KVB Kunlun’s revised software deal gets positive assessment thanks to growing mobile use in PRC

Further to the announcement from Hong Kong-focused retail Forex broker KVB Kunlun Financial Group Ltd (HKG:6877) from February this year about plans to enter into a Second Supplemental Agreement with IT company Banclogix, the broker has earlier today published more information on the proposed revision. The opinions include a Letter by Octal Capital Limited (Octal Capital), an independent financial adviser to the broker. Octal Capital supports the proposed revision based on the latest trends in the retail FX industry in the region, especially the growing use of mobile apps in China.

Let’s recall that on February 12, 2018, KVB and Banclogix entered into the Second Supplemental Agreement to the Information Technology Services Agreement. The Second Supplemental Agreement is conditional upon the approval of Independent Shareholders at the EGM to be held later this month.

Upon the Second Supplemental Agreement becoming effective, the Existing Aggregate Annual Caps will be revised and the Revised Aggregate Annual Caps for the years ending 31 December 2018 will be increased from HK$24,500,000 to HK$37,500,000.

Importantly, pursuant to the revised agreement, Banclogix has agreed to construct a mobile trading application for KVB and to upgrade the SAP system for broker.

Octal Capital notes that the mobile trading application to be developed will enable KVB’s clients to place trade orders, access market information and manage their trading accounts, which will bring the clients more competitive client services and trading experiences. The SAP System Upgrade will improve the broker’s internal financial and budget control.

As stated in the 3rd Quarterly Report, KVB directors consider that the retail margin FX trading market will remain highly competitive in the foreseeable future. Based on Octal Capital’s discussion with the broker, the financial adviser notes that it is a common trend for financial institutions to provide mobile trading services in equity and FX trading market. KVB may become less competitive if it is unable to provide mobile trading services for its existing customers and potential customers. The company expects that the mobile trading application will enhance the attractiveness of the whole trading platform to customers, and hence will solidify the market position of the company.

According to the China Internet Network Information Center, being the administrative agency responsible for internet affairs under the Ministry of Industry and Information Technology of the PRC, the number of mobile internet users has steadily increased in recent years. The number of mobile internet users in the PRC as at the end of 2014, 2015 and 2016 were approximately 557 million, 688 million and 731 million respectively, representing a compound annual growth rate of approximately 14.6% between 2014 and 2016.

Given the consistent increase of number of mobile internet users in the PRC, KVB Directors are of the view that the mobile trading application will enable the broker to tap into the potential of the fast growing market of the mobile investment market in the PRC and capture the opportunities arising from the growing trend of mobile internet users.

Octal Capital stresses that having considered that (i) the mobile trading application will solidify the market share of the Group in the FX trading industry; (ii) the Mobile Trading Platform will enable the Company to capture the opportunities arising from the growing trend of mobile internet users; and (iii) the SAP System Upgrade will enhance productivity and efficiency of the Group and KVB Holdings, the financial adviser is of the view that the mobile trading application and the SAP System Upgrade are in the interests of the Company and the Shareholders as a whole (including the Independent Shareholders).