Lately, I have been searching for a company which has good profit margins, a business model which is non-conventional (i.e., not manufacturing, banking, plantation, and trading in nature), and resilient to external market shocks. I hope I have found the right company! This week I will be looking at Cypark Resources Berhad (5184). Cypark is a company that is involved with the provision of environmental solutions. It has 4 main business segments which are: 1. Environmental engineering: Provision of nature conservation and environmental improvement services. 2. Landscaping and infrastructure: Provision of landscape services, project management services, and infrastructure development. 3. Maintenance: Provision of specialist maintenance works on leachate treatment plants, landscape services for parks, and maintenance of public amenities. 4. Green technology & renewable energy: Solar panel, biogas, biomass, waste-to-energy, and other renewable energy project
Kronologi Asia Berhad (0176) is an electronic data management solutions provider listed on the ACE Market of Bursa Malaysia. This company has garnered much attention as its share price jumped from RM 0.36 per share in late April 2017 to RM 1.10 per share in early-November 2017 – a remarkable 300% gain!
Chart 1: Kronology Asia Berhad Share Price
What does it do?
Its prospectus pretty much sums up what it does “To achieve data assurance and protection through the systematic backup, storage and recovery of enterprise data to ensure business continuity.” In short, it is a computer data storage systems provider. It provides data storage solutions to its customer by tailoring their needs to its products.
Its products are categorized into 2 segments:
1. Enterprise data management infrastructure technology (EDM Infrastructure Technology) – the physical hardware, software and/or equipment components of EDM
2. Enterprise data management managed services (EDM MS) – backup, health checks, storage, recovery and restoration of enterprise data, disaster recovery planning. Its business approach is based on a subscription-based model.
Chart 1: Breakdown of Revenue Category
So, does Kronologi manufacture its own brand of products?
Apparently, it does not. Kronologi through its fully owned subsidiary Quantum Storage (South Asia) Pte Ltd (“QSA”) has a Strategic Marketing Agreement (SMA) with Quantum Corporation (US) to market and sell “Quantum” branded EDM infrastructure technology to the South-east Asia region: Singapore, Malaysia, Indonesia, Philippines, Cambodia, Thailand, and Vietnam.
Recent corporate developments
In October 2016, Kronologi fully acquired 100% of Quantum Storage (India) Pvt. Ltd. (“QSI”), previously an associate of Kronologi. With this acquisition, Kronologi has full control of its operating decisions and financial results from India.
Recently in October 2017, Kronologi entered into a conditional sale and purchase agreement to acquire a 100% stake in Quantum Storage (Hong Kong) Limited (“QHK”) for a purchase consideration of up to RM45 million. This consideration is to be satisfied through a combination of shares (up to 40.8 million shares at RM0.98 per share) and cash (up to RM5 million). QHK, according to Kronologi’s announcement, predominantly supplies Quantum branded EDM technology to Hong Kong, Taiwan, and “other countries.” “Other countries” was not defined but I suspect these countries are China and other Asia Pacific countries.
A noteworthy point is that QHK warrants that it will achieve a profit after tax of USD1.2 million for the financial year ended 2017. In the event QHK fails to achieve its profit warranty, its purchase price will be revised downwards.
Financial Summary
Chart 1: Financial Performance Summary
Revenue has been growing, doubling in 7 years since 2011. The compounded annual growth rate (CAGR) from 2011 – 2016 was 16%. In addition, its Q3 2017 revenue was RM101.6 million; its 2017 revenue stands to exceed its 2016 revenue by a factor of 2 times. About 60% of its revenue come from Singapore, 15% from South East Asia (excluding Singapore) and 11% from India. It is noted that Singapore is its primary market.
The performance of its profit margins on the other hand has been as decent as its growth in revenue. Both PBT and PAT margins are roughly about 9%.
Kronologi enjoys low tax rates as its subsidiaries are entitled to a 400% tax allowance (2011 – 2018) for investment in innovation and productivity improvements from the Inland Revenue Authority of Singapore. It is worth noting that Singaporean companies enjoy a slightly lower tax rate at 17%, compared to Malaysian entities at 18% (SME) – 24% (standard corporate tax rates).
Chart 2: Financial Position
Its balance sheet is relatively healthy as its cash balance is able to cover its obligations. A healthy current ratio –current assets are more than 1.78 times its current liabilities.
The only downside that I can think of is its valuation; Kronologi’s share price is almost 30 times its earnings per share. But it’s a known fact that high growth companies do not come cheap.
So is this a great investment then?
I would think that if you have a higher risk appetite, then this would be an investment for you. Reason being, at RM1.09, you are paying a premium of:
1. Approximately 3.6 times its book value (September 2017 book value: RM 0.30); and
2. A price to earnings ratio of approximately 30 times its historic cumulative 4 quarters EPS (3.86 cents).
Despite the higher valuation for this counter, growth in terms of revenue has been stellar. Refer Chart 1 on the financial results of Kronologi. For a fast growing company, margins are compressed during the initial stages; however, as the company gets more mature, it will work on improving its profit margins. As of now, Kronologi is still in its growth phase.
What do you think? With the ever increasing volume of digital data from daily business operations, is data management, back-up and security a key component in business infrastructure?
Previously, I reviewed the FBMKLCI, I believe my analysis is still valid as the bearish trend is still persisting. Do check out my analysis HERE.
If you like my posts and this blog please SUBSCRIBE in the link above or follow me on Google+ !!! THANKS
Note: This is not a recommendation to buy or sell this stock. The writer does not own shares in this company. The writer intends to share his view point on this stock’s potential investment value, any decision to invest or sell shares in this company is entirely at the reader’s own risk.
Chart 1: Kronology Asia Berhad Share Price
What does it do?
Its prospectus pretty much sums up what it does “To achieve data assurance and protection through the systematic backup, storage and recovery of enterprise data to ensure business continuity.” In short, it is a computer data storage systems provider. It provides data storage solutions to its customer by tailoring their needs to its products.
Its products are categorized into 2 segments:
1. Enterprise data management infrastructure technology (EDM Infrastructure Technology) – the physical hardware, software and/or equipment components of EDM
2. Enterprise data management managed services (EDM MS) – backup, health checks, storage, recovery and restoration of enterprise data, disaster recovery planning. Its business approach is based on a subscription-based model.
Chart 1: Breakdown of Revenue Category
So, does Kronologi manufacture its own brand of products?
Apparently, it does not. Kronologi through its fully owned subsidiary Quantum Storage (South Asia) Pte Ltd (“QSA”) has a Strategic Marketing Agreement (SMA) with Quantum Corporation (US) to market and sell “Quantum” branded EDM infrastructure technology to the South-east Asia region: Singapore, Malaysia, Indonesia, Philippines, Cambodia, Thailand, and Vietnam.
Recent corporate developments
In October 2016, Kronologi fully acquired 100% of Quantum Storage (India) Pvt. Ltd. (“QSI”), previously an associate of Kronologi. With this acquisition, Kronologi has full control of its operating decisions and financial results from India.
Recently in October 2017, Kronologi entered into a conditional sale and purchase agreement to acquire a 100% stake in Quantum Storage (Hong Kong) Limited (“QHK”) for a purchase consideration of up to RM45 million. This consideration is to be satisfied through a combination of shares (up to 40.8 million shares at RM0.98 per share) and cash (up to RM5 million). QHK, according to Kronologi’s announcement, predominantly supplies Quantum branded EDM technology to Hong Kong, Taiwan, and “other countries.” “Other countries” was not defined but I suspect these countries are China and other Asia Pacific countries.
A noteworthy point is that QHK warrants that it will achieve a profit after tax of USD1.2 million for the financial year ended 2017. In the event QHK fails to achieve its profit warranty, its purchase price will be revised downwards.
Financial Summary
Chart 1: Financial Performance Summary
Revenue has been growing, doubling in 7 years since 2011. The compounded annual growth rate (CAGR) from 2011 – 2016 was 16%. In addition, its Q3 2017 revenue was RM101.6 million; its 2017 revenue stands to exceed its 2016 revenue by a factor of 2 times. About 60% of its revenue come from Singapore, 15% from South East Asia (excluding Singapore) and 11% from India. It is noted that Singapore is its primary market.
The performance of its profit margins on the other hand has been as decent as its growth in revenue. Both PBT and PAT margins are roughly about 9%.
Kronologi enjoys low tax rates as its subsidiaries are entitled to a 400% tax allowance (2011 – 2018) for investment in innovation and productivity improvements from the Inland Revenue Authority of Singapore. It is worth noting that Singaporean companies enjoy a slightly lower tax rate at 17%, compared to Malaysian entities at 18% (SME) – 24% (standard corporate tax rates).
Chart 2: Financial Position
Its balance sheet is relatively healthy as its cash balance is able to cover its obligations. A healthy current ratio –current assets are more than 1.78 times its current liabilities.
The only downside that I can think of is its valuation; Kronologi’s share price is almost 30 times its earnings per share. But it’s a known fact that high growth companies do not come cheap.
So is this a great investment then?
I would think that if you have a higher risk appetite, then this would be an investment for you. Reason being, at RM1.09, you are paying a premium of:
1. Approximately 3.6 times its book value (September 2017 book value: RM 0.30); and
2. A price to earnings ratio of approximately 30 times its historic cumulative 4 quarters EPS (3.86 cents).
Despite the higher valuation for this counter, growth in terms of revenue has been stellar. Refer Chart 1 on the financial results of Kronologi. For a fast growing company, margins are compressed during the initial stages; however, as the company gets more mature, it will work on improving its profit margins. As of now, Kronologi is still in its growth phase.
What do you think? With the ever increasing volume of digital data from daily business operations, is data management, back-up and security a key component in business infrastructure?
Previously, I reviewed the FBMKLCI, I believe my analysis is still valid as the bearish trend is still persisting. Do check out my analysis HERE.
If you like my posts and this blog please SUBSCRIBE in the link above or follow me on Google+ !!! THANKS
Note: This is not a recommendation to buy or sell this stock. The writer does not own shares in this company. The writer intends to share his view point on this stock’s potential investment value, any decision to invest or sell shares in this company is entirely at the reader’s own risk.
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