Systech expands business, creates new revenue stream

by **Cals** Tue 11 Nov 2014, 01:58

Systech expands business, creates new revenue stream

By Wei Lynn Tang / The Edge Financial Daily | November 10, 2014 : 9:30 AM MYT +

KUALA LUMPUR: ACE Market-listed Systech Bhd is looking at double-digit growth in revenue and profits for the financial years ending March 31, 2015 (FY15) and FY16, helped by a new revenue stream and the expansion of its existing e-business solutions business.
Systech designs, develops, customises and implements proprietary software solutions to mostly multilevel marketing (MLM) companies under its subsidiary Syscatech Sdn Bhd. It also develops franchise software systems for retail and franchises’ operational and management needs under Mobysys Sdn Bhd.
Its chief executive officer Raymond Tan, the group’s single largest shareholder with a 56.94% stake via Leinet Technology Bhd, said the group plans to create a third revenue stream by venturing into providing new security solutions and intelligence big data analytics to prevent computer hacking.
“The reason why we are moving into this new segment is [because of] our experience [in] the MLM industry, [in which] important data such as bonus calculation cannot be compromised,” he told The Edge Financial Daily in an interview.
Tan said Systech will ride on its existing MLM customers for its new cyber security package as part of its end-to-end solutions.
It also plans to target local small and medium enterprises (SMEs), as well as multinational companies to provide the new solutions.
“We hope to kick-start the new segment in the next three to six months. Currently, we are in the initial stages of [implementing it], looking at marketing, pricing and establishing a team,” said Tan.
Syscatech and Mobysys now contribute 56% and 35% respectively to the group’s revenue. Tan is hoping for the new segment to contribute up to one-third of the revenue by FY16.
“Since we were listed [via a reverse takeover (RTO) of Viztel Solutions Bhd ([You must be registered and logged in to see this image.] Financial Dashboard)] in 2011, we recognised the need to diversify our product offering within the IT industry,” he said. The group aims for a transfer to the Main Market of Bursa in the next few years once it meets the profit threshold or requirements.
Meanwhile, Tan expects to see the group’s revenue hit the RM10 million mark by FY16.
Revenue and net profit for FY14 were RM6.77 million and RM1.78 million, respectively.
“For FY15, we are looking at significant growth from FY14 in both revenue and profits,” he added, noting that it is eyeing double-digit growth.
For the first quarter ended June 30, 2014 (1QFY15), Systech’s net profit more than quadrupled to RM805,000 from RM191,000 a year ago, while revenue grew 75.3% to RM2.17 million from RM1.24 million. Gross and net margins stood at 71.4% and 37.2%, respectively. Tan said both Syscatech and Mobysys will play an equal role to drive the group forward. Contribution from Mobysys to group revenue, in particular, has grown from 27% in FY14 to 35% in 1QFY15 while its profits in 1QFY15 have surpassed that of FY14.
Tan said the group is seeking to expand its business in China and the United States via partnerships with local parties. Two months ago, it incorporated a wholly-owned subsidiary, Syscatech Inc, in the US.
“In China, MLM is not allowed. They only do direct selling and there are many stores there, so that’s where our software solution [via Mobysys which caters to stockists, outlets and franchisees] comes into play,” said Tan, adding that it currently has two clients in China.
Systech is also looking to expand its business by reaching out to new markets or non-MLM customers. It is hoping to tap the insurance market in which its software solutions will be sold to help agents track their sales performance.
The company is also eyeing software solutions sales to mutual fund firms.
Tan said the group will focus on organic growth, despite its net cash stood at RM5.33 million as at June 30, 2014. Its borrowings stood at RM2.48 million.
And in line with its vision to grow its profits over the next few years, Tan said the group hopes to increase its dividend payout in FY15, compared with rates of 3% and 5% in FY14 and FY13, respectively.
Tan said the group is not committing to a dividend policy at this juncture, as it intends to reserve some cash for research and development and future growth.
Systech’s stock has been attracting interest of late. The counter rose 60.8% in a week, from 14 sen on Nov 3 to close at 22.5 sen last Friday, giving it a market capitalisation of RM69.81 million. It trades at a price-to-earnings ratio of 38.8 times its FY14 earnings per share of 0.58 sen, and 22.5 times its FY15 annualised earnings per share of one sen. Note that these valuations are based on its record high closing share price since it was listed via an RTO in 2011.
This article first appeared in The Edge Financial Daily, on November 10, 2014.