Financial Highlights

The following table sets out the financial highlights based on the combined statements of profit or loss and other comprehensive income for FYE 2019 to 2022:

• The revenue increased from FYE 2019 to FYE 2022 this show the company’s market share is expanding
• The gross profit margin is below 10% also means that the company does not have strong bargaining power on the price. (Generally, a GP margin of 20% is considered high/ good).
• PAT margin growth from 1.5% (FYE 2019) to3.2% (FYE2022)
• The gearing ratio is 0.54 times (FYE 2021), and the gearing ratio will reach 0.17 after the IPO’s use of proceeds. (A good gearing ratio should be between 0.25 – 0.5).

Major customer and Supplier

Major Customers

The Group’s top 5 major customers for the sale of ICT products comprising hardware, devices, and related peripherals (which may include the provision of ICT services and solutions)

According to the details, the top 5 customers are around 24.60%. The management mentioned that although Fan Technology International Limited is the largest customer in their group, however, they are not dependent on them as the company sales vary every year subject to demand from them. Further, the company has diversified its customer base from its commercial channel comprising.

Major Suppliers

The Group’s top 5 major suppliers for FYE 31 Jan 2022

According to the details, the top 5 suppliers are around 59.70%. The supplies are sourced from local and overseas suppliers, which the company selected based on their pricing, production/supply capacities, product range, and ability to deliver in a timely manner. The company is not dependent on any single major supplier as in the event that they are unable to source the supplies from the above major suppliers, they are able to source the products from other suppliers locally and overseas. However, the company has established a long-standing relationship with its suppliers, therefore they believe the relationships forged will allow their group to receive the supplies in a timely manner.

Industry Overview

The size of the ICT products and services industry is represented by the sales of ICT products and the gross value added by ICT services. The sales of ICT products grew from RM 52.03 billion in 2018 to RM54.18 billion in 2019, decreased to RM50.98 billion in 2020, and increased to RM54.63 billion in 2021. The overall CAGR from 2018 to 2021 was 1.64%. The decline in the sales of ICT products in 2020 was due to the temporary mandatory closure of physical stores and/or physical distancing measures in place during the MCO periods, and changes in consumer behavior to avoid going out to reduce the risk of contracting the COVID-19 virus. Nevertheless, the overall impact of the COVID-19 pandemic was partially cushioned by the increasing demand for laptops and desktops due to working arrangements and online classes for students at schools and universities at home. Meanwhile, the gross value added of ICT services increased from RM17.63 billion in 2018 to RM19.53 billion in 2020, at a CAGR of 5.25%. SMITH ZANDER estimates the gross value added of ICT services (computer programming, consultancy, information, and related activities) to have increased from RM19.53 billion in 2020 to RM20.69 billion in 2021 at a YoY growth rate of 5.94%.

The ICT products and services industry is expected to be continuously driven by the wide usage of ICT in everyday lives by the general public and businesses to perform daily and business activities, the replacement cycle of devices and continuous technology advancement, the implementation of initiatives by the Government for digital transformation, as well as the incorporation of ICT to promote digital education in schools.

The size of the DaaS market in Malaysia grew from RM139.95 million in 2018 to RM376.17 million in 2021, at a CAGR of 39.04%. As businesses demand more flexibility and control over the usage of ICT products and services according to their business and operational needs while reducing large upfront capital expenditure required for purchasing and deploying hardware and software, the demand for DaaS subscriptions is expected to grow in the long term.

Source: SMITH ZANDER

Business strategies and prospects for SNS NETWORK TECHNOLOGY BERHAD

1. The business objectives are to maintain sustainable growth in the business and create long-term shareholder value. To achieve the business objectives, the company will implement the following business strategies over a period of 36 months from the date of the Listing.
2. The company is setting up the Regional Hub to support the expansion of the business throughout Malaysia.
3. The company intends to expand the DaaS subscription-based service.
4. The company intends to expand its retail operations in Malaysia, particularly in Klang Valley, Johor and Penang by setting up new brand-specialty stores and/or multi-brand concept stores.
5. The company intends to further enhance the brand recognition of JOI through various marketing activities.

MQ Trader View

Opportunities

1. The company offers an extensive range of ICT products and services. The company carries a total of 33,633 SKUs of third-party ICT products, comprising laptops, phones, components, systems, accessories, software, digital signages and projectors, networking, cameras, security and CCTVs, printers, inks and toners, storage, tablets, and other related peripherals.
2. The company has an established history and proven track record with over 24 years of experience in the ICT industry. The extensive experience and industry insights gained throughout the years have led to the successful growth of its business, which has also played an important role in its business development activities and in identifying market demand to continuously expand the range of ICT products, services, and solutions. The years of experience that the company has accumulated are crucial for the Group to remain competitive in the market due to the rapid advancement of technologies as well as to support the continuous development and improvement of its JOI ICT products.

Risk

1. Unattractive gross profit margin. Although the revenue keeps growing, the gross profit margin is below 10% which means the company is weak on the price of bargaining power. If the cost increases from suppliers, the company will either need to absorb the cost to maintain the sales or have to increase the price which might decrease the sales.
2. The company faces competition from other ICT products and services industry players. The ICT products and service industry are competitive, owing to the large number of industry players that compete for sales from businesses, government agencies, educational institutions, and consumers from the general public.
   
   

Click here to refer back the IPO - SNS Network Technology Berhad (Part 1)

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