Opensys (M) Berhad

Quick Read on $OPENSYS / 0040 (OPENSYS (M) BERHAD) 2Q2024 report, key takeaways from management discussion & notes:

Comparing YoY
- Revenue 2Q2024 increased to RM21.4mil, 2.3% yoy increase from RM20.9mil vs 2Q2023.
- PBT of RM4.35mil in 2Q2024, 2.4% yoy increase vs RM4.25 mil in 2Q2023.
- Hardware revenue declined from RM3.686 mil to RM1.10 mil in 2Q2024, mainly due to delays in customer site readiness for machine installations during the quarter. [Probably this is why their inventories went from 13.7mil in Q1 to 21mil Q2 in their balance sheet?]
- This decline was mitigated by the strong performance of the Solutions and Services segment, which registered robust growth of 17.8% in 2Q2024, reaching RM20.30 mil from RM17.232 mil in 2Q2023.

YTD performance (6M2024)
- Revenue of RM42.046 million, 9.7% increase vs RM38.335 million in 6M2023
- Hardware revenue decreased from RM4.5 million to RM1.48 million in 6M2024, primarily due to delays in hardware installations during the first half of the year
- Solutions and Services segment continued to be the main revenue contributor, having a 20.0% increase from RM33.8 million in 6M2023 to RM40.57 million in 6M2024.
- Revenue is in line with the higher PBT of RM8.574 million in 6M2024, a 7.5% improvement over RM7.976 million vs 6M2023.
- They anticipate a recovery in hardware revenue in the upcoming quarters as demand for hardware gradually increases during the 2H of the year.

Future growth & Prospects:
- CRM business segment: a marked improvement in market sentiment has been observed, as banks resume procurement efforts, signalling sectoral recovery.
- Cheque processing services are poised to contribute to better performance as they acquired a 7-year contract from a major local bank.
- The replacement of aging CRMs supplied to the banking clients will begin in the 3Q 2024 and beyond in the next 2 to 3 years.
- Additionally, there is growing interests from the same customers in advancing the CRM capabilities, such as integrating features like cheque deposit and debit card dispensing, which is expected to positively contribute to their Hardware business segment.
- While expanding core operations, they are developing new revenue streams to drive both revenue and profit growth: Strategic initiatives including SmartCIT, Branch of the Future solutions, the buySolar online marketplace, and merchant acquiring services.

Personal thoughts:
- Their recurring revenue part (services) seems to be growing well, the fact that it could cover the hardware segment shortfall.
- Based on the management’s notes, next 2 quarters would be interesting to monitor.
- The start of the CRM replacement cycle can be another boost for them.



Tagging some people I know who are interested in them:
@rhresearch @terence775

OPENSYS - Notice of Book Closure

PETALING JAYA: Opensys (M) Bhd will prioritise cultivating new revenue streams, alongside expanding core operations.

PETALING JAYA: Opensys (M) Bhd will prioritise cultivating new revenue streams, alongside expanding core operations.

Second Interim Dividend

Quarterly rpt on consolidated results for the financial period ended 31/03/2024

OTHERSPRESS RELEASE - OpenSys Completes Double-Digit 1Q2024 Growths

General Meetings: Outcome of Meeting

Quick read through on $OPENSYS / 0040 (OPENSYS (M) BERHAD) Annual Report FY2023:
- Revenue has increased 7.4% y-o-y at RM88.39 mil.
- Main revenue contribution which takes up ~50% comes from Maintenance & Software Solutions Services increased 12.7% y-o-y. It is also the key recurring income segment. With the increasing number of CRMs entering maintenance mode after the expiry of warranty period, the demand for maintenance services is steady. More than 400 units of CRMs entered the maintenance mode in FY2023. The Group is currently providing maintenance services for nearly 7,650 devices including CRMs, cheque deposit machines and desktop cheque scanners.
- Second largest revenue contribution which takes up ~23% is the Hardware Segment, increasing 8.4% y-o-y to RM20.60 million, driven by strong sales performance of cheque deposit sidecar modules of CRM to the banking customers.
- Third largest revenue contribution which takes up ~21% is the BPO Segment. The Group’s BPO in Bill Payment Kiosk Outsourcing and CPO revenue decreased by 5.4% y-o-y to RM18.96 million in FY2023. The decline was attributed to reduced rental income from bill payment kiosks and a lower volume of cheques processed. 2024 onwards, the newly awarded “Outsourcing of Outward Cheque Clearing” services project from a major local bank is expected to contribute significant revenue to this segment.
- There’s 3.3% increase in gross profit, rising from RM31.40 million in FY2022 to RM32.43 million in FY2023, with slight decline in its overall gross profit margin, dropping from 38.2% in FY2022 to 36.7% in FY2023 due to depreciation of MYR against the USD, leading to higher costs for goods and spare parts. Additionally, elevated staff costs further contributed to this marginal gross profit decline.
- PBT and PAT continues slight upward trajectory at RM16.5mil and RM12.4mil respectively in FY2023.


BUSINESS SEGMENTS TO KEEP AN EYE ON
1. Cash Recycling Machine - the Group has been supplying the CRMs to banks for the last 10 years with a commanding market share of 80%. The Group’s CRM installation continued its steady growth in FY2023 as banks normalized CRM procurements after the recovery from the pandemic. The total number of installed units increased from 4,523 units in FY2022 to 4,758 units in FY2023, which presents a sizeable opportunity to introduce other value-added functions such as cheque deposit and card dispensing by using the Group’s own-designed sidecar modules. In 2023, 100 units of such sidecars with cheque deposit functions had been deployed. The typical life span of self-service cash machines is around 7 years. Besides wear and tear, the CRMs need be replaced because of technology obsolescence. The number of CRMs supplied by the Group that are due for replacement is estimated at 3,000 units in the next 3 years.
2. In the CPO (Cheque Process Outsourcing) sub-segment, the Group has secured a 7-year contract worth RM105 million from a major local bank in the last quarter of 2023. CPO services will bring about additional revenue stream to the Group’s Services Segment starting from FY2024 through to FY2030.
3. Mass adoption of BOTF solutions by banks in the next 2 years. Currently, the Group is in the process of implementing SmartTCR solutions for four (4) banks. Further POCs are slated for implementation in FY2024. The Group is confident that SmartTCR will emulate the successful trajectory of CRM in the foreseeable future. The market potential for SmartTCR is estimated to span between 4,000 to 6,000 units, catering to over 2,000 bank branches in Malaysia.


Market Outlook indication: TLDR continuous healthy co-existence of cash usage and e-payments will prevail in the foreseeable future.
• In 2023, Automated Teller Machine (“ATM”)s/CRMs remained an important distribution channel for cash due to continuous wide circulation and usage by the public.
• Based on the payment statistics from Bank Negara Malaysia (“BNM”), ATM/CRM usage remained robust.
• According to BNM’s 2023 Annual Report, Cash In Circulation remained high at RM161.8 billion in 2023, a minor decline of 0.2% from RM162.1 billion in 2022.
• The value of ATM/CRM transactions only declined marginally by less than 2% to RM396.42 billion while transaction volume remained intact at about 798 million transactions compared to the previous year.
• When comparing transaction values of other payment instruments, ATM/CRM cash withdrawal transaction value was the second highest after cheque transaction value.
• For non-cash transactions which comprise e-Wallets, debit and credit cards and bank transfers, e-Wallets usage is only 25% of total non-cash transactions.
• The usage of non-cash payments dipped by 4% to 51% as people re-balanced their payment behaviour after the pandemic.


Other trivia:
- Consistent track record of distributing dividends to shareholders for 13 consecutive years since July 2010.
- In 2023 the Group’s staff turnover rate is 11.5%, last year (2022) was 14%.
- Looking at their top 30 shareholders in 2023 AR, most of them are individuals. Interestingly, Oppstar Technology Sdn. Bhd. is one of the top 30 shareholders, but only 0.24%.


Tagging people that may be interested in them:
@rhresearch @terence775 @mshumts @kimkuan

Annual Report & CG Report - 2023

General Meetings: Notice of Meeting

$OPENSYS / 0040 (OPENSYS (M) BERHAD) – Net Cash Recurring Income Plays in the Financial Industry: An Attempt at Mapping out the Future Earnings of a Perceived Sunset Company

For overview of the company, you can read @jiaming8yap’s good writeup here: https://cutt.ly/zw4GIusv

I thought this would be an interesting exercise to try and work out; especially since there is quite a bit of information given out from their AR and AGM, where we can put 2 and 2 together to try and see the trends in revenue and profitability. This is especially “doable” since a large portion of their earnings are recurring in nature while ASP and sales volumes are also known.

I’m just sharing my scribbles and notes on how I would approach evaluating this business. It is very messy with possibly inaccurate data. This is not a buy or sell recommendation in any way, and nor is it any investment advice. I’m sharing this purely for knowledge sharing purpose and to get feedback to see where I can improve on my analysis. Please remember to do your own due diligence and study before making any decisions.

With that out of the way, let’s get to it:

Information we have so far (publicly available):
ASP of a CRM is roughly RM 70k, and that recently the ASP of CRM had increased by 30%, meaning roughly equal to RM90k.
Maintenance fee, per annum, per machine, is roughly 10-12% of the ASP.
Warranty period is 1 year; thereafter each machine will enter maintenance period.
Management seems confident to hit pre pandemic sales target of around 500-600 CRM machines per year.
BPO segment recently achieved an award from Maybank for outbound cheque processing for RM 105mil over 7 years, or RM 15mil a year.

Key assumptions and variables:
- OPENSYS will get a maintenance contract for every machine they sell and install.
- All hardware revenue is purely from sale of CRM machine
- All maintenance revenue is purely from maintenance of CRM machine
- BPO revenue will remain stable and flat, in spite of the recent award from Maybank.
- SmartCIT also to remain flat at RM 3.5mil in spite of their just completed implementation for TNB.
- Management manages to hit pre-pandemic targets of 500-600 CRM machines sold.
- Margins remain the same

There are a few ways we can try evaluating this company by playing with the variables.

Let’s just start with a simple scenario:

Hardware revenue in FY23 was RM 20.5mil. Assuming each machine cost RM 70k, this means there were around 300 machines installed in FY23, and 10% maintenance fee = RM 2.5mil.

500 machines to be installed in FY24 x RM 90k ASP = RM 45mil.

10% of RM 45mil = RM 4.5mil increment in recurring revenue in FY25.

FY23 services revenue is RM 68mil, including BPO and SmartCIT—therefore maintenance revenue is estimated at around RM 44mil. This implies that FY24 recurring revenue could reach around RM 46.5mil and total services revenue to be RM 70.5mil and, in an ideal world, every year after that will see their recurring revenue continue to increase by approximately RM 4.5mil. To note, this segment has GPM of around 43% vs the hardware sales with GPM of around 17%.

Therefore, we can make an assumption that;
FY25 Estimated Revenue = 45 + 75 = 130mil
PAT Margin of 12% = RM 15.6mil
15.6/445 = 3.5sen EPS

Things that we can play around to test other scenarios:
Hardware: Adjust the number of machines sold, ASP, between 400 to 600 and 70k to 90k
Software: Adjust maintenance fees between 10-12%; adjust contribution from other segments

Bearing in mind considerations:
Their historical ROE has always been over double digits for the past 10 years
The company has turned net cash a few years ago as they generate a substantial amount of Cash Flow, net of dividends paid out.
Old machines should be phased out after 7-8 years so the nett addition of new machines under maintenance should take this into consideration.
While management guided that there are potentially another 10k CRM machines to be installed in the market (to replace ATMs and CDMs), there's no certainty that there will always be demand for new machines.

What points did I miss? How would you improve it? Let me know!

Tagging people who had shown interest in OpenSys on Stockbit before

@jiaming8yap @mshumts @kahliong

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

OTHERSRenaming of Audit Committee to Audit and Risk Management Committee

OPENSYS - Notice of Book Closure

Quarterly rpt on consolidated results for the financial period ended 31/12/2023

First Interim Dividend

OTHERSPRESS RELEASE - OpenSys Sees Revenue and Profit Growth in 4Q2023

Change in Boardroom - PUAN HAJJAH NORIZAN BINTI YAHYA

Change in Audit Committee - DATIN LEE CHOI CHEW

Change in Audit Committee - DATO' ABDUL MANAP BIN ABD WAHAB

Change in Audit Committee - PUAN HAJJAH NORIZAN BINTI YAHYA

Change in Nomination Committee - DATO' ABDUL MANAP BIN ABD WAHAB

Change in Nomination Committee - DATIN LEE CHOI CHEW

Change in Nomination Committee - PUAN HAJJAH NORIZAN BINTI YAHYA

Change in Boardroom - DATO' ABDUL MANAP BIN ABD WAHAB

Change in Remuneration Committee - PUAN HAJJAH NORIZAN BINTI YAHYA

Change in Remuneration Committee - DATO' ABDUL MANAP BIN ADB WAHAB

@portoftheyear

PORTFOLIO OF THE YEAR 2024

1. $KEINHIN / 7199 (KEIN HING INTERNATIONAL BERHAD) @ 50%
A low-profile, well-run company equipped with an already expanded production capacity in Vietnam. Malaysia automotive segment is growing strong. Deep undervalued valuation. The cash pile is growing fast.

2. $REDTONE / 0032 (REDTONE INTERNATIONAL BERHAD) @ 10%
A strong fundamental company with proxy to new Agong, 5G infra, Starlinks, thematic play.

3. $N2N / 0108 (N2N CONNECT BERHAD) @ 10%
Huge cash pile of RM153mil, with DY range from 4-8%. Diversifying into non-capital market businesses. Holding 25.15% of OMM (Australian Fintech Company), which is valued at ~RM92 million and started to make profit in the past 2 quarters. A thematic play for the bull market as well.

4. $OPENSYS / 0040 (OPENSYS (M) BERHAD) @ 10%
Installed CRM aprox. 7k+ units (~RM80k/unit) in the market are building strong and growing recurring income. New growth engines going forward: (1) SmartTCR with a potential market size of ~5k units (~RM110k/unit). (2) SmartCIT potential market size is RM800mil. (3) Potential of more BPO business (recent awarded RM105mil contract from Maybank). Light asset business with DY ~5%.

5. $ABLEGLOB / 7167 (ABLE GLOBAL BERHAD) @ 10%
One of the cheapest-valuation consumer companies in the market. Mexico JV Business is going to accelerate its business growth. DY ~4%.

6. $SHANG / 5517 (SHANGRI-LA HOTELS (MALAYSIA) BERHAD) @ 10%
Bottom-catching asset play.

Solar Theme: Ripe for Uptrend Continuation?

Main focus will be $SUNVIEW / 0262 (SUNVIEW GROUP BERHAD) and $SLVEST / 0215 (SOLARVEST HOLDINGS BERHAD)

SUNVIEW had already broke out from its RM 0.69 main downtrend resistance and could be making a come back here towards the RM 0.79 major resistance levels soon.

SLVEST on the other hand testing its RM 1.33 immediate downtrend resistance levels hereon the daily chart.

Laggards will be $SAMAIDEN / 0223 (SAMAIDEN GROUP BERHAD) & $PEKAT / 0233 (PEKAT GROUP BERHAD) .

$OPENSYS / 0040 (OPENSYS (M) BERHAD) and ILB recently ventured into the solar business too, but not much volume and movement yet.