With Nasdaq trading scheduled to commence on Tuesday June 6, 2000, it is necessary to provide some background for the inevitable individual wanting for some basic understanding for what FECC is all about.
With the Nasdaq listing we should begin to see a flow of information including some independent analyst's
recommendations and research. We should then be able to accumulate some fresh material for routine posting.
The best in depth analysis comes from a buy recommendation put out by VMR Capital Markets, US. in late March.
VMR Capital Markets, US.
1901 Avenue of The Stars, Suite 1500
Los Angeles, CA 90067
Tel.: (800) 900-7000 ú Tel.: (310) 286-2211
Fax: (310) 286-2373
First Ecom.com Inc.
Initial Coverage March 29, 2000
Sector: Internet / e-payment Solutions
Recommendation: Buy
Price Target: US-$ 35.00 ? 44.00
Current Price: US-$ 23.75
Market Capitalization: US-$ 431.9 mln.
OTC Bulletin Board (Ticker): FECC US
High / Low: US-$ 34.00 / 4.41
Berliner Freiverkehr (WKN): 919283
Analyst: Todd M. Ficeto
Researchmanagement: Rolf Kunz ? Sven Jochim
First Ecom.com, Inc.
With this report we are initiating coverage of the Hong Kong-based First Ecom.com, Inc. We are rating the stock a
buy with a target price range of US-$ 35.00 - 44.00. First Ecom.com, Inc is a promising company that, as an
infrastructure provider, operates in a lucrative space in e-commerce. The firm is a worldwide provider of e-payment
solutions through the electronic and automatized processing of payments on the Internet. The firm serves banks,
other financial institutions, and affiliated merchants through a self-operating payment gateway that acts as a portal
to fully process credit card payments. This service provides secure and cost-efficient processing of B2C
e-commerce. First Ecom.com derives its revenues from fixed components such as the implementation and the
operation of e-payment solutions and from variable components, which rely on trade volume from the affiliated
merchants. The firm will participate directly in the expected increase in e-commerce revenues in Asia.
The realization of the firm?s strategy depends upon intensive cooperation with partners in order to position itself
early on in the booming Asian e-commerce market and to influence industry standards.
Investment Case
? First Ecom.com?s e-payment solutions offer for the first time the possibility of tax-neutral commerce and credit
card payments in multiple currencies.
? The firm has already made partnerships with renowned firms (Microsoft, Intershop, Federal Express, Sun
Microsystems etc.) ? a necessity for early positioning in the Asian e-commerce market.
? The Asian e-commerce market, as a target market of the firm, is forecasted to experience enormous growth in the
coming years.
? First Ecom.com offers banks and other financial institutions the opportunity to process credit card payments in
e-commerce within the framework of outsourced projects. The firm is therefore in the position to realize significant
scale effect.
? Having concluded a successful, early private-placement financing round led by Prudential Securities, the firm has
excellent liquidity to launch its expansion in Asia. Entry into the European and US markets will be its next target.
? We identify significant potential for the share price within the next 12 months since our valuation techniques
indicate a price range of US-$ 35.00 - 44.00 as appropriate to reflect the company?s fair value.
? With the establishment of new cooperative agreements we expect a continuous flow of positive news in the near
future. This expectation is backed by the companyïs intention to list on Nasdaq.
First Ecom.com, Inc.
A start-up with a promising strategy and technology
The Hong Kong-based firm is a worldwide provider of systems for the electronic and automated processing of
payment transactions. The firm offers e-payment solutions to banks, particular financial institutions, and merchants
through a self-operating ?payment gateway?. The central focus of the firm is the secure processing of e-commerce
transactions over the Internet for purchases from private consumers (B2C). In addition, First Ecom.com offers
e-payment solutions in other communication channels, like mobile telephones, PoS systems, and automated teller
machines. The e-payment solutions permit efficient, real-time processing of payment transactions in multiple
currencies. The solutions make use of common security
standards for transactions on the Internet and are characterized by simple implementation and low cost of
ownership. The firm also offers tax-neutral offshore transactions to affiliated merchants in conjunction with its
partner, the Bank of Bermuda.
Despite its brief history, First Ecom.com has forged cooperative agreements with renowned IT partners like
Microsoft, Sun Microsystems, Sterling Commerce, and Digital Island. The firm?s current market focus is Asian
e-commerce, which is forecasted to experience explosive growth in the coming years. In these markets, First
Ecom.com seeks to achieve the first-mover advantage and position itself in promising strategic partnerships prior
to operating in the European and American markets.
With an experienced management team ?
Gregory M. Pek is the founder and CEO of First Ecom.com. He was active as director of a number of public
companies in the USA, Canada, and Hong Kong. His spectrum of tasks encompassed activities in finance, M&A,
and regulatory issues.
Ravi Daswani is senior vice president, COO, and co-founder of First Ecom.com. Before his tenure at First
Ecom.com, Inc., he had extensive experience in building Internet companies in Asia. Mr. Daswani was the
managing director and principal of one of Hong Kong?s fastest growing ISPs, Asia Internet Limited.
John Brewer is the company?s CFO. He has over 20 years experience in major public companies in Hong Kong,
Australia, and the U.K. Along with his main functions, Mr. Brewer has worked on committees for the reform of
companies and securities laws.
Raymond Chan is Director of Bank Processing Systems. Mr. Chan?s experience includes 17 years with VISA, last
as executive Vice President and General Manager of their Greater China Region. He was instrumental in building
VISA?s Asian business from ground zero to a dominant marketshare of over 70%.
The board of directors is supported by a management team with years of experience in the areas of Internet,
payment processing systems, and international corporate management. The team has worked with firms such as
Microsoft, VISA International, and USWeb/CKS, which is one of the worldwide leaders in Internet consulting.
? future success is based on First Ecom.com?s value-added e-commerce services.
Along with value-added e-commerce services, First Ecom.com offers its customers pure payment processing for
purchases on the Internet which are settled through the payment gateway. In addition, the service will be connected
to the Merchant Account Reporting System (MARS) and Electronic Bill Presentment and Payment (EBPP).
The core of First Ecom.com?s e-payment solutions is the self-operating payment gateway. Payments for online
purchases via the Internet are processed through this portal. An essential feature in this process is the encryption
of the credit cardholder?s identity and creditworthiness, which prevents e-commerce crimes and protects the
merchant. The personal data must be also encrypted in case of possible crimes committed from the merchant?s
side. First Ecom.com thereby provides the solutions which take the first step to make a security check when a
consumer buys a product on the Internet. The given credit card information from purchasers will be in encrypted
form and transferred directly through First Ecom.com?s payment gateway. The fact that no card information is ever
stored on either the merchants? websites or the payment gateway is a key feature. The 128-bit encryption is made
according to the widespread and simple SSL standard which is integrated with every Internet browser. The
encrypted data are then passed on to a payment switch which is used to identify the type of card and the same of
the card holder?s bank (issuing bank). The information is given automatically to the issuing bank (like Visa,
MasterCard, and American Express), which has provided the customer with the card and a credit line. The result of
this credit check goes back through the same payment gateway and leads finally to the completion or the rejection
of the transaction. In the case of authorization, the customer?s credit line is reduced by the issuing bank. The full
processing of the online purchase will go through in a second step again through the payment gateway. The
Merchant Account Reporting System (MARS) supports this process with the First Ecom.com system. Here the
software solutions with the merchant can be taxed on Internet-based transactions on the homepage and monitored
with the help of the integrated information system. As a result of this procedure, the payment of online purchases
can occur through the customer?s issuing bank. The corresponding information passes through the payment
gateway to the merchant?s bank and the cardholderïs bank. This total process, from the sending of the credit card
data from the cardholder to the release of the complete settlement, occurs within seconds. This significant
e-commerce market is growing with the charge and settlement system of Electronic Bill Presentment and Payment
(EBPP). The system represents a shift from paper-based charging to a fully automated, electronic one via the
Internet. With this feature, First Ecom.com can offer value-added solutions to address individual customer needs
and special systems. The rationalization effect of this process reduces the cost of customer services compared to
traditional methods.
An exclusive characteristic of the current e-payment solutions is the online payment transaction using multiple
currencies, which is quite advantageous in the Asian market. In addition, the partnership with Bank of Bermuda
offers a tax-neutral payment process for online purchases with credit cards from Visa or MasterCard. Along with
this advantage, the implementation of e-payment solutions for merchants? e-commerce systems is simple, so that
it is possible to process a transaction within a few seconds.
First Ecom.com is delivering a dynamic picture, ?
The goal of First Ecom.com is to be the leading provider of e-payment solutions in Asia. This goal means
concentrating not only on e-commerce via the Internet, but also on m-commerce (via the PoS systems). First
Ecom.com therefore strives to deliver a complete system that integrates processing systems with greater speed
and with the required security. Along with this, the firm is developing its own payment switch to gain exclusive entry
to the cardholderïs bank network.
As in the US which has taken the leading role in the e-commerce trends, success depends on speedy positioning
in the market. This strategy relies on entering into partnerships and cooperative agreements, which the firm is set
to deploy. The firm has already moved forward to provide synergies with its partners. Intershop?s shop systems are
integrated with First Ecom.com?s e-payment solutions. Microsoft is developing an interfacing line of products for
Internet sites. Sterling Commerce, which will establish electronic business platforms in Asia, uses First
Ecom.com?s payment processing solutions.
First Ecom.com aims to be ahead of all ISPs and operators of purchase platforms, as there is the potential for a
wide spectrum of e-payment solutions and the opportunity to take advantage of the expected scale effect. Likewise,
there is the opportunity to take over technical payment settlement systems among e-commerce businesses since
banks would like to offer their customers these services but in the framework of outsourced projects. Merchants
can experience a multiplier effect as banks such as the Korean Hana Bank apply for this system.
A milestone in the development of First Ecom.com is the close relationship with Bank of Bermuda, which has a
joint venture (?First E-commerce Data Services Limited?) as well as an equity holding in First Ecom.com. Through
this relationship, First Ecom.com can provide tax-neutral processing and a distinct competitive advantage.
? which is reflected in the recent stock performance
At present First Ecom.com is listed on the OTC Bulletin Board of Nasdaq under the ticker symbol FECC and has
shown in the last weeks an impressive stock performance. The stock also trades on both the Berlin Stock
Exchange and the Bermuda Stock Exchange. The largest trade volume, however, will be on Nasdaq. Since the
initial equity issue in February 1999, the average daily trading volume was 143,000 shares, but this number has
increased to 250,000 shares in the year to date. It trades on the Berlin Stock Exchange with an average daily
volume of 30,000 shares, which is significantly less liquid.
Stock Performance since inception
Up to now, financing of the firm Hs come from private rounds. The firm acquired $30 million in private financing in
March 2000. The major shareholders are the founders, several institutional investors, the rest of management and
the Bank of Bermuda. The rest of the shares are in the form of free float. For the near future, the firm has applied for
listing on Nasdaq.
Market Analysis
As an infrastructure provider, First Ecom.com is in a lucrative interface of e-commerce ?
The Asian market for e-payment solutions is in the initial stage. The firm?s solutions are available to the region?s
smallest banks and financial services firms. The coming months will see the rise and implementation of similar
systems. In addition, First Ecom.com seeks to process Internet-based credit card payments in the form of
outsourced projects from banks and other financial services institutions. Apart from
Asia, the European e-commerce market is the next goal for First Ecom.com to reach in the next few years. The USA
e-commerce market will grow further, albeit comparatively slower, as the rest of the world tries to catch-up.
Unlike the USA and Europe, the pure plays have smaller share of the total e-commerce market in Asia. The
providers that have more marketing channels currently dominate the Asian e-commerce market. These market
participants will also emerge as click-and-mortar firms, since they operate their e-commerce business on a
physical basis as well. According to a study of the Boston Consulting Group, about 25 of these market participants
make up about 60% of e-commerce sales in the various Asian countries. This environment promises additional
opportunities for First Ecom.com?s e-payment solutions. Notably, forecasted e-commerce revenues in Asia during
the coming years will increase by about three times
(150%) in comparison to the number of regular users of the Internet (about 45%).
The charts illustrate the growing acceptance of users which reflects the continual need of the Internet. The
consumer behavior towards online ordering and payment along with comparatively more intensive Internet use will
be intensified. This growth of acceptance has already been displayed in the USA.
ActivMedia Research forecasts the service of processing credit card payments via the Internet to take 48% market
share of online solutions in the 2000. In 1999, this share was at 22%. The development of general e-commerce
transaction systems will proceed with a worldwide penetration rate from 20% to about 33%.
The security solutions provided by the company are currently based on the SSL and OpenPGP standards. SSL is
relatively easy to use and according to a recent study by ActivMedia Research the security solution for more than
half of the world-wide websites. The major reason for the high penetration rate is its integration in all popular
Internet browsers. The SET standard, which challenges these technologies is used on less than 10% of the
international websites. This standard offers a higher level of security, however its implementation and maintenance
are more complex. Despite its relatively small market penetration many e-commerce solution providers are already
offering SET compatible solutions. The break-through of SET is predicted for the next two years, but even VISA and
MasterCard concede that SET in its current form will not work. There is a significant effort being made by mayor
credit card companies at developing new security systems. Until they are developed, SSL is expected to continue to
be the dominant encryption standard.
? but the competition is stiff.
The competitive environment is tenuous. The global spread and use of the Internet has come in waves, which has
developed analogously to the cutting-edge US market. The market for e-payment solutions in the USA is a
heterogenous competitive environment. One competitive group is the software giants, like IBM or Hewlett Packard.
They have either partially developed their own products and solutions or bought out smaller firms during the early
consolidation process (for example, the acquisition of Verifone by HP) so as
to use a platform for further technological development. A second potential competitive group is the cooperatives to
which many financial services firms and merchants groups belong. The main purpose of this joint venture is to
achieve a scale effect through the common development and use of the processing system. A third group is the
firms that concentrate exclusively on the development of e-payment solutions as well as the operations of payment
gateways. Similar to other areas of the Internet, the trend towards
consolidation and divestitures is occurring more quickly. Different drivers in the industry are rapidly positioning in
the markets as well as distributing their own solutions. Finally, the current strategy is to position the firm in Europe
and the USA after being established in Asia.
SWOT Analysis
The strengths are found predominantly on the production side, ?
- First Ecom.com has positioned itself well through alliances to benefit from the e-commerce boom. These close
partnerships are on the technological and marketing sides.
- The e-payment solutions make it possible for the first time to process payment transactions in multiple currencies
and in a tax-advantageous region.
- The firm has a management team richly experienced in the Internet business and payment processing systems.
- The e-payment solutions can be implemented very easily and justify themselves with a small cost of ownership. A
fast-spreading establishment of the system will likely lead to a large scale effect.
- First Ecom.com?s electronic payment solutions protect partners in an electronic transaction process by hiding
information which is not intended for them. Thus they provide an effective security precaution against
non-authorized use of credit card data.
? while the weaknesses are predominantly in the firm?s brief history
- First Ecom.com?s revenues depends on the merchants? e-commerce turnover. There is an indirect impact on the
firm?s revenues by increasing the marketing expenses.
- First Ecom.com is still a start-up that has not yet generated operating profits. A downturn in the market, new
technology, or stronger competition could lead to ending operations.
- Most of the products of First Ecom.com are based on developments of third parties, i.e. the company?s
independence in terms of technology is limited.
The opportunity lies in an enormous, rapidly growing e-commerce market, ?
-The firm operates in an extremely promising market. The highest growth rate for this segment of e-commerce is
expected to be in Asia.
- The present market demand for expertise in IT fields and the know-how at First Ecom.com |
