Remark’s New Fintech Deal & CP Group’s $12 Per Share Investment in MARK

December 20, 2017 at 1:46 pm Leave a comment

Prior to the market opening yesterday Remark Holdings (Nasdaq: MARK) announced a new Kankan Fintech agreement whereby Bank of China is creating a new product that will use the KanKan social credit data platform. We view this second agreement with Bank of China as a very big deal for several reasons:

1) it validates KanKan’s social credit scoring product, an offering that we see having a very high ceiling in a market where the middle class is expanding rapidly, there are no credit rating agencies and the population is many times greater than the pool of potential borrowers in the U.S.

2) CP Group, the $45 Billion per year revenue generating conglomerate that invested $10m in Remark stock at $12 per share this week is one of the largest shareholders of Citic Bank, one of China’s largest banks and the one who just did a big joint Fintech venture with Baidu (the Google of China) to offer a direct bank called Aibank. While this second deal with Bank of China and Remark’s Joint Venture with CP Group do not together guarantee that Kankan will get a deal with Citic or Aibank, we believe it increases the likelihood of that happening significantly.

3) If Kankan’s social credit scoring product effectively reduced loan defaults for Bank of China you can be sure that the other lenders there will look to add some kind of credit scoring to their own loan offerings to lower their risk and increase profits. There is no Facebook in China, but there are several significant social media networks. The biggest are owned by Tencent and Alibaba (two of the largest companies in the world) who have a deal in place with Kankan that gives Kankan access to social data from those key networks. This data set is unique and not available to other third parties, a huge differentiator for Kankan’s credit scoring product. We see this product as offering enormous upside and likely one of the biggest reasons that we expect Kankan to significantly outperform that $30m revenue guidance for 2018.

4) Management mentioned that they expect this new product to add $4 million in revenue over and above the CY 2018 revenue guidance of $30 million for Kankan. Thus, with this announcement they are raising their Kankan revenue guidance for 2018 by almost 15%. This is another good example of the approach Remark has taken with Kankan every step of the way – under-promise and over-deliver. This is the second time they have raised their 2018 guidance for Kankan and we believe it is likely that these numbers will still prove to be quite conservative.

In summary, Remark’s announcement yesterday indicated a strong third party (Bank of China) validation of the Kankan social credit scoring service, raised Kankan’s revenue guidance substantially for 2018 and more importantly, gave investors every reason to understand that Kankan’s ceiling is well beyond what investors are able to see right now. We hope that those community participants who were buying this stock at  $2 and $3 and held on for so long will not be so quick to take those huge gains off the table because we believe there is tremendous upside from the current $8-$10 trading range.  Do not be swayed by the day to day volatility, as there is clearly a huge effort underway to accumulate MARK shares by professionals (likely hedge funds and other institutions) right now.  Given what we now know about Kankan and also what we can see from the valuations VCs are putting on similar companies in the space, Kankan may be worth a multiple of the current Remark Holdings market cap.  CP Group’s purchase of $10m worth of Remark shares at $12 each on Monday will look like a bargain in a few months.

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