It’s been a while since I looked at $OPENSYS / 0040 (OPENSYS (M) BERHAD) , I remembered they were pretty hot back in 2020 (Then again, almost every stock is hot in 2020).

Anyway, revisiting them again this time by reading through their latest Annual Report and AGM notes. Here's part 1 business overview:

In a nutshell, their nature of business can be split to:
(i) Hardware - Including sale, assembly and distribution of cheque deposit machines, cash recycling machines (CRM) and other hardware equipments.
(ii) Software Solution and Services - Including sale of software, software customisation, support and maintenance, after sale services, cheque processing outsourcing, outsourcing of payment kiosks and cash‑in‑transit (CIT) services.

Looking into the 2 broad segments above, we can split it to 6 different revenue pillars:‑

1. Cash Recycling Machine (CRM) is the main product of the Group’s hardware segment, which typically has a lower gross profit margin
a. The purchases were for the replacement of aging and obsolete machines which could not be delayed further. The total number of installed units increased from 4,291 units in FY2021 to 4,523 units in FY2022.
b. Based on official statistics from Bank Negara Malaysia (BNM), both ATM/CRM usage and Cash-In-Circulation had increased in 2022.
c. According to BNM’s Payment Statistics (https://cutt.ly/Sw3BrRFF), the ATM/CRM cash withdrawal value had increased by 4.9% from RM386.3 bil in 2021 to RM404.7 bil in 2022. The transaction volume had also grown by 2.4% from 779.6 mil in 2021 to 798.5 mil transactions in 2022. According to Bank Negara Malaysia’s 2022 Annual Report, Cash in Circulation (CIC) grew again by 8.0% in 2022 to RM162.1 bil from RM150.1 bil a year ago. In contrast, e-Money transaction value was at RM69.4 bil in 2022 which is only 17% of the ATM/ CRM cash withdrawal value.
**Evidently, the usage of cash remains strong, and ATMs/CRMs will continue to be the main distribution channel of this important payment instrument.
d. Average Selling Price (ASP) of CRMs increased 30% in the market due to supply chain disruptions, inflationary pressure and weaker ringgit.
e. On annual maintenance fee, they are in the process of negotiating with our customers to increase the fee structure.
f. On average about 200 – 300 units per year of CRMs that will be out of warranty and will be entering maintenance mode.


2. Business Process Outsourcing (BPO) consists of two business sub-segments namely Bill Payment Kiosk Outsourcing and Cheque Process Outsourcing.
a. Leveraging on the 843,000 users visiting the Group’s 550 payment kiosks every month at more than 330 locations nationwide, the Group sees opportunities to cross-offer telco top-ups, e-Wallet reloads and other payment services to these frequent users.
b. The Group has embarked on building a Shared Network initiative among the Group’s six large biller customers such as TNB, Telekom, CelcomDigi, Maxis, Sabah Electric and Sarawak Energy. The Shared Network will generate additional fee-based income for the Group in the form of transaction fees, merchant acquiring fees, telco and e-Wallet reload commissions.
c. Though the cheque usage is declining, their cheque processing solutions remain relevant as banks’ corporate customers still use cheque as a payment instrument. With the decline, bank may be considering outsourcing their cheque processing to OpenSys for cost efficiency, and therefore, Their BPO segment will be relevant.


3. Maintenance and Software Solutions Services - after sales services provided for both hardware products and software products
a. This segment would mainly be driven by strong recurring maintenance services arising from the increase in the number of CRMs that entered maintenance mode after the expiry of warranty period and software upgrade and system enhancement projects secured from banking customers.
c. More than 600 units of CRMs entered the maintenance mode in FY2022. The Group is currently providing maintenance services for nearly 7,250 devices including CRMs, cheque deposit machines and desktop cheque scanners.


4. SmartCIT (Smart Cash-in-Transit) Secure Logistics – a fairly new segment in the cash logistics market that was launched in 4Q FY2021.
a. In FY2022, the Group completed the rollout of SmartCIT with a major utility provider which encompassed one-stop collections and service management for 115 retail outlets nationwide and contributed positively to the Group’s financials
b. Market size of CIT is about RM800 mil
c. The revenue generated was approximately RM3.5 mil equivalent to 4% of the overall revenue in FY2022.


5. buySolar is a one-stop online marketplace for renewable energy products and services.
a. It was launched in February 2020, with cumulative gross merchandise value of RM5.1 mil.
b. In 2022, there are thirty (30) market participants, comprising of nineteen (19) solar providers, nine (9) banks, one (1) P2P financier and one (1) solar insurer.
c. Looking to broaden buySolar’s offerings to include products and solutions-based services in the growing environmental and sustainability segments, might consider to acquire a solar company in order to accelerate their current position.


6. Branch of The Future solutions - digitalizing transactional and back-room cash operations in the banks’ branch transformation journey.
a. There are four banks that have adopted the Group’s BOTF solutions, Smart Teller Cash Recycler (SmartTCR) and are at various stages of POC (proof-of-concept). Those banks are Alliance Bank Malaysia Berhad, Affin Berhad, Ambank Berhad and Malayan Banking Berhad. Hong Leong Bank Berhad is their existing customer of the BOTF solutions.
b. Both the banking customers and OpenSys would share the costs incurred on POC projects subject to the mutual agreement.
c. The POC projects had started to contribute to the Group revenue in FY2022. While the contribution was modest in FY2022 at approximately RM1.5 mil, the momentum gained will help in future growth of their hardware and maintenance services segments.
d. The market potential for SmartTCR is approximately 4,000 to 6,000 units for more than 2,000 bank branches in Malaysia.
e. SmartTCR selling price is about RM100K -RM120K per unit. Maintenance fee 10% to 12% of selling price. Warranty period is 1 year