SEDANIA Innovator Bhd is expected to benefit from the fast-growing mobile telecommunications industry in Bangladesh, which has a population of about 160 million — the eighth largest in the world. This could be the reason for the overwhelming response to its initial public offering (IPO).

The public portion of nine million shares, offered through Sedania’s listing on June 29, has been oversubscribed by 20.3 times. There were 8,103 applications for a total of 191.6 million shares.

Sedania is a mobile service enabler or aggregator to subscribers in Malaysia and Bangladesh. At the moment, its core business is the airtime sharing platform called ATS Solutions, which allows mobile users of the same network to transfer airtime credit instantly by keying in a single digit.

Sedania raised RM19.56 million by selling 51.47 million new shares at 38 sen apiece, implying  a market capitalisation of RM76 million upon listing, according to its IPO prospectus dated June 9.

About RM6.8 million, or 34.5% of the proceeds, will be used as working capital within 24 months, RM4.1 million will be for marketing expenses, RM4 million for capital expenditure and RM2.5 million for R&D.

Sedania partners mobile network operators (MNOs) such as Celcom Axiata Bhd, Maxis Bhd, Robi Axiata (Axiata Group Bhd’s subsidiary in Bangladesh) and Tune Talk Sdn Bhd.

According to the association of mobile operators, GSM Association, Bangladesh’s mobile penetration rate is relatively high compared with other emerging markets. Subscriber penetration was 40% at the beginning of 2014 and is expected to grow to 50% by 2020.

At home, demand for mobile content and solutions is expected to grow at a compound annual rate of 8.4% between 2014 and 2019, driven by rising subscriptions, virtualisation of physical functions and increased usage of mobile content and solutions, according to independent market research consultant Protégé.

However, the industry that Sedania is in is highly competitive, with about 400 players, including MNOs, aggregators and content developers and providers.

Inter-Pacific Research’s analyst Brian Yeoh, in a June 18 report, says MNOs are capable of becoming aggregators, content developers/providers, thus increasing the competition. The rapidly changing technology and low entry barriers also pose a threat to Sedania’s ATS Solutions.

While Sedania’s strong relationship with Axiata Group provides a competitive advantage, the concentration of customers means that the company’s growth rate will be highly skewed towards the trend at Celcom and Robi.

The unimpressive subscriber growth at Celcom may adversely affect Sedania’s top line, says Yeoh. Between 2010 and 1Q2015, Celcom’s average usage per prepaid user per month grew only 7.6% to RM170 million.

Nevertheless, Yeoh forecasts that Sedania’s bottom line will grow 37% in the financial year 2016 ending Dec 30, underpinned by rising mobile phone subscription and penetration, replacement of physical functions with virtual possibilities and greater usage of mobile content and solutions.

“We believe Sedania’s share price is fairly valued using two valuation methods based on FY2016’s earnings per share of 4.4 sen,” he says. He ascribed the company a 10% premium to MTouche Technology Bhd’s price-to-book value of 2.13 times and M-Mode Bhd’s price-earnings ratio of 8.69 times.

This article first appeared in Capital, The Edge Malaysia Weekly, on June 29 - July 5, 2015.

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