Eric Cheng, the CEO of Malaysian used-car marketplace Carsome, found himself in the hot seat at the recent Tech in Asia Conference that took place in Kuala Lumpur.
In a conversation with Tech in Asia’s CEO Willis Wee, he took on questions about finding product-market fit, navigating competition with peers like Carro, and also about Carsome’s public listing ambitions.
Picking an exchange
Regarding an IPO (initial public offering), Eric shared, “We stand a good chance to list in a very near timeframe.”
So, the questions now are where they plan to list, why, and when.
“I think a lot of conversations going on in the past couple of years have been centred around exchanges that have high liquidity and can fetch better valuations. And they’re mostly not from here, not from Southeast Asia,” Eric commented.
These may include US or Hong Kong exchanges, or perhaps even Japan’s JPX or Australia’s ASX.
Eric admitted that these foreign exchanges were what the company was looking at as well, because these are exchanges that seem to promise more liquidity, more investors, and a wider pool of comparable names in the market.
But starting last year, there have been more and more conversations about how Southeast Asia can be a very good destination to support what companies and founders are looking for.
“Even closer to home, Bursa Malaysia has been becoming the most vibrant exchanges in the region or possibly even in Asia,” Eric stated. “It’s one of the exchanges that can give you the kind of multiples that can rival what you’re seeing in other markets, even in the US.”
He looked to companies like Farm Fresh and MR.DIY as positive examples of the local exchange’s potential.
“I think being a homegrown company over here, being supported by a lot of Malaysian investors, MAVCAP in the early days, Khazanah to some of the others, even the private sectors’ strategic investors, it has been also been giving us the kind of stance that here could be a good destination.”
But that said, Carsome doesn’t want to set their sights on just one exchange. They really want to make sure they are listing in the right place.
And as for the timing, Eric said, “Next 12 to 24 months, hopefully.”
Bursa has a slight edge
There’s no clear number one right now, in terms of what exchange the company is going for, Eric clarified.
“We know what we want,” he said. “We’re looking for liquidity, we’re looking for investors who can appreciate the business, and we’re looking for investors who are there for the long term.”
As a local player, this is something that Carsome might be able to achieve in Malaysia since there is a strong retail segment that understands what the company does. With that in mind, the consideration to list in Malaysia is definitely there.
“At this moment, it feels like Bursa has a slight edge,” Eric said. “It comes down to what happens in the next year or so.”
Maintaining profitability
Speaking about the timing of their listing, Eric said that rule of thumb is whether the company has good control over the next three earning results post-IPO.
“I think that is the kind of thing we’re working for internally as a business, to be ready,” he said.
This year, Carsome has reported two profitable quarters, and is on track to have its profitable year.
Eric shared that profitability has become something that cannot wait, which is quite different from how Carsome had operated previously, since they were more concerned about capturing markets before focusing on profits.
But he said that the current market doesn’t allow for that mindset. As such, businesses must react and shift towards profitability.
“It’s easy to tell myself to change, to shift that focus. But it’s not easy to tell or to shift the focus of 3,000 people in the company without a proper plan, without time,” he said. “That was really one of those moments I felt a lot of things could’ve gone wrong.”
Yet, the company is actually going to be cash-positive very soon, Eric said. He added that right now, they have an EBITDA of over US$20 million, and they anticipate this to double next year, and double again the following year.
With this, the team is now ready to focus on growing the business again.
“And this time around, it’s growing profitably,” he reminded. “Sustainable growth is the keyword right now in the business.”
Just like how becoming a unicorn wasn’t the end, he said that an IPO would not be the end either. Carsome aims to continue cracking on, focusing on offering customers the best experience possible.
“We’re at the end of the first 10 years, we’re at the juncture where the business is profitable, the business is restarting growth, and the business has a lot of revenue channels like financing, insurance, all the ancillaries,” Eric pointed out.
Yet, the business is still very nascent, at least when it comes to building that ecosystem of revenue channels.
He shared that the ancillary offerings only make up around 20% of their total revenue. Looking to US-based Carvana as an example, he shared that 50% of their revenue comes from ancillary solutions.
“We’re not there yet, but we can get there.”
Featured Image Credit: Vulcan Post