Financial Highlights

The following table sets out the financial highlights based on the company’s combined statements of profit or loss and other comprehensive income for the Financial Years Under Review:

• The revenue increased from RM29 million in FYE 2021 to RM62 million in FYE 2023, indicating that the company is expanding its market share.
• The gross profit margin declined from 35.40% in FYE 2021 to 24.20% in FYE 2023, driven by competitive pricing, lower margin projects, increased manpower and software costs, and higher purchase costs due to currency appreciation.
• The PAT margin dropped from 23.00% in FYE 2021 to 12.40% in FYE 2023.
• The gearing ratio is 0.27 in FYE 2023, which is within the benchmark range, indicating the company maintains a good balance of debt and equity. (A good gearing ratio should be between 0.25 - 0.5).

Major customers and suppliers

Major Customers

The company's top 5 customers according to their revenue contribution for FPE 2024 are as follows:

The company is dependent on Setia Utama. The company is currently providing design and implementation services for the supply, delivery, installation, testing, and commissioning of the AFC and EAC systems for the LRT3 line. The contract for the EAC and AFC systems has been continuously extended from 30 November 2023 to 30 June 2025 and 7 August 2025, respectively, due to delays in site handovers by the customer. On 9 January 2025, the company submitted a revised work program and requested an updated timeline to complete the projects by 23 August 2025 (EAC) and 30 August 2025 (AFC). The completion and expiration of these contracts without further extensions could significantly reduce revenue and negatively impact financial performance.

Notwithstanding that the company will cease to generate revenue from Setia Utama upon the expiration of the contracts, the company has secured additional contracts from other customers, including design consultation for depot equipment and service vehicles, and an uninterruptible power supply system for the RTS link between Malaysia and Singapore. These contracts will cumulatively generate RM152.9 million for the company Group, which is more than the total contract value of RM130.0 million from the LRT3-related projects with Setia Utama. The company Group is also of the opinion that since Setia Utama is the main turnkey contractor for the LRT3, works for the revived 5 LRT3 stations will be awarded to existing LRT3 works package contractors, including the company Group. The 5 LRT3 stations had been canceled previously and revived during the tabling of Budget 2024 by the Parliament.

The company Group has been dealing with Setia Utama since 2019 when TSM was appointed as the work package contractor for the EAC Project. Since 2019 and as at LPD, the company Group has entered into a total of 2 subsisting contracts and 2 subsisting letters of appointment with Setia Utama. The company Group has established and maintained a continuing business relationship with Setia Utama since 2019 with a proven track record in securing subsequent projects from Setia Utama.

Major Suppliers

The company's top 5 suppliers according to total purchases for FPE 2024 are as follows:

The company Group has established long-standing relationships with several of these companies and they believe that the relationships forged will be beneficial to the company's purchasing and cost efficiency. The suppliers are also selected based on several criteria such as the quality of their products and the reliability of suppliers.

Seel Electronic & Engineering Sdn Bhd contributed more than 10.0% of the company’s purchases in each year/period for the design and build of the system and supply of hardware for the AFC system throughout the financial years. The letter of award for the LRT3 AFC Project between Setia Utama and the company Group states that ST Engineering Electronics Ltd of Singapore is the nominated exclusive supplier for AFC equipment to the company Group. ST Engineering Electronics Ltd has appointed its wholly owned subsidiary, Seel Electronic & Engineering Sdn Bhd to resell and implement ST Engineering Electronics Ltd’s AFC system for the LRT3 AFC Project. As such, the company Group is required to purchase the AFC system and hardware from Seel Electronic & Engineering Sdn Bhd for the LRT3 AFC Project. Notwithstanding the significant purchases from Seel Electronic & Engineering Sdn Bhd as the nominated exclusive supplier of the LRT3 AFC Project, the company Group believes that they are not dependent on any single major supplier in the event the company is unable to source the supplies from the above suppliers, the company is still able to source the products from other local and overseas suppliers.

Industry Overview

Information and Communication Technology (“ICT”) refers to the technologies and services that enable information to be accessed, stored, processed, transformed, manipulated, and disseminated, including the transmission or communication of voice, image and/or data over a variety of transmission media. This industry plays a crucial role in enhancing the efficiency and effectiveness of product and service delivery, continually reshaping how people work, learn, and play. It has evolved beyond being a mere collection of technological tools and has instead become a key driver of business transformation and a socioeconomic enabler as well as a key driver of business transformation comprising data mining, Big Data Analytics (“BDA”), digitization, and integration.

The ICT industry refers to the sectors which produce ICT products as primary activities. The main subsectors of the ICT industry are ICT manufacturing, ICT trade, ICT services, as well as content and media.

According to the Information and Communication Technology Satellite Account 2023 published by DOSM, the ICT industry registered a value of RM251.95 billion with a growth of 3.8% in 2023 as compared with RM242.72 billion in 2022. In 2023, the ICT services industry dominated with a share of 41.7%, followed by ICT manufacturing at 38.2%, ICT trade at 14.1% and content and media at 6.0%.

The ICT services industry experienced a 4.7% growth in 2023, mainly supported by higher activities in the telecommunications subsector, reaching a value of RM104.97 billion, up from RM100.30 billion in 2022. In the same period, the ICT manufacturing industry saw an increase of 2.3%, reaching RM96.18 billion, primarily driven by electronic components and boards, communication equipment, and consumer electronics. The ICT trade industry recorded growth of 3.7% in 2023, driven by both retail and wholesale trade of ICT products and services. The content and media industry also increased by 7.7%, primarily due to higher activity in motion pictures, video, television programs, photography, and creative activities.

The main subsectors in the ICT services industry and its key features are set out below:

The enterprise IT services industry generally refers to the provision of IT consulting and implementation services, operations, maintenance, and support services as well as business process outsourcing services. IT consulting generally involves the overall design, planning, and implementation of IT systems and infrastructure to assist companies in achieving or improving operational efficiency. Operation, maintenance, and support systems, on the other hand, include IT management, application, and hosting services. It also includes system integration, software installation and support as well as IT education and training. Lastly, business process outsourcing services generally cover the outsourcing of IT-based business processes such as human resources, finance, and customer call center services to third-party service providers.

According to the research from Protege Associates, the outlook and prospects of the enterprise IT services industry in Malaysia are expected to be positive. The COVID-19 pandemic and subsequent lockdown measures imposed have accelerated the usage of the Internet and the adoption of digital media which together lay a clear path for further potential demand for enterprise IT services offerings. Consequently, there are many opportunities for the local IT enterprise services to expand. The enterprise IT services industry was valued at RM21.17 billion in 2022 and expanded to RM21.93 billion in 2023. Moving forward, the local enterprise IT services industry is projected to expand at a CAGR of 5.6% from RM22.92 billion in 2024 to reach RM28.80 billion in 2028.

The key drivers in this industry:

• Growth in investments indicative of potential for the enterprise IT services industry
• Strong government support driving the adoption of digital technology
• Availability of skilled IT professionals

The key risks and challenges in this industry:

• The industry players may not be able to keep up with changes in technology, customer requirements, industry standards, and regulatory compliance
• Dependence on the availability of technical professionals
• Exposure to political, economic, and regulatory risks in Malaysia

Future plans and strategies for TECHSTORE BERHAD

The company's business objectives are to maintain sustainable growth in the business and create long-term shareholder value. To achieve its business objectives, the company will implement the following business strategies:

1. Expansion of the business development team
2. Purchase of additional equipment and IT hardware and software
3. Establishment of a branch in Johor Bahru

MQ Trader View

Opportunities

1. The company able to offer a diverse range of comprehensive IT security and automation solutions catering to its customer's specific needs
2. The company has a diverse and reputable customer base

Risk

1. The company is dependent on its major customer, Setia Utama, and its ability to secure new projects
2. The company may face cost overruns and LAD claims in the projects
3. The company is dependent on its suppliers for the delivery of services

Click here to continue the IPO - Techstore Berhad (Part 1)

​​​Eager to explore more trading opportunities? Apply margin account now!

​https://bit.ly/mqatamargin

Community Feedback

We encourage traders to try out and evaluate the MQ Trader system and provide us feedback on the features you like to see in the system. We have received many positive feedbacks so far, and we are currently compiling and reviewing them for possible inclusion into the next release of the system.

We would like to develop this system based on community feedback to cater for community needs. Thanks to all those who have provided valuable feedback to us. Keep those feedback coming in!

Disclaimer

This article does not represent a BUY or SELL recommendation on the stock covered. Traders and Investors are encouraged to do their own analysis on stocks instead of blindly following any Trading calls raised by various parties in the Internet. We may or may not hold position in the stock covered, or initiate new position in the stock within the next 7 days.

Join us now!

MQ Trader stock analysis system uses Artificial Intelligence (AI), various technical indicators and quantitative data to generate accurate trading signals without the interference of human's emotions and bias against any particular stock. It comprises trading strategies which are very popular among fund managers for analysing stocks.

MQ Trader stock analysis system is SPONSORED for MQ Trader members. To use this amazing tool, you can sign up via MQ Trader Sign Up!

Contact us

Please do not hesitate to contact us if you have any enquiry:

Facebook: https://www.facebook.com/mqtrader

Instagram:https://www.instagram.com/mqtrader

MQ Chat: https://messenger.i3investor.com/m/chatmq

YouTube: https://www.youtube.com/channel/UCq-26SGjlQTVQfO7DoEihlg