Diginex (EQOS) - Investor Brief - The dark horse runs today

Update: More will be published on this counter tonight in terms of the investment thesis.

Currently trading pre-market: $11.67

Entry point: $10.50 - $11.5

Target Prices: $20.50 as first exit point, $23 as second exit. Over the long-term, we are looking at $62, $100.

Diginex (Ticker: EQOS, listed on NASDAQ) is an institutional-grade cryptocurrency exchange with headquarters in HKG and SG. While the focus is on institutional clients, there is a growing pool of retail clients all around the world. Their address in Singapore is: 6, Eu Tong Sen Street, Singapore 059817 (at Clarke Quay).

Investment Highlights:

1. Experienced management team. Chairman of the company is ex-UBS CEO, Mr Chi Won-Yoon. He had previously worked at 22 years with UBS, and has also worked with Merrill Lynch & Lehman Brothers (HK, NY). As Mr Yoon is Korean, he has been instrumental in pushing Diginex within the Korean market. They have a Telegram group which is actively managed: https://t.me/equoskr. At this juncture, it is also noteworthy that the executive team is very proactive in engaging customers on their 10000+ member-strong Telegram presence: https://t.me/equosio 

Indeed, the management team is very experienced, with many of them having distinguished careers in the accounting and finance sectors. This means that they can easily leverage on connections to establish Diginex as a leading cryptocurrency exchange in Asia and beyond.

Independent director Lisa Theng is Managing Director of an established law firm in Singapore, CNP Law and has been practising law since 1991. It is the duty of independent directors to flag out potential conflict-of-interest situations and other red-flags. She holds a Bachelor of Laws degree from NUS.

Director Andrew Watkins was partner with PWC in HK and Mainland China for 20 years. Director Paul Smith was CEO and President of the CFA Institute from 2015-2019. Prior to which, he was holding senior positions with the Institute. Smith is a fellow of the Institute of Chartered Accountants of England & Wales. Richard Petty works in academia and has been a key adviser to corporate projects in Asia. Petty holds a CPA (Australia/NZ). As far as the executive team is concerned, CEO Richard Byworth has 20+ years of experience in the financial markets, holding important positions in the Blockchain industry.  Being able to speak French fluently will grant Diginex potentially unfettered access to the French-speaking markets, in France and beyond.

2. Availability of crypto-derivatives such as futures and perpetuals. Diginex is the first NASDAQ-listed cryptocurrency exchange which offers crypto derivative trading on their institutional-grade trading platforms. There are Youtube videos which document the elaborate trade management and technical analysis systems that Diginex has to offer. Many cryptoexchanges, however, are very basic, with only spot trading options.

3. Coinbase IPO tonight, 14 April 2021. This widely-expected debut of the world's largest cryptocurrency exchange potentially means an unlocking of Diginex's value as the market discovers how to price cryptocurrency exchanges on NASDAQ.

4. Based on our discounted cash flow valuation (DCF), Diginex should trade at a minimum of $62. This unlocking of fair value can happen in a burst tonight, and then progressively over the next few weeks.

Figure A: Discounted Cash Flow valuation of Diginex, with very conservative internal rate of return, perpetual growth rate and with a 50% margin of safety. It is of note that we used 1/3rd of Management's forecast for their future revenue growth. This returns a fair value of $62.

5. Diginex has partnered with Treasury Management International recently: https://www.diginex.com/news/treasury-management-international-engages-diginex-to-put-bitcoin-on-balance-sheet/ This opens the door for Diginex to be the cryptocurrency exchange and cryptoasset storage facility on choice for companies who want to use Bitcoin as part of their treasury assets. A prime example is Tesla. We are likely going to see waves of corporates choosing to hold Bitcoin as a treasury asset, instead of cash.

6. From the technical charts, it is clear that higher lows are being formed. It is also evident that Diginex is a very powerful stock, able to move 30-50% within a matter of days, as a result of its small market capitalisation and low market float.

7. Diginex is operating in Singapore under an exemption under the Payment Services Act (under the Monetary Authority of Singapore). They have a parallel application with the MAS for a Major Payment Institution licence to enable Diginex unfettered access to the Singapore market. This will greatly unlock the value of the Company.

8. Increased 24 hour trading volume on the EQUOIS exchange, fast approaching US$100 mn/day. Note that this is before penetration into the retail US market.

9. The only NASDAQ-listed company which is producing their own crypto-token, EQO. EQO is an alt-coin and has reached an all-time high of $1.5. You can trade USD/EQO and/or get it when you trade more on the Diginex crypto platform.

10. A proactive executive team with great customer service is essential for retaining and attracting retail customers. This is evident on their Telegram group and their active engagement with users on Twitter. If this is how they help retailers with their requests, it is pellucid how they will (similarly) treat their institutional customers and their investors.

Investment Risk:

1) Competition from other cryptocurrency exchanges. However, this is mitigated by the fact that Diginex is domiciled in Singapore, a jurisdiction which puts a premium on regulation and consumer safety, and this is just one of many factors which show the company's emphasis on a fair, secure, transparent and secure cryptoexchange system which is institutional quality. Indeed, this is the differentiating factor which differentiates Diginex from other crypto-exchanges: security. transparency and quality.

Technical Analysis:

1. At an entry point of $11, Diginex will present 110% returns if it goes to $23. Considering our fair-value estimate of $62 (bear in mind that this is after 50% margin of safety), this investment can easily 5x your capital.

2. EQOS is currently trading above the Kijun line and below the Tenken line. So far as Diginex goes past the Tenken line (around $11.64), we can see a push up towards $14.20 (SSSA line), $15 (static support/resistance line), $16.50 (SSSB line), $20.50 (static support/resistance line) and finally to reach our eventual first target price of $23 (110% upside)

Figure B: Projection to reach the second target price of $23. An implied upside of more than 100%.

Conclusion:

 EQOS is a highly differentiated company within the crypto industry with diversified revenue streams. It prides itself upon fairness, transparency, security, service and institutional-grade performance. We are fully convinced that the market will continue to realise the potential of this Company and as a corollary, that the stock performance of this counter will soar. The unlocking of value of EQOS (Diginex) might happen over a few days, weeks or months. This is hard to predict. But the stock's performance has to reflect financial reality. So long as management can provide results, we will see the stock price reach $30 eventually (and even $100).