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Bisan Limited advances regenerated smartphone trading business

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Bisan Limited (ASX:BSN) is advancing its second hand smartphone trading business in Hong Kong with the execution of a service agreement with Yehuda Shmaya Szender, who will lead the contract team.

Bisan is targeting the smartphone trade-in market which is forecast to expand from 53 million units per annum in 2013 to 257 million units per annum by 2017.

Traded-in smartphones are professionally graded and categorised to most efficiently meet consumer demand for affordable regenerated second hand smartphones.

Szender and his team, who will manage and operate MyGeneration Smartphones can earn up between 60% and 70% of its issued capital if they can achieve sales performance targets over the five months of annualised sales of US$24 million to US$48 million with a net margin of between 4% and 10%.

Under the binding Memorandum of Understanding, the contracting party also has 30 days to decide whether to vend their interest in MyGeneration Smartphones for equity in Bisan Ltd for the same percentages of equity (60% or 70% depending on performance targets reached).

The vend is subject to capital raising of between $3 million and $5 million as well as all shareholder and regulatory and statutory approvals.

Bisan may be required to re-comply with Chapters 1 and 2 of the listing rules.


The Deal

Bisan has set up and owns 100% of myGeneration Smartphones Pty Ltd (myGeneration) in Australia, which in turn owns 100% of myGeneration Smartphones Ltd Hong Kong.

It will provide USD$300,000 in working capital to myGeneration Hong Kong to commence trading second hand and regenerated phones.

MyGeneration will grade all second hand phone from class AA to class E. It will be led by Szender and his team, who are experienced second hand smart phone traders.

Target markets are China and South East Asia initially

MyGeneration Smartphones Limited targets annualised sales of between US$24 million and US$48 million in professionally graded second hand brand smartphones.

Should the contracting team achieve US$48 million in annualised sales turnover at a 10% margin, they will be issued with a 70% equity in myGeneration Smartphones Ltd Hong Kong.

If the team meets the lower US$24 million annualised sales turnover target at a 5% margin, it will be issued 60% equity in myGeneration Smartphones Ltd Hong Kong.
   
Bisan has raised $100,000 on an unsecured basis at commercial rates of interests from major shareholder Polarity B Pty Ltd and a further $25,000 interest free from director David Herzberg to fund commencement of trade.

These funds will provide bridging funding pending completion of the offer and will be repaid from the proceeds of the rights issue, assuming that minimum subscription is achieved.

It is seeking to raise up to $785,515 through a two for three rights issue priced at $0.005 per share and a further $300,000 through a placement of 50 million shares priced at $0.062 each to professional and sophisticated investors.


Contract Team

Szender has supplier and client contacts around the world to source second hand smartphones and bring them back to Hong Kong where he also has contacts with wholesale buyers who purchase these phones for countries such as China, Vietnam, Pakistan and Dubai for sale into their respective retail markets.

He has agreed to contract his services for no remuneration though he will be entitled to reimbursement of out of pocket expenses for a period of 5 months to establish the business out of Hong Kong.


Second Hand Smartphone Market


The demand for second smart phones is a growing particularly in emerging markets where the cost of technology creates an opportunity for trade of second hand technology.

In addition, about 36% of Americans have traded in a smartphone online with the U.S. reCommerce market for high-end consumer electronics expected to grow to US$14.5 billion by 2017.

In 2013, the market was worth £6 billion in the UK and is growing at a rate of 12.5% per year.

Supply could come from telecommunications companies offering trade-ins to hook consumers into new contracts as they battle for market share.

Smartphone trade-ins expected to expand from 53 million units per annum in 2013 to 257 million units per annum by 2017.

Hong Kong has emerged as a hub of the international trade for smartphones.

The number of used smart phones sold by customers in developed countries and delivered to Hong Kong is estimated at just above 12 million a year, or 20-30% of all second hand smartphones distributed worldwide.

It is estimated that more than 100 trading companies handle used smartphones in Hong Kong and sell for around US$220 for brands such as Apples iPhone5. Samsung Galaxy are amount other popular second hand brand names traded.


MyGeneration Smartphones business model

MyGeneration Smartphones will source regenerated, second hand mobile handsets from a network of suppliers worldwide to its subsidiary based in Hong Kong.

Its distribution is targeted at the established network of Asian resellers, low income households, youth and emerging markets.

It will act as the conduit between the two parties, acting as a trader of sought after regenerated smartphones.

Expansion plans have been made for trading offices in Singapore and Dubai.

Traded-in smartphones will be professionally graded and categorised to meet consumer demand.

- AA+ Grade: Essentially brand new smartphones in excellent condition;
- A Grade: Very good condition;
- B Grade: Minor flaws and negligible scratches;
- C Grade: Possible dents around edges and screen scratches; and
- E Grade: Poor condition and virtually unusable.


Other Businesses

Bisan is also the largest shareholder with a 16.06% interest in P-Fuel Limited, which has developed a waste oil to fuel technology.

Earlier this year, P-Fuel was granted a patent in Russia for its technology, following on the grant of a U.S. patent for the conversion of certain waste plastics into fuel that was granted in 2014.

P-Fuel has an existing plant that uses far infrared technology to convert waste plastic and waste oils into fuels including diesel.

The plant has been designed to produce transport quality diesel and if this can be achieved, P-Fuel believes it will be a world first.

The initial aim is to produce red diesel, which has a large number of fuel and energy applications. The plant is yet to be installed and commissioned at a suitable site.

Bisan’s subsidiary Elken Tower Pty Ltd also holds 1,250,000 shares in Abilene Oil and Gas (ASX:ABL).

The company also has investments in Black Star Petroleum (ASX:BSP), Kaboko Mining (ASX:KAB), Lemarne Corporation Limited (ASX: LMC) and unlisted company Jernigan Commodities Pty Ltd.


Analysis

Bisan’s MyGeneration Smartphones business seeks to tap into the fast growth demand for professionally graded second hand smartphones in emerging markets.

As such, the service agreement with Yehuda Shmaya Szender places his extensive supplier and client contacts at the company’s fingertips.
   
This offers low start-up costs in return for between 60% and 70% equity in MyGeneration Smartphones should Szender and his team achieve annualised sales of US$24 million to US$48 million with a net margin of between 4% to 10%.

The regenerated smart phone business places Bisan on a potentially fast growth trajectory with growing cash flows and revenues. 

While not as well known in Australia, Chinese and South East Asian markets offer a massive upside for myGeneration to capture market share and sell regenerated smartphones to its buyers in China, Dubai, India and other emerging markets. 

In essence, Bisan becomes a "play" on not only growth in these markets but a proxy to tap growth in an established network of Asian resellers, low income households, and younger demographics.

Bisan also has investments in waste fuel and plastics to fuel technology company P-Fuel Limited; ASX-listed companies Abilene Oil and Gas, Black Star PetroleumKaboko Mining and Lemarne Corporation; as well as unlisted company Jernigan Commodities.

Proactive can see further share price growth ahead from the current $0.0121.



Proactive Investors Australia is the market leader in producing news, articles and research reports on ASX emerging companies with distribution in Australia, UK, North America and Hong Kong / China.

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