MICT Inc. (NASDAQ: MICT) is setting the stage for a strong day in the market this morning after the company announced that its wholly owned subsidiary has entered into a new partnership that will likely lead to significant revenues. Here’s what’s going on:
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MICT Announces Partnership
In the press release, MICT said that its wholly owned subsidiary entered into a partnership with Shanghai Petroleum and Natural Gas Trading Center. The Shanghai Petroleum and Natural Gas Trading Center was established in 2015 by Xinhua News Agency, PetroChina, Sinopec, and CNOOC, among others, with a goal of providing financial services in support of the platform’s large corporate and government customers.
Importantly, these customers make up about 20% of China’s oil and gas trade.
As per the terms of the agreement, MICT will act as a strategic third-party partner to the Exchange’s clients to provide trade execution, margin financing, and trade clearing capabilities.
Initially, the group will focus on services for clients trading futures and commodities contracts in China’s growing, multi-hundred-billion-dollar oil and gas market.
In return for their work, MICT’s subsidiary will earn commissions and transaction fees associated with trade clearing. The company will also earn much larger margin financing fees. The Shanghai exchange will share a small percentage of transaction revenue with MICT receiving all of the considerably larger margin financing fees. Moreover, the company has identified an experienced management team with deep sector knowledge to oversee the platform launch and operations.
Initially, MICT’s subsidiary will service several hundred of the Exchange’s approximately 2,600 customers, including provincial government departments, state-owned enterprises, and large corporations, with the intention of increasing its customer base to more than 500 throughout the following quarters.
It is expected that the platform will be ready for launch during the second quarter of 2021 and further expects to commence revenue generation immediately following the launch.
In a statement, Darren Mercer, CEO at MICT, had the following to offer:
Our key strategic alliance with the Exchange drives high-margin revenue growth potential for MICT through both per contract commissions and the lucrative margin financing associated with leveraged futures and commodity products trading, among other related service fees. The fact that our clients are comprised of government and government-backed entities, among others, provides an element of low financial default risk, supported in part from the strong financial relationships Xinhau brings to the venture.
In addition, we are confident the Xinhau platform will increase its market share of oil and gas revenues as a result of a nationwide rollout through the link to the commodities and futures exchange. We also anticipate extending our commodities and futures trading business beyond oil and gas and into precious metals, other metals and food and agriculture products over time, each of which is a significant market in its own right.
This also supports our upcoming stock trading platform and related services, which drive strong technological and financial services value propositions. As we have discussed over the last several weeks, we are already receiving significant revenue from our insurance business and expect a rapid rise in the coming months. In addition, we are anticipating the launch of our stock trading and wealth management services platform in the coming weeks. With the realization of our commodities and futures exchange services, we believe we offer a most comprehensive financial technology and services offering in China, which is supported by an ever-growing database of users. We look forward to the continued advancement of all three business verticals.
Why This Partnership Is Exciting
This partnership is massive news. Keep in mind that the Shanghai Natural Gas and Petroleum Trading Center handles about 20% of the trades of these commodities in China. In 2018, national crude oil imports reached $224 billion with natural gas imports reaching $39.7 billion.
Moreover, the industry in China is growing with a CAGR of about 5%. So, in 2021, based on this growth, the total crude oil imports are expected to reach about $259.31 billion and the natural gas imports should reach about $45.96 billion.
Keep in mind, about 20% of this volume is being traded through the Shanghai Natural Gas and Petroleum Trading Center, working out to about $51.86 billion in the crude oil space and $9.19 billion in the natural gas space.
MICT will be assisting in the facilitation of a large percentage of these trades, earning a commission and margin fees in the process that have the potential to equate to tens of millions of dollars per year.
The bottom line here is simple. What MICT announced is about much more than a simple partnership that has the potential to drive some revenue. This partnership will make MICT a premier player in the commodities trading market in China.
That’s a massive opportunity!
With the potential to earn tens of millions of dollars in revenue through this deal in 2021 and beyond, MICT is a stock that’s well worth paying attention to.
Disclosure. CNA Finance is not a financial advisor or broker dealer. This article does not constitute a solicitation to buy any stock mentioned. The article represents the honest opinions of the author, but not necessarilly the outlet it was published on. CNA Finance has a monetary relationship with MICT. Trading in penny stocks can result in the loss of capital.