Googling AsiaEP

By James S

ASIAEP Bhd (ASEP) has been in the limelight of late, with the company projecting itself as a potential homegrown `Google’, the widely successful giant global search engine player. Apart from the potential `home run’ in its share price performance coupled with foreign support for its earnings growth, it’s not surprising that investors are increasingly taking notice of the company, judging from the strong run in the company share price in the last two months (see Chart 1).

It has been reported that Goldman Sachs has emerged as one of the substantial shareholders of the company, with a more than 5% share. Some investors are probably betting that the company could be a potential acquisition target similar to companies like Unrealmind Interactive and UBS Corporation, which were previously Mesdaq-based companies taken over by foreign interests. Whatever the reason for the interest in the company, can ASEP really live up to its potential?

Search engine services

ASEP is principally involved in the provision of eCommerce solutions and eMarketplace platforms for both local and international enterprises. The company commenced its operations on March 1, 1998 and obtained its Multimedia Super Corridor (`MSC’) status on March 4, 1998. ASEP went on to list at an IPO price of RM0.30/share on the Mesdaq board of Bursa Malaysia on Jan 16, 2004, and currently enjoys tax-free status until March 2008.

Via Defined Search Sdn Bhd (DSSB), a wholly owned subsidiary, ASEP’s principal business is basically to provide Internet search engine services. DSSB was granted MSC status on Jan 18, 2007 and enjoys tax-free status that is renewable up to January 2017.

The evolution of the Internet

In the past few years, `search’ has become a universally understood method of navigating the Internet. Web traffic drove the late 1990s’ Internet mania. Even after the burst of the Internet bubble, `search’ has continued to flourish as an application and business model for Internet users’ never-ending search needs (see Chart 2 & Table 1).

Search Engine (SE) is actually a software program that searches documents for specified keywords and returns a list of documents where the keywords are found. Typically, an SE works by sending out a `spider’ to fetch as many documents as possible. Another program called an `Indexer’ then reads these documents and creates an index based on words contained in each document. Each SE uses a proprietary `algorithm’ to create its indices so that ideally, only meaningful results are returned for each query. Today, search drives the Internet revolution. Google has enjoyed a meteoric rise for being the first company to have created the first intelligent SE via the clever application of algorithm, which harnesses and leverages the intelligence already on the Web.

From a useful service, `search’ has grown to become the de facto interface for making sense and efficient use of the incredibly rich information in the Internet world. Today, Google and Baidu (China- based player) very much dominate the English and Chinese generic SE respectively. However, both do not cater to the specific needs of business surfers, which constitute approximately 64% of the surfer population. Obviously, a void is waiting to be filled, and ASEP is ready to play that role, says K&N Kenanga Research in a recent report on the company.

The breakthrough in business model

According to the company, it has spent the last 10 years developing the Specific Community Search Engine (SPSE), essentially a wider vertical SE via ITAH, which was established in 1997 to assemble the world’s specific communities. The algorithm breakthrough came in 2005. After extensive testing, ASEP says it is now ready to commercially launch its SPSE to capture a slice of the rapidly growing global paid search ad spending pie.

Should one check out ASEP’s website http://b2b.itah.com, and test drive it together with Google’s generic SE by typing in keywords that may link to any product, one may find that the return results from ASEP’s SE offers `simpler-yet-more relevant’ results from the perspective of a businessperson. As such, K&N Kenanga believes that ASEP’s SE ability to enable the global business-to-business (B2B) community to perform faster, easier and more relevant search should attract significant business- related traffic, given time and the right promotion, thereby enabling a lucrative paid-search business model a la Google’s to be adopted.

From the advertisers’ perspective, the research house says that a B2B SE offers the following advantages vis-a-vis a generic SE:

* More effective exposure due to better community focus and clearer target traffic;

* Better quality clicks – less click wastage and higher click- through rates;

* Lower costs mainly due to lesser competition for keyword bidding; and

* More measurable advertising results.

All in all, advertisers are likely to realise a higher return on investment (ROI) on their advertising dollar should they opt for B2B SE, as compared to generic SE, it adds.

A well-established niche market player

The target market of ASEP is the global B2B community, which currently has relatively few competitors. According to K&N Kenanga, most existing vertical SEs are industry-specific whereas ASEP’s SE works across many different industries. Nonetheless, ASEP is no new kid on the block. It has been operating a successful B2B eMarketplace for the past 10 years with wide market coverage and a diverse customer base. According to US-based Ranking.com, ASEP has been consistently ranked among one of the top-10 eMarketplaces in the world.

In addition, the research house also reckons that this market segment is relatively small for Google to warrant close attention but is huge enough for ASEP. Moreover, it is likely that Google may be keener on video download and search service on television (TV) after its recent US$ 1.65 billion acquisition of YouTube, an online video-sharing site. Furthermore, building a robust B2B SE also requires a clever integration of technology and B2B-related experience. Google may have an advantage in the former but not necessarily in the latter, opines K&N Kenanga.

The prospects

So, how big exactly is ASEP’s marketplace? According to ZenithOptimedia, a global surveyor, the global advertisement spending on paid search, which is the largest sector in online advertising, is worth about US$ 14.0 billion. Out of this, B2B constitutes about 16% of global ad spending on paid search, hence translating to a potential global market of US$ 2.24 billion. Assuming a mere 0.2% and 0.5% of the FY08 and FY09 global B2B paid search market share would lead to a 184.7% and 115.2% y-o-y growth in net profit to RM10.1 million and RM21.8 million respectively for ASEP, estimates K&N Kenanga (see Table 2).

Financials & valuation

As such, the research house believes that ASEP could see a quantum leap in its revenue and profitability in the years ahead, courtesy of the new business model built upon the ITAH SE.Apart from the high scalability of the business model, the fee structure also plays an important role in boosting the company’s bottom-line. It has been reported that the old eMarketplace business model basically relied on a physical sales force to recruit domestic Small & Medium- Sized Enterprises (SMEs) and then help promote them to overseas buyers for a fixed yearly subscription fee, which ranged from RM500 to RM50,000/year, depending on the type of packages subscribed to. Under such circumstances, ASEP never got to share the benefit of additional traffic.

However, by changing to a new business model of Pay Per Click (PPC), as popularised by Google, this should enable ASEP to:

* tie its revenue with the traffic brought to B2B sponsors – a win-win value proposition;

* source business globally through much more efficient online sales and marketing; and

* address new markets beyond those industries that are currently covered.

All in all, the company should see a significant cost efficiency gain starting from 4QFY07.

Conclusion

Just like many other information technology-based players, ASEP has the potential to grow itself into a really big player, given its established B2B search engine niche. The company could certainly get a significant boost if it can get some foreign tie-ups to expand its operation to another level.

In line with the entry of Goldman Sachs, K & N Kenanga Research reckons that the confidence level of investors should increase, given that the foreign investment banker was the one who brought Google to listing. The research house has upgraded the target price to RM1.97 from RM0.99 previously.

However, the company certainly needs to live up to its promise as there has been too much hype and little progress among Malaysian- based IT players in breaking into the international market. Given its good headstart and established niche, ASEP may be in a good position to do just that.

(c) 2007 Malaysian Business. Provided by ProQuest Information and Learning. All rights Reserved.