KRONO (0176) - (Tradeview 2017) Value Pick No. 7 : Kronologi Asia Bhd. (0176)
Dear fellow readers,
This is my No. 7 Value Pick for 2017.
Once
again, these writings are just my humble highlights (not
recommendation), feel free to have some intellectual discourse on this.
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Value Pick No. 7: Kronologi Asia Berhad (Initial Valuation RM 0.45)
Following
the superb performance of Scope Industries Bhd, which moved from 16
sens to 27 sens in 1 month (68% gain since released of article), there
were many request by my readers to focus my writing on more small cap
stocks. Let me clarify beforehand, this is not adhering to the request
but rather I came across this counter after a friend highlighted the
strong growth since their IPO 2 years back.
Once
again, we will give an upfront warning, as this is a small cap stock,
this stock has higher risk compared to our other value picks. So for
those who have low risk tolerance, you can skip this.
Kronologi
Asia Bhd, is in the business of Data Storage and Recovery Solutions
& Technology. In layman terms, Krono provide Data Backup,
Consultation, Server Maintenance, Recovery services to companies. Think
of them as your office work data archiver / gatekeeper.
The
company consist of a team of IT professionals with substantial
experience in their respective fields. From how I look at it, the team
running the company is very professional. Just to name a few, the
Executive Director / CEO /CTO, Mr Teo has over 20 years of experience in storage solutions, software programming and network architecture. Executive Director / Director of Operations, Mr Tan brings
with him a wealth of IT experiences having worked for a HK listed IT
firm and US based 3Com, both in their Singapore operations. He was also
one of the pioneers of a successful regional IT System Integration
company, Sandz Solutions. In short, the management of Krono knows what they are doing.
As
Krono is a relatively new company, looking at the 2 years profit trend,
Krono has shown steady increase both top and bottomline from RM61 to
RM81 million in revenue and RM3 to RM7.4 million in net profit. Profit
margin almost doubled from 5% to 9.1%. All indicators point towards
continuous growth. However, it is imperative to understand the reason
behind the growth.
Back in August 2016, Krono
acquired the remaining 80% stake in Quantum Storage (India) Pte Ltd
for RM26mil. This is one of the key reason for the growth of Krono. With
a new subsidiary and board members / management level, Krono has been
improving. The key sector for Krono is to tap on the burgeoning data
storage and management business in Asia. It is reported that Krono is a
long-term partner of US-based Quantum Corp which in turn is a global
player in data protection and data management - promoting Quantum
products, solutions and branding in South Asia.
Krono
acquisition of Quantum Storage for RM26mil, was satisfied by new shares
and RM15.2mil in cash on a staggered payment basis. The acquisition was
to capitalise on big data, and India's growth in the sector of data
storage. Ex: 4K ultra HD technology, Satellite imagery, CCTV etc. The
pivot towards Digital cities, Smart Cities and to boost IT usage in
businesses and organisations will help the company grow in the long
term. This acquisition comes with a
profit after tax guarantee of US$1mil (RM4mil) each year of financial
years 2016 and 2017. The RM15.2mil cash portion of the acquisition is
being funded from RM6mil of IPO proceeds and a further RM9.2mil from
internally generated cash. The company has RM8.7mil in cash as at Dec
31, 2016 with a reducing debt position. Additionally,
Krono's balance sheet is relatively strong compared to many other tech
stocks out there. It is a net cash company despite having gone through
an acquisition.
We
like Krono for many reason. Firstly, it has a change in management /
board members which turned the business around. Secondly, it is in a
tech sector of growth which is easy to understand and shows actual
revenue and profit growth. Thirdly, the company have a good mix of
revenue from various geographical location which shows demand in various
countries outside of the home country. Hence, we believe the future
prospect is intact. We are cautiously optimistic for it to maintain its
profitability in the coming QR. If Krono successfully pull it off, there
may be a rerating to the stock.
The 2017 prospects by Krono looks promising as well. Given
the management confidence of being able to deliver a positive
performance to FY 2017, I think it is worthwhile to consider investing
in the company for the long term basis.
With
the latest QR, it is now trading at a narrow band. Since middle of
2015, Krono has fallen from 40+ sens to a low of 10 sens before
rebounding to recent high of 39.5 sens. If Krono can maintain their
growth, there is no reason it cannot challenge it's historical high.
Currently at 35 sens, it is trading at a multiple of 13x. It's NTA
stands at 19 sens with ROE of 14.5% for the past years. We believe in
the long term growth trajectory of Krono and estimate the coming Q with
EPS between 0.7 to 1 sen. Should that happens, the full year EPS will be
around 3 sen and applying a multiple of 15x (factor in the net cash
position and tech sector), there is a possibility that Krono can move
towards 45 sens. For now, this will be the initial TP pending
observations of coming quarter results.
*Please
note this is a penny stock with erratic earnings. Hence the risk is
higher. For those who do not have such appetite, feel free to skip.
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KRONO (0176) - (Tradeview 2017) Value Pick No. 7 : Kronologi Asia Bhd. (0176)
KRONO (0176) - (Tradeview 2017) Value Pick No. 7 : Kronologi Asia Bhd. (0176)
Food for thought:
