Case Study of Kronologi Asia Berhad (0176)

By Stella Goh – Market Data Analyst | 8 November 2019

Overview

Kronologi Asia Berhad is an established Malaysia-based investment holding company founded in Year 2002 based in Petaling Jaya, which primarily involved as a regional Enterprise Data Management (EDM) solution provider. KRONO preserve, protect and manage the content with an innovative breakthrough known as “as-a-services” and enterprise solutions on-premise, cloud-based and hybrid solutions.

KRONO was listed in ACE Market of Bursa Malaysia on 15th December 2014. Being a data storage specialist for over 15 years, KRONO has made deployments in more than 620 sites, serviced by support from 11 offices in the Asia Pacific. They had diversified customer bases such as airports, airlines, port operators, food and beverages companies, banks, financial institutions, stock exchanges, smart cities, government agencies and telecommunications, media and broadcasting companies. KRONO serve them by unlocking the business value of their digital content, powering innovation, ensure data integrity cum sovereignty.

KRONO is presently located in Malaysia, Singapore, Thailand, Philippines, Indonesia, India, Taiwan, Hong Kong and China.

Business Model

The company engaged in the business by providing Enterprise Data Management (EDM) solutions ranging from EDM Infrastructure Technology (IT), EDM Managed Services (MS), Investment Holdings and Others.

The EDM Infrastructure Technology (IT) segment consists of both hardware and software. The EDM hardware refers to computer components used to record, store and retain digital data, while EDM software supports for the process of data backup, storage, recovery and restoration as well as some value-added solutions such as installation, configuring and implementation of EDM infrastructure and technology solutions. For EDM Managed Services (MS) segment, it comprises of health checks capacity planning, remote monitoring, and disaster recovery services. While for Investment Holdings segment, they engaged in business by providing funds and investment-related services. The Others segment provides administrative support services and licensing fees to subsidiaries for research and development costs incurred.

Financial Review

Based on the past 5 financial years of revenue chart above, the group’s revenue grew years-on-years (y-o-y) from FY2014 (+29.62%), FY2015 (+12.24%), FY2016 (+32.48%), FY2017 (+77.62%) to FY2018 (+12.95%). On a CAGR basis, KRONO has grown 31.06% based on 5 years. The increase in revenue was mainly attributed to 94% for EDM Infrastructure Technology (IT) segment and 6% for EDM Managed Services (MS) segment.

 

Krono Asia Berhad has successfully achieved a tremendous high record of gross profit by 19.31% from RM33.8 million in FY2017 to RM40.3 million in FY2018. Based on the past 5 years of CAGR basis, the gross profit has grown 20.48%. The growth of gross profit was mainly driven by EDM Infrastructure Technology (IT) segment, contributed by enhanced performance of the country markets that the Group currently operates in as well as the full consolidation of financial results from Group’s acquisition of Quantum Storage (Hong Kong) Limited which has been acquired in December 2017.

The Profit After Tax (PAT) of KRONO rose 34.79% from RM12.1 million in FY2017 to a new high of RM16.3 million in FY2018. On a CAGR basis, the Profit After Tax (PAT) grew by 23.92% was in line with growth of revenue and gross profit.

Cash Flow Statement

The net cash from operating activities have obtained a positive cash flow of RM27.8 million in FY2018 was mainly due to the company was able to sell out their inventories with an amount of RM1.5 million, received due date’s receivables from its clients with an amount of RM10.6 million and received a deferred income of RM8.5 million. The company also have paid back its payables and associate amounted to RM15.6 million and RM2.6 million, respectively.

The net cash used in investing activities in FY2018 is (-RM19,638,660) was mainly due to the purchase of Property, Plant and Equipment (PPE) with an amount of RM6,482,028 and money used for investment in an associate amounting to RM12,553,024. The negative cash flow from investing activities indicates that the firm is investing more in its business for expansion.

The net cash from financing activities have decreased from RM31,829,071 in FY2017 to RM26,766,433 in FY2018 was mainly due to the largest number increased of repayment for financial liabilities with an amount of RM2,735,198 equivalents to 662.78% and interest paid of RM1,098,512 equivalents to 134.03% in FY2018 compared to previous years.

Does the company able to pay back its liabilities? Based on my computation of liquidity ratio, KRONO has a current ratio of 2.163 times in FY2018 compared to 1.470 times in FY2017 indicate that the company do not face any liquidity problem as they are capable to pay back its liabilities on due by using the current assets such as inventories, trade & other receivables, amount due from associates, tax recoverable, other investment, fixed deposit, cash and bank balances.


Prospect and Challenges

The acquisition of Sandz Solution (Singapore) Pte Ltd in December 2018 for RM75 million from Desert Streams Investment Ltd will continue to be an important business driver for KRONO. (Source: TheEdge, 1Nov2019). The synergies achieved from the enlarged Group will continue to strengthen the offerings of both EDM Infrastructure Technology (IT) and EDM Managed Services (MS) via the experience and network of Sandz Group in the Philippines. (Source: Annual Report FY2018).

KRONO aims to grow its customer base by at least 40% to 50% based on years-on-years basis. The chief executive officer (CEO) and executive director Edmond Tay Nam Hiong stated that the group has a diversified customer base of 650 clients, is banking on its services segment to propel the next stage of growth, as it observes the growing interests in technology adoption, especially among smaller-scale of business. They plan to acquire more new customers through seeding programs, which allow them to test out the services offered before onboarding, besides retaining customers with new and innovative solutions and trying to sell more within the existing customers. (Source: TheEdge, 1Nov2019).

In next year, KRONO plans to roll out new solutions related to artificial intelligence (AI) and Internet of Things (IoT) and expand deeper into their existing overseas market. (Source: TheEdge, 1Nov2019). The Malaysia Palm Oil Board is also engaging with KRONO to find out new ways to extract palm oil. KRONO may face huge challenges to manage, store and use the data as they need to do genomics science on the palm oil, which will involve many data. (Source: TheEdge, 17Sep2019).

Rating System

Return on Equity (ROE) = Average

Revenue [5 years CAGR] = Good

Net Earnings [5 years CAGR] = Good

Basic Earnings per Share (EPS) [5years CAGR] = Good

My Insight

Based on my calculation on Discounted Earnings Model, Kronologi Asia Berhad has a fair value of RM1.336. The current market value of KRONO is RM0.78 which is undervalued. (Based on 7Nov2019). KRONO has a beta of 2.014 (500days) indicates that the company is more volatile than the current market, which indicates that investors/traders actively trading this stock and for short term trader, they may face higher risk. Based on my computation of Compound Annual Growth Rate (CAGR), KRONO has an expected market return of 6.24%. KRONO has a Return of Equity (ROE) of 9.944%, which is slightly decreased from 10.976% from last year which means slightly unhealthy.

In conclusion, Kronologi Asia Berhad has achieved outstanding performance in FY2018 as the revenue, gross profit and net profit after tax increasing based on years-on-years (y-o-y) basis. KRONO’s prospect remains bright by looking at the growth of both EDM Infrastructure Technology (IT) & EDM Managed Services (MS) and new solutions related to artificial intelligence (AI) and Internet of Things (IoT). I believe the company can grow very well in the future. However, investors or traders must be cautious that the decreasing of ROE of the company, this indicates that the management ability on effectiveness in resources utilisation to generate return for each dollar invested in the company, decreasing.

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