Louis Yap Investment

Author: LouisYap   |   Latest post: Mon, 30 Mar 2020, 1:34 PM


Malaysia Stock Analysis – KRONO (0176)

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Malaysia Stock Analysis – KRONO (0176)



Single-season turnover:
RM 52.1 mil, up 28.8% year-on-year;
up 60.2% quarter-on-quarter

Net profit for the quarter:
RM 5.06 mil, up 12.5% year-on-year;
up 37.1% quarter-on-quarter


The company's performance year-on-year progress is mainly due to the contributions of Hong Kong, Taiwan and India. The recent acquisition of Sandz has contributed to the company's profit for the first time.


Most of the company's turnover is from Singapore's business, about RM 35.3 mil, accounting for 41.74% of the total turnover, followed by Hong Kong and Taiwan, about RM 18.5 mil, accounting for 21.85% of the total turnover.


From the company's regional distribution analysis, we observed a significant increase in turnover in almost all regions, however Singapore's turnover has declined but management did not state any reason in the report.


We believe that Krono had business dealings with Sandz before, that means Sanz used to be Krono's customer in Singapore. Since Krono acquired Sandz, hence the business from Sanz is considered an internal sales and purchases, so therefore it is not neccessary recorded in Krono's accounts.


In product category, Enterprise Data Management (“EDM”) infrastructure technology business continues to dominate the company's revenue, at RM 79.5 mil, accounting for 94.05% of total revenue, while the rest of the turnover is from EDM's managed services business.


The company's performance has improved quarter by quarter. Except for the increase in revenue contribution from Hong Kong and India, the foreign exchange rate and the previous quarter are relatively favorable to the company.


EDM's infrastructure technology business will remain an important part of the company's business, especially through the recent acquisition of Sandz Solutions to acquire new solutions and business opportunities.


KRONO also extends the EDM management services business through innovative breakthrough and professional enterprise solutions, providing internal, hybrid and cloud-based solutions to meet customer needs.


Although Krono's accumulated profit in the first two quarters improved, the cash flow from the industry after the capital change was a net outflow of RM 15.6 mil.


Mainly because the company's new RM 4.5 mil inventory, RM 19.2mil profit has not been received yet in cash and the supplier's RM 13.0 mil account receivable was repaid.


The stock price is now between RM 0.600 and RM 0.625. Since the company made a private placement last year, and the company acquired Sandz with equity, the company's earnings were diluted by about 21%. The current adjusted net profit per share is at 3.8, the PE value is between 15.8 and 16.4.


Q&A in AGM (31st May 2019)

1) Q: Is the latest QR revenue and profit reduction due to reduced orders?
1) A: The CEO replies that the decrease is not due to the decrease in sales. The main reason is that the time to issue the bill to the customer causes the QR to decrease.


2) Q: What is Sandz and China's subscription to its contribution to FY19?
2) A: The CEO informed that the acquisition of Sandz has just completed in April, so starting from May, their profits will be credited to their account. The CEO is confident in Sandz because of the guaranteed income of $1.5 million, which is achievable, but since the acquisition is completed in April, the profits will be distributed proportionally. China as our subscription is small, it is mainly the way the company lead to new areas.


3) Q: What is the prospect of FY19 after getting Sandz?
3) A: The CEO replied that Sandz has a similar business to Krono, and it will definitely give a positive contribution. The reason for the acquisition of all other companies is also to increase the company's profits.


4) Q: Will Krono have more M&A this year?
4) A: The CEO replied that there are no further mergers and acquisitions this year because they will be focusing on increasing services to existing customers acquired after the recent merger.


Louis Yap




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