our mobile phone certificate archiving service is affiliated with three domestic telecommunication operators such as SK Planet, KT, LG U +, and commercial banks, local banks, securities companies, credit card companies, insurance companies, online e-commerce, government public institutions, cyber education institutions, etc. By utilizing a public / private certificate in the form of an electronic signature, we provide services for a variety of needs, including online transactions and online Internet services that require personal identification in the face of the user.

The company’s mobile phone certificate storage business is the largest (and leading) operation in Korea. Check out this quote from the company’s semi-annual report:

“In the case of mobile phone certificate storage service market, we are in the form of exclusive market competition, and we are leading the market as a market pioneer. In regard to mobile phone certificate storage service, our preoccupation of the market has a significant meaning in terms of entering into the market of latecomers.”

One logical argument would be that in a technology-based industry, rapid change prevents InfoVine from dominating the market. After all, it takes one kid with a bright idea in a garage to up-end an entire industry. But the mobile certificate storage business is first a service business. In fact, it helps to think of this industry through the lens of Bitcoin.

Many Bitcoin bears argue that no matter how great the currency is, it won’t integrate with society. Why? Because every vendor in the world would have to accept bitcoin as a form of payment. Until that happens, utility remains low.

Here’s how management describes their certification storage business (emphasis mine):

“Interoperability of each storage media is an important factor in websites that require identity verification through an accredited certificate according to the accredited certificate system. Based on commercial banks, we provide services for cell phone certificate storage services, and even if similar services are launched on the market, if they do not start services to all financial institutions and authorized certificate users at one time, Service is not easy.”

Another Barrier to Entry: Patents

The company has two patents which further bolster its market position, preventing competition from entering:

• Official Certificate Management method
• User authentication method using mobile communication terminal

According to the report, the company can exercise their exclusive rights in relation to new products entering the market.

Sales Breakdown

Over 40% of the company’s sales come from their bank division. Bank customers are sticky. Once a bank implements a back-end tool like mobile certification, the odds of them switching are low. Even if a competitor had a better product for a cheaper price. Why? Because doing so would require all their customers to switch mobile certification companies as well. Who would want to inconvenience one’s customers like that?

R&D To Expand Capabilities

InfoVine bet big on R&D in 2015-2016 to expand their mobile certification product. Some features from those investments include:

• Integration with Linux OS
• Integration with Mac OS
• Integration with Internet Explorer, Chrome, Firefox, Opera, Safari and Edge
• Development of additional security token smartphone app

Flawless, Fortress-Like Balance Sheet

The company has 15.7B Won in cash and 76B Won in current assets. They have a mere 3B Won in total liabilities giving them a net cash position of 12.1B Won. The company also has a NCAV of 72.9B Won.

The company trades for 20,750 and has 2.176M shares oustanding for a total market cap of 45B Won. That means the company has nearly 27% of its market cap in cash.

Mr. Market Offering Business For Less Than Free

When you do a valuation of InfoVine, you realize the absurdity of Mr. Market’s current valuation. We already know the company has 27% of its market cap in cash on the balance sheet. But things get better. InfoVine’s 73B Won NCAV gives us 33,547/share. That’s a 65% increase from today’s trading prices.

But what’s crazy is that InfoVine is a good business. It’s not a melting ice cube. The company sports over 60% gross and pre-tax margins, pays over 4% in dividends and has no debt. InfoVine did close to 10B Won in operating profit and 5B Won in net income for the first half of 2019. All those earnings and cash flow, Mr. Market’s valuing at -25B Won.

The company trades at 4x last year’s operating income.

Everything about this company screams cheap. Very cheap.

Risks

New Competition
While this is normally a risk companies face, InfoVine appears sheltered from competition. Between their patents, sticky end-customers and first-mover advantage, we think InfoVine will stay the dominant player for decades.

Increase Debt Burden
Right now the company’s balance sheet is strong. Very strong. Any damage to the balance sheet via increased debt should be noted as a risk.