✨ BJCORP and the Mythical 3,000% Upside - Part 4
How BJCORP can potentially challenge Shopee Malaysia for the domestic e-commerce marketplace crown
Over the past several equity research reports about BJCORP, we explored the conservative base-case investment thesis for BJCORP with a 300% upside - and performed a deep-dive three statement analysis into the conglomerate.
However, until now we have omitted the low-probability blue-sky scenario investment thesis with a 3,000% upside - which we first discussed in Part 1. However the stratospheric upside warrants that we at least explore its feasibility.
In this report, we shall do some spelunking into how BJCORP could potentially pull together the dizzying array of business assets under its stable to form a credible challenger to the domestic e-commerce arm of SEA Ltd - Shopee Malaysia.
We also perform a cursory valuation analysis which attempts to determine whether attaining a 3,000% upside in this scenario is realistic or not. Spoiler: it is.
In my Part 1 report, we saw how BJCORP’s newly minted CEO Jalil publicly opined in a radio interview that he thought BJCORP’s intrinsic value was worth closer to RM 7.50 per share. The obvious spanner in the works here is that that valuation stands in stark contrast to BJCORP’s current share price of just RM 0.25 per share - implying that there exists a potential 3,000% upside.
Since then, I’ve also been repeatedly hinting at how I thought that one of their listed Berjaya companies SEM (7-11 Malaysia) was the Rosetta Stone under Berjaya’s huge stable of assets which could potentially unlock this magnificent upside. Just to illustrate how colossal a 3,000% upside is, that’s a 222% CAGR even if it took them 10 years to unlock this stratospheric valuation. You could invest $50,000 today and retire a millionaire (post-inflation) after 10 years - without having to lift a finger in between.
In this final conclusion to wrap up our bottomless analysis into BJCORP over the past month, we are going to explore how this mythical otherworldly upside could potentially be achieved.
However, before we do that, I need to highlight something first. If you recall, my BJCORP investment thesis in Part 1 did not promise a 3,000% return - in fact, it merely justified how an investor in BJCORP’s shares today could achieve a 300% return. That stark 10x gap was the difference between the latter’s base-case scenario’s valuation, and the former’s blue-sky scenario’s valuation.
Hence, while I do think that it is possible for BJCORP to attain its fabled 3,000% upside, I want to make it clear that I’m not saying that it is definitely going to happen. While I’m pretty confident about the investment thesis behind the 300% upside, I only believe that this 3,000% upside thesis is just that - a blue-sky scenario investment thesis. It will work in the best of circumstances where all the stars align, but you shouldn’t be counting your chickens on it hatching.
Having said that, we don’t even need this 3,000% upside to materialize in order to justify an investment in BJCORP’s shares today. Remember, the 300% upside thesis is fairly likely to materialize - as I’ve quite clearly demonstrated in Part 1. Furthermore, as I’ve also shown there, there is also very little risk inherent in the investment idea on top of that. Just because we only get a 300% upside and not 3,000% doesn’t mean that we shouldn’t be grinning from ear-to-ear - that’s still a 5-year CAGR of 25%.
However, as we’ll see below, neither does that mean that the potential for a 3,000% upside is unlikely. In fact, I think there’s a pretty decent chance of it, even if it doesn’t actually end up materializing. Like I mentioned earlier, all I’m saying is don’t count your chickens before they hatch. Only expect a 300% upside from this investment - but if you do eventually get the 3,000% upside, consider that a bonus from papa Buffett.
Alright, now that we’ve gotten all the disclaimers out of the way, let’s dive in.
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How BJCORP could plausibly achieve its 3,000% upside
While BJCORP is indeed a conglomerate, it is not so in the traditional sense of the word. Normally, when we picture a conglomerate, we think of a gigantic monolith of an organization with operations spanning at least 5-6 different sectors. However, as we saw in Part 1, most of BJCORP is made up of just 2 sectors - the Consumer sector and the Real Estate sector.
Obviously, both of these umbrella sectors do contain many different types of subsectors under them - e.g. their Consumer segment includes auto dealerships, convenience stores and restaurants; while their Real Estate segment contains property development companies and hotels. However, there are enough similiarities between these subsectors that the Group CEO can afford to consolidate them into one mental model whilst planning out corporate strategy - rather than having to iterate through each of them as completely independent entities from one another.
The big business segment under consideration here is the Consumer segment. BJCORP’s Consumer segment consistently makes up around 80% of Group revenues on a normalized basis (FY21: >86%), while their Real Estate segment usually makes up around 10% of Group revenues (FY21: 9%):
Given the outsized contribution of the Consumer sector to BJCORP’s revenues, we would quite naturally expect that any enormous upside (e.g. 3,000%) from their currently ongoing turnaround efforts should come from this business segment. This is not to say that there aren’t any gems hidden under their Real Estate segment - as we’ve explored in Part 1, some of their incredibly valuable prime real estate assets which they acquired 20 years ago and are holding on the books at cost can be further developed to yield stratospheric levels of GDV based on current market value.
However, the organic strategic inference to draw would be that they will still be focusing the bulk of their efforts on turning around and developing the Consumer side of the conglomerate going forward - since they already have decades of experience in this sector. One of the examples that I gave in Part 1 (and which was mentioned by Jalil himself in his 3-year Strategic Framework for BJCORP’s turnaround) was mining the treasure trove of customer data that has been sitting dormant and unsynergized within all the respective retail units of BJCORP over the past decade. Think restaurants, convenience stores, gambling, trading, logistics, etc - a veritable dragon’s hoard of customer information gold springloaded with latent potential energy, meticulously stored over the past 10 years but untapped, just biding its time for its eventual explosive release.
However, despite all these advantages, for awhile I was still unable to piece the jigsaw puzzle together to figure out where that mythical 3,000% upside could possibly come from. Some analysts I knew pondered over whether it could come from developing their prime real estate assets (as I’ve alluded to earlier) - but the highest ceiling valuation we could potentially come up with on that was only about RM 2.00. Obviously synergizing their dormant assets and trimming the wanton levels of bloat within the conglomerate would help improve valuations immensely - but certainly not by 3,000%.
After spending a couple of months cracking my head over this question - eventually I landed on a theory which could potentially yield this moonshot level of returns. Keep in mind that I’m not saying that this will definitely happen - it is simply the only theory I currently have which could potentially come anywhere close to helping BJCORP attain a 3,000% upside. But it’s actually a pretty good theory.
A domestic e-commerce competitor to Shopee in Malaysia
After waging several years worth of wars of attrition, the domestic e-commerce sector in Malaysia has been whittled down to just two dominant players holding most of the sector’s market share - Lazada (which is backed by Alibaba) and Shopee (which has ties to Tencent). As most of you should know by now, Shopee is the e-commerce arm of the US-listed SEA Ltd.
While Lazada is far from irrelevant in this space, anyone who has been following Shopee should be aware that it has managed to garner most of the domestic e-commerce sector’s market share. I can’t recall exactly what Shopee’s market share in the Malaysian e-commerce sector currently is, but last I checked it was way north of 50%.
The main reason behind this meteoric rise in Shopee’s domestic market share in Malaysia (as well as across the rest of ASEAN) is because it has been going full Tropic Thunder on promotions. I’ve actually managed to capture a scrolling screenshot of one of their more manic days in November 2021:
While this particular day was an unusually exciting one for Malaysian e-commerce consumers, Shopee has been pretty much giving ~1/4 of the aforementioned frequency of promotions to its patrons every single day since mid-2020. That explains why its US-listed parent company SEA Ltd’s quarterly revenues have been growing like gangbusters - and why its earnings have been pummeling the ground at the same rate.
Anyway, we’re not here to talk about Shopee - I just wanted to give you visibility into what the Malaysian e-commerce sector looks like right now. The reason why this is relevant, is because I think that the natural trajectory that BJCORP can potentially steer its gargantuan Consumer portfolio towards is to start a domestic e-commerce marketplace competitor to Shopee Malaysia. And as I’ve mentioned earlier, it is the only thing I can imagine which can even come close to a ten-foot pole’s distance of ever allowing BJCORP’s shares to achieve a 3,000% upside.
I’d like to invite you to pause here for a second, and think about the potential involved if BJCORP were to successfully start and execute on an e-commerce marketplace competitor to Shopee Malaysia. Let’s assume that this successful venture ends up splitting the domestic e-commerce sector’s market share 3 ways - with Shopee Malaysia holding 50%, Lazada Malaysia holding 20% and BJCORP holding 20% (with the remaining 10% being split amongst other competitors). We’re talking about BJCORP having a 20% market share in the Malaysian e-commerce sector, which generated RM 279 billion (USD 66 billion) in cumulative sales during 3Q21 - or over RM 1 trillion (USD 250 billion) in annualized sales for the whole of the calendar year 2021:
This would imply that BJCORP could potentially amass over RM 222 billion (USD 53 billion) worth of annual e-commerce GMV by 2026 (i.e. RM 279B x 4 quarters x 20% = RM 222B). Also, keep in mind that we’re simply extrapolating from the current RM 279 bil of aggregate domestic e-commerce sales in 3Q21 - that figure is likely to grow by leaps and bounds in the future, as the domestic e-commerce sector gradually cannibalizes its B&M brethren going forward.
Even if were to be conservative and assume that BJCORP only ever manages to attain a 5% take rate into perpetuity (Amazon: 8%-15%), we’re still talking about incremental annual e-commerce revenues of RM 11 billion (RM 222B x 5%). Just to put that figure into context, BJCORP’s latest FY21 revenues were just shy of RM 7.5 billion - and their highest historical revenue ever achieved was RM 9.8 billion in FY19. So if BJCORP can add another RM 11 billion worth of e-commerce sales to their top-line, we’re talking about a 200% increase in revenues - assuming that they can claw just 20% of domestic e-commerce market share. And as the title of this report alluded to, I actually think they have a decent chance of challenging Shopee Malaysia for the domestic e-commerce crown.
Of course, this all assumes that this new BJCORP e-commerce marketplace venture actually manages to achieve 20% of Malaysia’s domestic e-commerce market share in the first place - or that they even go in that direction at all. Obviously, there’s no point in entertaining this topic if we assume that they never decide to enter the e-commerce industry - at which point we should just be satisified with our 300% upside. But as I’ve mentioned above, this is the natural trajectory for their business segment which currently represents 85% of Group revenues (i.e. Consumer) - and also by far the most profitable direction I can possibly imagine them potentially pivoting their immense and currently unfocused resources towards.
If we assume that BJCORP’s management likes money, attempting to enter the domestic e-commerce marketplace is really a no-brainer for BJCORP. We shall see why below - given their existing stable of business assets.
Quick industry primer of the E-commerce Marketplace sector
Firstly, let us explore the feasibility of BJCORP making a play for the highly competitive domestic e-commerce sector of Malaysia, where many have tried and failed to claim a slice of the lucrative pie before - and where Shopee Malaysia currently towers above all as king.
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