Efficient banks on SingPost and Indonesia

KUALA LUMPUR: Efficient E-Solutions Bhd’s AGM last week had a turnout of only 10 shareholders and was wrapped up in 15 minutes. Although the heavy downpour may have played a part, it perhaps reflected a company that has been overlooked by many investors. However, that may soon change.

Being the leading business process outsourcing (BPO) service provider in Malaysia, Efficient is now taking the next step in its revenue growth by collaborating with Singapore Post Ltd (SingPost) to venture into Indonesia by the end of this year.

Efficient recently became an indirect associate company of SingPost after the latter, via wholly-owned subsidiary Singapore Post Enterprise Private Ltd, increased its shareholding to 20.12% from 15.18% on June 27.

A memorandum of understanding (MoU) between Efficient and SingPost to collaborate in data and document management services was signed in mid-June.

“Indonesia is relatively untapped in the data and document management sector. There isn’t really a player in the Indonesian space that is as comprehensive as us in terms of products and service. This is what we are hearing from the banks in Indonesia themselves,” said its executive director Victor Cheah Chee Wai after the company’s recent AGM.

Efficient specialises in the provision of integrated outsourcing business process solutions mainly to financial institutions, stockbroking houses, insurance companies, loyalty programme operators and telecommunications service providers.

Its main business is in data and document processing (DDP), which ranges from data extraction to conversion, formatting of documents to data printing as well as the preparation of printed documents for distribution. It also offers electronic bill presentment services, ranging from electronic bill presentment subscription services to data extraction, creation, delivery via electronic media such as the web, email and SMS, as well as audit reporting.

Last year, Efficient contributed to around 15% of Malaysia’s total mail volume, according to Cheah. SingPost’s subsidiary DataPost is also involved in printing services similar to Efficient’s.

Cheah explained that in Malaysia, banks and insurance companies contributed to around 70% of Efficient’s revenue. He expects revenue from Indonesia to surpass Malaysia’s in five years once its operations start in the republic, adding it will take six months to be operational.

“Typically a mid-sized bank in Indonesia is probably the size of our top three banks in Malaysia. In the Malaysian context, we are the market leaders, we have around 65%-70% of the market share. SingPost [via its subsidiary DataPost Pte Ltd] also owns the majority of the market share in Singapore. Synergising on our combined strength we definitely will be able to capture a sizeable market share in a span of three to five years,” he said.

“Indonesian banks approached us as far as two years back. We have already established connections with some customers there who have also visited our facilities here, and were quite impressed with our setup,” he added.
Dealers work at a dealing room of a bank in Jakarta. Efficient is now taking the next step in its revenue growth by collaborating with SingPost to venture into Indonesia by the end of this year.

Cheah said Efficient was approached by one of the few state banks in Indonesia. However, he declined to disclose its name as both parties had signed a confidentiality agreement.

Efficient’s and SingPost’s existing clients are also looking forward to this Indonesian venture, he said, as the tie-up would provide a linkage for three major markets.

“Customers in Malaysia with a presence in Indonesia are looking for a regional vendor to service them there. The same goes for SingPost, it also has its set of connections such as Singapore-owned banks with a presence in Indonesia,” Cheah said.

The move by SingPost to increase its shareholding in Efficient to 20.12% from 15.18% was to facilitate the regional expansion.

“We are leveraging on each other’s network, strengths and expertise to grow together in the Indonesian market space. Potentially it is going to be explosive in the time frame of three to five years. We hope to double our revenue in that time frame,” said Cheah.

Efficient’s choice of Indonesia, which has a population eight times that of Malaysia, was obvious given the size of the market.

Cheah believes Efficient’s share of the Indonesian market will reach the size of its market share in Malaysia in five years.

He said Efficient chose Indonesia because businesses in the country would still take some time to switch from paper to electronic statements.

“Indonesia is unlike China, where the Chinese market skipped a technology generation. You hardly find a fixed phone line in China and from what I know they don’t have bank statements. China didn’t have to go through a phase of paper to electronic; they just went paperless. In Malaysia, the migration rate from paper to electronic has been quite slow,” he said.

It is worth noting that SingPost had aggressively built a stake in Efficient last month.

On June 13, SingPost acquired its first stake of 71.24 million shares, representing a 10.06% interest in the company. Of this amount, 50 million shares were from a private placement exercise by the company at 19.5 sen each. It then acquired further shares the following two weeks, and now has 142.53 million shares, or a 20.12% stake.

“Bilateral relations between Singapore and Malaysia are getting better. So I suppose the timing is quite good; we saw big joint ventures like Temasek Holdings and Khazanah Nasional Bhd. I see it as a good sign. In business, it should be open and there should be as much collaboration as possible. I always believe in the one plus one equals three equation,” said Cheah.

Efficient has a total base of 708.35 million shares and a market capitalisation of RM155.84 million at the last traded price of 22 sen. Its stock has gained 22.2% year-to-date and has traded between a 52-week high of 24 sen and a low of 15.5 sen.

As at March 31, Efficient had cash and short-term investments of RM33.34 million, with borrowings of RM6.71 million. Its net cash of RM26.63 million would have increased by about RM9.75 million taking into account gross proceeds from the private placement to SingPost.

Since its listing in 2004 until 2010, Efficient has chalked up compounded annual growth rates for revenue and net profit of 17.1% and 18.3%, respectively.

For the year ended Dec 31, 2010, however, the company’s net profit declined 25.5% to RM12.47 million on the back of a 10.2% decline in revenue to RM58.75 million. This was due to the end of a major software application project. With earnings per share of 1.84 sen in 2010 and last Friday’s closing price of 22 sen, the stock was trading at a historical price-to-earnings ratio of 12 times.