Background

Yen Global (YEN) is principally involved in the provision of services relating to specialised treatment and finishing process of jeans wear. The group has a wide distribution network comprising of more than 300 retail outlets and 12 boutique stores and brands carried include EDWIN, MUSTANG JEANS, GA BLUE and etc.

To mitigate the currently depressed apparel division, YEN has taken the bold step of diversifying into the ICT business in January 2016 after it acquired the entire equity interest of VLT Wholesale S/B (now renamed Atilze Digital S/B (Ätilze). The achievement of the division has been encouraging with a turnover of RM10.2m recorded in FY16.

Key takeaways

The venture into the ICT business via Atilze has led to YEN attracting several strategic business partners, which include Gemtek Technology Co Ltd (Gemtek”) and Green Packet (GPACKET). Gemtek, an establish global wireless broadband product leader which is listed in the Taiwan Stock Exchange, has acquired a 10% stake in YEN in June 2016 and subsequently raised its stake to 30% a month later. GPACKET, meanwhile, has emerged as the second largest shareholder after it acquired 22% equity stake for RM18.15m (or c.RM0.60/share).

Gemtek’s entrance as a new substantial shareholder indicates that YEN’s prospect lies more with the IoT business and the LoRa technology instead of the apparel business. Management believes the IoT’s potential economic growth for Malaysia could be valued at RM9.5b in the year 2020 and will surge to RM42.5b five years later.

Connected Vehicle Platform (i.e. vehicle diagnostic, predictive maintenance and etc.) and LoRa Technology Platform (to build SMART city with various IoT applications) will be the key focus of Atilze. Besides, the group also promote its IoT solutions via tie-up with Axiata Bhd to ride with the latter’s regional platform.

YEN has proposed several corporate exercises recently, which include (i) par value reduction (from RM0.50 to RM0.10), (ii) 2:1 Rights issue of shares with free Warrants on the basis of 3 Warrants for every 4 Rights shares, and (iii) diversification to include information and communication technology. The key rationales are to eliminate its accumulated losses as well as strengthening its war chest (c.RM56m-RM62m) to expand its apparel and ICT business. Management is targeting to complete the whole exercise in 2Q17. Besides, YEN also proposed to change its name to G3 Global Berhad.

Outlook

Save for FY13, YEN has been loss-making over the last five years. As the country’s apparel business is expected to remain challenging, we do not discount that YEN could potentially find ways to streamline its apparel operations. Besides, the venture into the ICT business and related businesses may require some gestation periods due to its initiative in various pilot projects (i.e. SMART city in Cyberjaya and etc.).

Risk

• Technology obsolescence
• Delay in rollout of new products, and expansion plans

Conclusion

While we concur with the management’s view on the IoT outlook over the long-term, the various pilot projects currently may see the group facing some gestation periods in its ICT venture. There is also limited room to mitigate the depressed earnings from its apparel division over the nearterm. At RM1.04, the group is trading at a historical P/BV of 6.5x.

Source: Kenanga Research - 19 Apr 2017