Financial Highlights

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

1. The revenue increased from RM 37.463 million (FYE 2019) to RM 65.105 million (FYE 2022), indicating steady growth of the company and expansion of its market share.
2. The gross profit margin for FYE 2022 is 25.2%. Although the GP margin is lower compared to FYE 2021, it is still higher than both FYE 2020 and FYE 2019. The main reason for the decrease in the GP margin in FYE 2022 is the COVID-19 pandemic, which resulted in a higher attrition rate among staff. Consequently, the company incurred additional costs for re-hiring and training new CX executives. (Generally, a GP margin of 20% is considered high/ good).
3. PAT margin increased from 10.2% (FYE 2019) to 16.6% (FYE 2021) and decreased to 9.6% (FYE 2022).
4. The gearing ratio is 0.2 times. This also indicates that the company is not over-leveraged, which means it is better equipped to handle crises. (A good gearing ratio should be between 0.25 – 0.5). 

Major customer and supplier

Major Customers

The top 5 major clients for FYE 2022 is as follows:

According to the details, we know that the top 5 customers contribute 82.5% of the revenue to the company. The top 3 customers’ revenue contribution is over 65%. The company mentioned they are dependent on the top 3 major customers. The concentration of revenue is a result of conducting business on a contract basis. Typically, these contracts span 1 to 3 years, and any termination of services by the top 3 customers would impact the company's future revenue. This presents a high-concentration customer risk.

Major Suppliers

The company incurred technology and premise costs such as the rental of CX delivery offices, depreciation of computers and equipment as well s licensing fee for software that is used by the CX executives to facilitate the delivery of the service. These operational costs are not directly used as inputs to sell the services to Clients, are readily available in the market, and are not a major component of the cost of sales. As such, the group does not have major suppliers.

Industry Overview

As per the research report from Protégé Associates, the global economic recovery, driven in part by widespread vaccination efforts, has also resulted in Malaysia's economy maintaining its growth momentum. In 2022, the Malaysia economy expanded by 8.7%, following a growth rate of 3.1% in the previous year. Additionally, the local GBS industry saw growth, increasing from RM22.06 billion in 2021 to RM23.41 billion in 2022.

Factors boosting the growth within the GBS industry are likely to come from businesses pursuing a leaner capital structure and outsourcing more and more business-supporting processes and activities to GBS providers. Malaysia’s aspiration to attain a digital economy is also expected to lead to more businesses

adopting digitization in their operations, and thus leading to increased demand for GBS. At the same time, by having customers from a broad range of end-user markets, which each customer potentially having several business units, the local GBS industry stands to benefit from a large pool of potential demand for GBS.

In particular, as more businesses move towards digitization and adopt GBS, providers of the contact centre as a service are expected to be a key beneficiaries due to its relatively low-cost investment as well as scalability as businesses grow and expand operations. On the flip side, the geopolitical tension between economic

superpowers namely China and the US, as well as the war between Russia and Ukraine can potentially affect global economic activities. As an industry that serves the global community, the current economic slowdown may affect the growth of the Malaysian GBS industry in the short term.

From the supply side, the growth of the local GBS industry is expected to be supported by the Malaysian Government’s aspiration to attain a digital economy, of which more demand from GBS is expected to help businesses digitize. At the same time, Malaysia has a mature technology infrastructure and is complemented by a steady pool of qualified and quality workforce that is expected to accelerate the development of the nation into a leading digital hub in the region. Furthermore, Malaysia is among one of the preferred locations for business services support due to the country’s ability to provide cost-effectiveness to both local and foreign businesses, as well as having only limited natural disasters which translates to fewer disruptions to business operations.

The Malaysian GBS industry is projected to maintain its growth trajectory and is expected to grow from RM24.79 billion in 2023 to reach RM31.74 billion in 2027, representing a CAGR of 6.3% during this period.

Source: Protégé Associates

Business strategies and prospects for DAYTHREE DIGITAL BERHAD.

Moving forward, the company will continue to leverage its core competencies and strengths in the CX lifecycle management services by embarking on the following strategies to strengthen its position in the market as well as expand its business operations

1. The company plans to expand its office space.
2. The company intends to recruit industry experts to capture growth opportunities.
3. The company intends to purchase networking infrastructure, IT hardware and software to support its IT business requirements.
4. The company intends to strengthen its branding, marketing and promotional activities to capture more growth opportunities.

MQ Trader View

Opportunities

1. The company has a diverse client segment base, operating in various industries such as energy & utilities, telecommunications & media, fintech & financial services, construction, e-commerce & retail, health tech, and travel hospitality. The company has expanded its client segment base by serving a wide range of industries.
2. The company leverages in-house developed digital tools to deliver its CX lifecycle management services. The growing demand for technology in the GBS industry has prompted the company to build and utilize its own digital tools to support its CX operations.

Risk

1. The company faces a high-concentration customer risk as it is heavily dependent on its top 3 customers, which contributed 67.3% of the revenue in FYE 2022. The company's financial performance may be materially and adversely affected if it were to lose one or more of these major clients.
2. The company is dependent on the employees collectively to support its operations. The employees are collectively critical to the smooth execution of its overall operation and as such the success and future growth are largely dependent on its ability to attract, train and retain the employees. The GBS industry, particularly the CX lifecycle management services experiences higher employee attrition rates. If there is a mass resignation of its trained employees, this could impede the smooth execution of the operation. Further, there is significant competition for trained employees with the necessary skills to perform the services they offer to their Clients. As such, any significant increase in attrition rate in the trained employees may adversely impact the results of the operations and financial performance.

Click here to refer the IPO - DayThree Digital Berhad (Part 1)

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