Worth noting:

  • The Company’s main reason in public offering is to expand its client base to Asian region and to innovate its current business units
  • The Company is worth as high as P.017 to as low as P0.05
  • The Company appears to be overvalued at P2.96

The story behind:

Audiowav Media Inc. (WAV), founded on 2003, is a technology company that is primarily engaged in providing creative in-store radio and entertainment, operating and creating radio stations’ media content for high traffic venues, advertising, marketing, and offering media solutions to large and small store chains in the Philippines.1 It has three main business lines as illustrated below, which it intends to offer in Asian region such as Malaysia, Thailand, Vietnam, and China, as part of their expansion strategy.2

As a technology company, the Company’s success largely depends on its ability to cope with rapid technological changes and to stay as competitive in the industry. Since technological advancements are rampant in the country and the Company is the first to introduce Sensory Branding, its business model is highly exposed to duplication. To prevent its technology not to be replicated while maintaining good standing with its clients, the Company explicitly said that it intends to invest more in research and development and collaborate with other technology companies, in order to sustain its competitive edge in the market, further grow its business, and benefit from potential synergies from these companies. The Company also positions itself a competitive pricing to ensure that the availment of its products and services is more cost-effective than clients developing their own program.3

According to the 2015 audited financial statements of the Company, though the Company caters a wide range of clientele, it has a steady stream of revenue focus of about 9.3% in a large enterprise, and its contract contains a voluntary termination clause that is soon to expire on October 2017.1 Its non-renewal or pre-termination may have an adverse effect on the WAV’s financial condition in the upcoming years. According to the Company’s prospectus, this transpired them to diversify its client base, enhance business lines, and offer its services to Asian countries.

Moreover, the quality and safety of use of the devices, customized scents, and other hardware equipment of the Company is at risk since it relies on foreign suppliers that poses logistical risks on the timeliness of arrival and also bear additional importation duties costs.

The Company’s BOD and senior management is set out below: 4

According to the Company’s latest financial statements, the following are WAV’s major shareholders:5

Carlos Jose G. Hinolan founded Audio Wav Contractor Corporation in 2003, a pioneer in the industry of Sensory Branding in the Philippines. He has a total of 29 years of combined knowledge in the field of Music and Content Creation, TVC production, Radio, Brand Marketing, 113 Instore Marketing, Business development and Sales, Open source systems, Embedded systems designs, and Top level company management. This is worth noting as this will give us an indication on how the Company will achieve its plans for future business developments and how the Company will implement these in the continuance of its operations.

Valuation:

In my perspective, the value of WAV lies on the expected asset to be infused to the Company. Using the conservative assumption, we can arrive at an estimated book value of P0.03.

Using relative valuation, we could have price to book value (P/BV) range between 1.45 P/BV multiple of TBGI to 5.52 P/BV multiple of DFNN or a valuation of P0.17 to as low as P0.05.

Business development to watch for:

The effectiveness of the transmission of instructions from the Company to the servers of ‘Serve hub’ is dependent on the speed of broadband connection, thus we should watch for the Company’s implementation of their plan to integrate their business offerings by rolling out a private wireless network system that will connect all WAV devices,6 in order to prevent the possible lag effects of the slow broadband internet speed in the Philippines. We should also take note of the Company’s intention to build its own domestic manufacturing factory for the production of its hardware equipment to ensure timely delivery to its clients and avoid any interruption and impairment of delivery due to factors attributed to having foreign suppliers.

Disclosure: All that we say is not a recommendation to BUY or SELL but treat our blog as a tool to aid you in your investment decision making.

Position: I do not own any shares mentioned above but may consider to take position on WAV once its product offerings are innovative enough on my assessment.

Sources:

  1. AudioWav Media Inc. 2015 Financial Statements, Notes to Financial Statements, p.1
  2. AudioWav outlines expansion plans after IPO, https://goo.gl/qHxjBh
  3. AudioWav Preliminary Prospectus Dated February 16, 2017, Risk Factors, pp.35-36, https://goo.gl/wuWf5L
  4. AudioWav Preliminary Prospectus Dated February 16, 2017, Board of Directors and Senior Management, p.112, https://goo.gl/wuWf5L
  5. AudioWav Preliminary Prospectus Dated February 16, 2017, Security Ownership of Certain Record and Beneficial Owners and Management, p.117, https://goo.gl/wuWf5L
  6. AudioWav Preliminary Prospectus Dated February 16, 2017, Risk factors, p.37, https://goo.gl/wuWf5L

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