OpenSys (M) Berhad - TA Online

TA Securities Bhd
29 Jan 2004
N E W L I S T I N G
TA SECURITIES BHD
Participating Organisations of
Malaysia Securities Exchange Berhad
RM0.53 (+121%)
Fair Value
KLCI 819.85
SHARE INFO
Stock Code
OPENSYS
Listing
Mesdaq
Enlarged Share Cap (m) 221.8
Market Cap @ RM0.53 (RMm) 117.5
Par Value (RM) 0.10
Public Issue (m) 53.0
Issue Price (RM) 0.24
Estimated Free Float (%) 50.2
Oversubscription (%) 76.7
Listing Date
29-Jan-04
Major Shareholders (%)
Tan Kee Chung (18.42%)
CTV (13.57%)
Azlan Bin Abdullah (10.92%)
RATIO & ANALYSIS
NTA/shr (Post IPO) (RM) 0.08
Price to NTA (x) 6.6
ROE - 04E (%) 4.1
- 05F (%) 7.1
ROA - 04E (%) 1.7
- 05F (%) 2.9
Net Gearing (x) Net Cash
UTILISATION OF IPO PROCEEDS
(RM m)
Working Capital 5.2
Estimated listing exercise 1.3
Total 12.7
29 Jan 2004
Sector : TECHNOLOGY Bloomberg : OPEN MK For Internal Circulation Only
OpenSys (M) Berhad
Open The Right "Sys"tem To The Right Customers
OpenSys (M) Berhad (OpenSys) provides solutions to the financial
services industry in the areas of self-service machines and universal
delivery systems and information technology services. OpenSys is split
into three distinct divisions, one that is design and develops the Touch
ESM, one that licenses proprietary enterprise software products under
eSys suite of solution and one that focused on the IT services for the
financial services industry namely retail banking, insurance and
stockbroking. The bulk of the company's revenues come from the sale
of ESMs which represented 87.4% of the company total sales for the
seven months periods ended 31 July 2003. Based on FY04F PER of
23.2x, we value the stock at RM0.53, which is a 121% premium over
the offer price of RM0.24.
History and Background
OpenSys business was founded in 1995 by providing solutions to the financial
services industry. Services includesystem integration, consulting, software
support and maintenance services. The rapid development of OpenSys was
mainly attributable to the expertise and networking of its co-founders, Tan
Kee Chung and Chee Hong Soon and eight other partners. Through its
association with NCR (Malaysia) Sdn Bhd and Sanchez Computer
Associates, Inc. and its services for the ING Companies, OpenSys has
demonstrated that its services meet the standards acceptable to multinational
corporations and financial institutions.
Products and Services
The company earns revenues from three distinct divisions namely sales of
Touch ESM, sales of eSys suite of enterprise software and provision of IT
services. ESM is a family of non-cash self-service machines that allow financial
institutions to facilitate access by their customers 24 hours per day 7 days
a week. Currently, the company has three models of Touch ESM namely
Touch 3030, Touch 3050 and Touch 3070. The combination of functions
available in each model is set out next page:
EARNINGS SUMMARY (RMm)
YE 31 Dec 2000 2001 2002 2003 2004E
Turnover 11.2 20.0 22.0 25.3 29.1
Pretax Profit 2.9 3.1 1.2 2.7 3.1
Net Profit 2.9 3.1 1.2 0.7 1.2
EPS (sen) 5.4 5.8 2.2 1.3 2.3
EPS Growth (%) 53.7 6.8 -61.9 -40.2 71.4
PER @ RM0.53 9.8 9.1 24.0 40.1 23.4
DPS (sen) - - - - -
Div. Yield (%) - - - - -
EPS based on the 53m public issue
Analyst
Cheong Kooi Seong
E-*
kscheong@ta.com.my
( 20721277 ext 1674
TA Securities Bhd (16029-V)
Menara TA One, 22 Jalan P Ramlee,
50250 Kuala Lumpur. Malaysia
Tel : 603 - 2072 1277. Fax : 603 - 2032 5048
[ 1 ] OpenSys (M) Berhad

TA Securities Bhd
29 Jan 2004
ESM 3030 ESM 3050 ESM 3070
Functions Functions Functions
Draft Issuance - Draft Issuance
CD/FD - CD/FD
Insurance - Insurance
- Cheque Deposit Cheque Deposit
- Bill Payment Bill Payment
Stock Stock Stock
Prepaid Cards Prepaid Cards Prepaid Cards
eCash eCash eCash
Status Enquiry Status Enquiry Status Enquiry
Sources: Prospectus
eSys enterprise software is a tool that offers many functional modules which
can be used either individually or collectively. The multi-channel delivery
system enables customers to access financial services such as loan
application, bill payments, real-time stock quotes, automobile insurance,
life and medical insurance products. The company's IT services are focused
mainly on the financial services industry such as retail banking, insurance
and stockbroking.
REVENUE BREAKDOWN BY PRODUCT (RMm)
Product 1999 2000 2001 2002 2003^
ESM 0.0 0.0 9.8 13.9 11.8
eSys 0.2 1.0 3.1 2.4 0.6
IT services 7.2 10.3 7.2 5.7 1.1
Total 7.3 11.2 20.0 22.0 13.5
^ 7 months ended 31 July 2003
Mainly for Financial Services Industry
Its notable clients include Malayan Bank Berhad, EON Bank Berhad, United
Overseas Bank Malaysia, Standard Chartered Bank, Public Bank, Alliance
Bank, CSA (its distributor and support partner in Malaysia), MAA,
AmAssurance Berhad, Berjaya General Insurance Berhad and Maxis Mobile
Sdn Bhd. The top 10 customers based on the percentage of sales value
ended 31 July 2003 are set out below:
Major Customers
% of sales out of total revenue
C S A 59.9
Malayan Banking Berhad 12.9
EON Bank Berhad 10.5
United Overseas Bank (M) Berhad 3.1
Maxis Mobile Sdn Bhd 3.1
ING Interadvies 2.3
Berjaya General Insurance Berhad 2.0
MAA 1.7
Uni. Asia General Insurance Bhd 0.9
Sanchez Computer Associates 0.8
As at 31 July 2003, approximately 84% of OpenSys's sales came from CSA,
Malayan Banking Berhad and EON Bank Berhad. Therefore, a loss of order
from one of these customers could reduce sales and earnings sharply as
the company relies heavily on these customers.
[ 2 ] OpenSys (M) Berhad

TA Securities Bhd
29 Jan 2004
Competitive Strengths
OpenSys management team has an average of over 10 years' experience
and 7 years track record in providing IT services to the financial services
industry. This collective expertise and experience could help it to develop
products that are customised to meet industry needs. In addition, at least
43.6% of the enlarged share capital of the company will be held by the
employees. Significant employee ownership will align employees' interests
with the interests of the company and motivate them in their performance.
After the listing,
Investment Risks
Balance sheet (proforma) is strong with current ratio of 1.9x and net cash of
RM13.7m (after public issue). The company has consistently made profits
since FY98 (the earliest record shown in the prospectus). Despite the sound
foundation, there are still a number of risks that could negatively affect the
company. Consolidation in the financial services industry is still continuing.
As a result, the number of customers for Touch ESMs is gradually decreasing.
In addition, OpenSys has to develop value-added products and services to
remain competitive.
Moving Into New Markets and Products
OpenSys's growth strategy includes penetrating new geographical markets
and expanding its product range. The company intends to increase its
marketing and sales channels by looking for distributor and support partners
in India, United Kingdom and USA. On the product front, OpenSys intends
to develop other models of Touch ESM 3000. This product will expand its
functionability to address specific customer needs such as bar-coded bill
payment, cheque book issuance, optical character recognition and statement
printing. The company also intends to develop further modules of eSys by
providing a wider range of financial services such as banking, insurance and
stockbroking.
Fair Value at RM0.53
Due to their heavy reliance on 3 customers and the investment risks
highlighted above, we are pricing OpenSys at 20% discount to estimate
PER of 29x for MESDAQ counters. Based on the results PER of 23.2 and
FY04 net EPS of 2.3 sen, our fair value for OpenSys is RM0.53, or some
121% upside over the issue price of RM0.24.
The information in this report has been obtained from
sources believed to be reliable. Its accuracy or
completeness is not guaranteed and opinions are
subject to change without notice. This report is for
information only and not to be construed as a solicitation
for contracts. We accept no liability for any direct or
indirect loss arising from the use of this document. We,
our associates, directors, employees may have an
interest in the securities and/or companies mentioned
herein.
for TA SECURITIES BHD,
Yaw Chun Soon, Executive Director - Operations
[ 3 ] OpenSys (M) Berhad