Sparks Note: Research on SpeedRent

SPEEDRENT

Revolutionising Our Way of Renting RECOMMENDATION: THE PITCH Mobile technology, Proptech Started in 2015, SpeedRent was launched in 2017 as a vertically integrated online rental platform in partnership with Alliance Insurance. SpeedRent is an online platform for landlords to advertise and rent directly to tenants. It matches owners with tenants, facilitates direct communication online, embeds CTOS/CCRIS credit checks, online tenancy agreement and automated rental collection without a need for deposit. Its vision is to enable renting at no deposit, no discrimination, with a ‘hotel’ living lifestyle.

INVEST

SpeedRent’s niche is that it services the full rental lifecycle to give better tenant quality and property protection with convenience of a mobile phone. The current benefits are significantly more to owners, but we view this as strategic given limited resources and the need to grow listings first. As SpeedRent adds more services in future, we expect benefits to tenants to increase.

First-mover advantage is key to sales growth. No one in Malaysia offers similar service as SpeedRent though Ohmyhome (SG) likely does. While SpeedRent faces heavy competition from existing major property service providers such as Propertyguru, iProperty and iBilik for rent listings, it services full rental lifecycle (and others don’t) which at least, presents a strong JV potential with them.

We value SpeedRent at a success-failure probability weighted, pre-money value of RM51m (US$12m), with Success Case valued at RM216m (US$52m).

PitchIN investors come in at a pre-money valuation of ~RM38m which is a significant discount (upside) of 35%. Also, ICPS investment terms are favourable as its ranks ahead of founder’s shares, pari passu with VC/seed investors.

FOUNDER

VERIFICATION OF PROBLEM STA

Wong Whei Meng (CEO): Founder of SpeedRent, JomSave (an email marketing platform), Alfexi (CDN hosting firm) which was acquired by UK-based OnApp in 2011.

SpeedRent will significantly improve renting especially convenience, but it does NOT address the biggest issue – lack of protection for tenants

TRACTION / FINANCIALS

SpeedRent aims to solve discrimination, difficulty in rent execution, need for deposit and issues in living quality and tenant defaults. Save for tenant discrimination and payment default, the rest are trivial issues (e.g. online tenancy arrangements can be done on email/ WeChat).

Successfully raised RM3.8m (US$0.9m) from 500 Startups and 2 rounds of crowdfunding; 1.4x sales-to-cost; 5x sales-to-marketing cost

A major issue not identified and solved by SpeedRent is tenant protection. We found that preference for house ownership over renting are driven by lack of security in renting (i.e., quick evictions, with terms unfairly favouring owners).

FEASIBILITY OF SOLUTION We see major benefits from SpeedRent to renting (save time, financial protection from damage and defaults), but is significantly focused on owners

OWNERSHIP  Pre-money: Founder (80%), Fave Founders (18%), Others (2%)  Post-money: Founder (56%), Fave Founders (12%), Seed/Angels (14%), pitchIN Investors (8%), Others (10%)

CONTACT đ&#x;Œ? www.speedrent.com  hello@speedrent.com

Strength: Digitalisation of full rental lifecycle (i.e. rent listing to online rental agreement, automated payment and real time tracking), whereas other proptech companies mostly offers rent listing only (save for Ohmyhome – see next page). Owners and tenants benefit in convenience (mobile) and ease of use for the whole process. Owners benefit from lower tenant defaults through CTOS/CCRIS credit checks, with further protection from final month rent being non-refundable. Meanwhile, tenants receive stronger legal certainty as SpeedRent applies standard and transparent tenancy terms.

Unclear: We have yet to understand how SpeedRent features resolve discrimination as owners still control tenant selection. Also, the market offers same home insurances like Alliance, but potentially at cheaper premiums.

Weakness: Benefits to tenants are offset by cons. Tenancy agreement cost of RM399 paid by tenants is expensive given it is a digital standard contract. Also, requiring upfront first and final monthly rental payments are deterrents to tenants as normally, they are required to give first month rent as deposit only.

Another risk is that e-signature is still challengeable under Malaysian law.

Sparks Note

Independent, Insightful Research on Startups

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VALUATION

TOTAL ADDRESSABLE MARKET (TAM) Supportive medium-term TAM size of US$0.6 billion (approx. RM2.4 billion) Sector Outlook: Demand demographic age group is 20-34 years. This group will decline in Malaysia and Singapore but is offset by other ASEAN countries.

Potential is also limited by high home ownership in Malaysia and Singapore.

Short-term TAM: Malaysia first – there will be 7.3m Malaysian households with 21% being renters and mobile adoption is near 100% (2016: 98%) in 2020. This implies 1.5m renting household serviceable by SpeedRent. Assuming RM7,650 pa gross rental value (“GRV”) at SpeedRent’s 3.33% fee + RM399 per contract lease, Malaysia TAM is estimated to be RM982m pa (~US$236m pa).

Medium-term TAM: Focus on Singapore and Thailand. Singapore has 1.3m households with 9% renting and 100% mobile adoption in 2018. With estimated GRV of S$13,700 pa, Singapore TAM is estimated to be RM215m (~US$52m pa).

Thailand has 21.6m dwelling households with 20% renting and 57% mobile adoption (with internet) in 2018. With estimated GRV of THB15,600 pa (RM2,020 pa), Thailand TAM is estimated to be RM1,170m (~US$280m pa).

Methodology: We have applied the First Chicago Method as it most appropriately reflects post-revenue startups (i.e. SpeedRent).

First Chicago Method uses DCF valuation for 3 cases (Success, Limit, Fail) and apply probability weight to each case.

Valuation Outcome: We expect SpeedRent to sustain and grow in the medium term, but uncertain if it could expand outside of Malaysia.

Full and limited success case valuation at RM138-216m (US$33-52m), with total risk-adjusted value of RM51m (US$12m).

Scenario

TEAM ASSESSMENT

Prob.

NPV mil.

RM mil

US$ mil

Lack of direct expertise in real estate may hold back SpeedRent’s ability to compete, but it carries strong app content development experience.

Success (Base)

10%

216

52

Strength: Lean management (low cost); CEO’s experience in CDN and business leadership are supportive of SpeedRent’s platform development.

Malaysia Only

20%

138

33

Fail

70%

3

1

51

12

Weakness: Lack real estate experience and network and therefore, may struggle to identify property market needs and to resource for solutions effectively and efficiently. Sole reliance on CEO.

Probability Weighted:

Financial Results (Success Case):

SCALABILITY & COMPETITION SpeedRent’s ability to compete comes from offering much more than listing.

However, it faces major competition risk from ease of replicability.

SpeedRent aims to displace real estate agents: we have compared them: Estate Agent

 Cheaper at 1-month (8.33% GRV); average RM640 (higher for larger rents)

" Direct meeting to execute  Tenant & landlord negotiate own terms (legal risk)

SpeedRent

" Similar fee: 3.33% GRV + RM399/contract; average RM655

 Save time: Online execution, but tenant settles stamp duty alone

 Low legal risk: Apply transparent and standardised terms

Unique at back-end of proptech ecosystem: SpeedRent competes with other real estate listing sites for owners and tenants which is already saturated.

However, SpeedRent’s digitalisation of the entire rental process and added protection is a unique niche that differentiates itself.

Listing / Lead

Proptech Marketplace Contract Checks Pricing

Ongoing

Major Assumptions:  Sales: 1,500 transactions per month in FY2020, increasing to 10,000/month in FY2022 and then, 23% yoy growth declining to long term 5% post FY2028.  Geography: Circa. 20% sales from Singapore and 6-19% from Thailand.  Costs: FY2017 cost profile gradually aligns to public-listed property service firms over 9 years (sales-to-direct cost ratio from 1.4x to 3.3x and sales-tomarketing cost ratio from 5x to 13x).  Comparable Firms: Domain (ASX), REA Group (ASX) and Trade Me (NSX).  Discount Rate: 23.4% in Year 1-2, 17% in Year 3-5 and long term 12%.

Disclaimer

Barrier to new entrants: Low as SpeedRent platform is likely to be replicable at low cost, so first mover’s ability to capture market share would be important.

Sparks Note

Independent, Insightful Research on Startups

This report may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This report does not purport to contain all the information that a prospective investor may require. Before making an investment decision, the recipient must consider market developments subsequent to the date of this document, and whether the advice is appropriate in light of his or her financial circumstances or seek further advice on its appropriateness or should form his/her own independent view given the person’s investment objectives, financial situation and particular needs regarding any securities or financial products mentioned herein. Information in this document has been obtained from sources believed to be true but neither the author nor its associates make any recommendation or warranty concerning the financial products or the accuracy, or reliability or completeness of the information or the performance of the companies referred to in this document. This document is not an offer, invitation, solicitation or recommendation with respect to the subscription for, purchase or sale of any financial product/ securities, and neither this document or anything in it shall form the basis of any contract or commitment. Although every attempt has been made to verify the accuracy of the information contained in this report, liability for any errors or omissions is excluded by the author and its associates. As at the date of this report, the author does not hold any investment in Speed Rent.

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