Investment Merits

• Market leader position in the enterprise data management industry

• Focus on cloud hyperscaler win  Scalable growth from EDM AAS business

• Strong net cash position

Company Profile

Kronologi Asia (Krono) is primarily involved in providing Enterprise Data  Management (EDM) solutions in Southeast Asia. The group is a  provider of hybrid and cloud EDM technology and solutions. Its  segments include EDM Infrastructure Technology (IT), and cloud and  hybrid As-a-Service (AAS). Its EDM IT comprises both hardware and  software. The EDM hardware consists of computer components used to  record, store, and retain digital data while EDM software supports the  process of data backup, storage, recovery, and restoration. Its AAS  provides cloud and hybrid managed services, portfolio of data  management solutions to customers, and assistance to adapt and  adopt cloud-based services. Krono operates in Malaysia, Singapore,  Thailand, Philippines, Indonesia, India, Hong Kong, Taiwan, and China.

Highlights

A proven market leader in EDM. Krono is well-positioned to add value  to enterprises in the Asia Pacific region. It has worked with some of the  biggest organisations in Asia, including Food Corporation, Toshiba,  Ocean Park, and NCS. It has a proven track record of unlocking the  usage of relevant technologies for smart cities, data centres, geospatial,  autonomous vehicles, backups, archives and cloud providers.

Focus on cloud hyperscaler win. The global digital transformation  market is expected to grow by a 5-year compound annual growth rate  (CAGR) of 21.1% from 2022-2027, mainly driven by the organisation’s  willingness to use digital technology to create ample opportunities,  states a MarketandMarket finding. Krono is currently serving hyperscale  infrastructure with one of the key global market digital transformation  vendors – Baidu. The group is also in talks with several hyperscalers or  large cloud service providers, including Amazon Web Services, Alibaba  Cloud, Tencent, Ping An Cloud, and Microsoft Azure, to offer them its  EDM services or as a hybrid cloud enabler. We expect to see more  hyperscalers coming to Malaysia, which could bode well for Krono.

Scalable growth from EDM AAS business. According to Grand View  Research, the global EDM market is anticipated to grow by a 7-year  CAGR of 12.1% from 2023-2030, with cloud-based solutions being the  highest contributor. The power of AAS, pay-per-use, consumptionbased, and subscription-based models is supported by a double-digit  growth for recurring business YoY. This is mainly driven by enterprises’ preference of transitioning capital expenditure (CapEx) to operating  expenses in order to save more on CapEx. Management expects its EDM AAS sales to increase faster than EDM IT.

Strong net cash position. As at 31 Jan 2023, Krono stands at net  cash position of 9.5 sen per share. The healthy net cash position could  also provide fund for any future mergers and acquisitions (M&A) to  expand its business. The management continues to explore any M&A  opportunities, which could further expand its market size and footprint.

Company Report Card

Results highlights. Krono’s FY23 revenue and net profit increased 2%  and 5% YoY. The current flattish result was attributable to high base  earnings during COVID-19, when organisations were rushing to adopt  digitalisation.

Strong net cash position. The group has a healthy balance sheet with  net cash of MYR68.4m or 9.5 sen per share as at FY23. We expect it to  remain in a net cash position for FY24-25.

ROE. Krono registered ROE of 7.9% and 6.5% in FY22 and FY23. With  the expected increase in earnings for FY24-25, we expect the company’s ROE to increase gradually.

Management. Krono is helmed by Edmond Tay Nam Hiong (CEO) and  Tan Jeck Min (COO), who are responsible for the strategic planning,  implementation, managing, and executing all the operations and finance  activities of the group. Edmond was responsible for the running of all  facets of Quantum Storage South Asia’s business prior to merging with  Krono.

Investment Case

Fair value of MYR0.68-0.82. We like the stock for its market leading  position in the EDM industry. Krono’s business will benefit from rapid  growth of unstructured data, demand growth of data digitalisation,  expansion of data centres, and growing demand of cloud services.  Based on an ascribed P/E of 17x on 2024 and 2025 earnings, we derive  a fair value range of MYR0.68-0.82. We believe that our target valuation  is fair, given that it is still at a discount to the local software technology  provider’s 1-year forward P/E of 18x.

Key risks include FX fluctuations, supply disruption, risk of customer  collection, and limited brand presence

Source: RHB Securities Research - 16 May 2023