Saturday, 30 July 2016

Opensys - Bright Prospects Ahead ?


Author: Icon8888   |   Publish date: Mon, 27 Jun 2016, 04:06 PM 



1. Principal Business Activities

Opensys is principally involved in provision of solutions to the financial services industry in the areas of self-serviced machines and relevant IT services. 

If you don't understand what is "self-serviced machines", they are those electronic kiosks such as ATMs, Cheque Deposit Machines, Cash Deposit Machines, etc. Opensys' customers are mostly banks, but insurance companies and utility companies also make use of its products.





2. Background Financials



Based on 298 mil shares and price of 28 sen, Openys has market cap of RM83 mil. It reported net profit of RM7.8 mil for the FYE 31 December 2015. As such, historical PER is 10.6 times.  

The group has borrowings of RM10 mil and cash of RM21 mil. Its shareholders' fund is RM44 mil. Based on 14 sen net assets per share, PBR is 2 times.



3. Historical Profitability

The group's revenue and net profit has been on upward trend since FY2012.

Annual Result:
F.Y.Revenue ('000)Profit Attb. to SH ('000)NPM (%)EPS (Cent)PEDPS (Cent)DYNAPSROE (%)
2015-12-3172,5067,76111.002.6111.311.003.390.151117.27
2014-12-3145,3015,59813.001.8816.491.003.230.177210.61
2013-12-3133,2374,66015.002.088.181.005.880.162212.82
2012-12-3132,9823,52911.001.587.601.109.170.151310.44


Details of recent quarters' performance are as set out below :-

 


In FY2015, the group's net profit increased by 39%, in line with higher revenue. However, first quarter of FY2016 was disappointing, with EPS of 0.3 sen only.

What is so great about this stock ? Why do I write about it ?



4. Future Prospects

What is exciting about this group is its prospects. There are many juicy details in the just released 2015 annual report and quarterly report.  

In the 2015 annual report, the group mentioned that traditionally, cash withdrawal and cash deposit are done separately via ATMs and Cash Deposit Machines respectively. However, their latest product, Cash Recycling Machine (CRM), can perform the above two tasks through one machine. This new machine is expected to gain wide acceptance as it will result in cost saving for end users (banks, insurance companies, etc). In addition, only 6% of banks machines are currently CRM. As such, there is still huge potential for the product.




The huge demand for CRM is more than just a concept. It is already materialising in real life. In its latest financial report for the quarter ended March 2016, the company stated that in the first quarter of 2016 alone, they achieved CRM order book more than the total amount last year.  





5. Concluding Remarks

On 20 June 2016, I wrote the article "It Is The Future Earning That Matters, Stupid" to discuss my observation and belief that future earning has huge bearing on share price.   
http://klse.i3investor.com/blogs/icon8888/98931.jsp

On 23 June 2016, I wrote the article "Predicting Future Earning" to discuss how one can make use of bits and pieces of information to try to predict future earning. 
http://klse.i3investor.com/blogs/icon8888/98931.jsp

In that article, I explicitly mentioned that "predicting future earning" is NOT about pulling out a spreadsheet to build a financial model to derive next year EPS. It is more like "walking down the street following the smell of delicious food" :-



Opensys is one good example of how I pick stock by following the smell of money.

As mentioned above, I got to know about the huge latent demand for the group's new product, Cash Recycling Machine, through management discussions in the 2015 annual report and March 2016 quarterly report.

Do I know how much the group's profit will grow ? No, I don't. All I know is that it is LIKELY to grow.

And my guess is that the additional demand should be quite substantial as only 6% of existing bank machines are CRMs. Hopefully this will lead to substantial additional profit. 

Do I know when the profit will grow ? Again, I don't know. But since the company mentioned that it achieved strong order book for CRM in Q1 of 2016 (more than the entire last year), I guess it is a matter of two to three quarters for the profit to show up.   

That is all it takes to arouse my interest. But before I jump in, I did a quick check of the group's balance sheets and cash flow. I also checked the PE Ratio.

They looked reasonable. 

Armed with the above information and knowledge, I pressed the Buy button. Please note I didn't even bother to come up with a prediction for 2016 EPS. There is simply not sufficient information to do that. Garbage in garbage out, it will be a waste of time.   

Will I be successful with this stock ? Nobody knows.

I believe that investing is 50% skills, 50% luck. My role is to assemble a portfolio of stocks with potential for earning growth. Whether those stocks will finally grow or not, I leave it to God to decide.

That is how I punt the market.


Appendix - Opensys' Customers



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