Right timing for KarenSoft?, TheEdge, Monday, January 20, 2003

KarenSoft Technology Bhd may have chosen just the right time to list. With market sentiment picking up on the coat-tails of Valuecap Sdn Bhd's expected foray into the market, analysts say the soon-to-be-listed company may get a better reception than some of its predecessors.

Still, this may not matter to the company, which develops software for enterprise resource planning (ERP). Most of its shares are held by the company's founder, its employees or "friendly parties", observers say. This means that its shares may not see much activity on its listing date.

The company offered only one million of its 68 million shares to the public. About 14.45 million shares were placed out and 1.85 million shares were made available to employees and selected directors of the group. Almost 50 per cent of the company's stock is owned by its founder Chee Chong Hwa.

But analysts say that they are not keen as yet to cover the stock. For one thing, its small share base and small free float make it difficult to market to institutional clients. Its lack of a profit record also makes it less attractive Vis-à-vis other listed and more established technology companies like HiTech Padu. Until it establishes a track record for itself, analysts are more inclined to stay on the sidelines.

KarenSoft isn't really in the same league as these other listed companies. It is a niche player that focuses purely on ERP, which in commonspeak means that it makes almost everything a business organisation would need to manage its people, like products and finances, electronically. The key to whether its business would be exciting, analysts say, is whether the company has a strong brand name and whether it has built a strong niche for itself.

A brand that is over 10 years old, KarenSoft operates in the same category as established big names like SAP, Oracle and Peoplesoft, but according to Chee, the company isn't going head-to-head with the big boys. It would instead concentrate on the medium companies which are willing to pay around RM500,000 for its ERP software. This segment, says Chee, is relatively unpopulated by competitors. Its software is also bundled as a solutions partner with IBM.

The company, which is expected to turn in a profit for financial year 2002, is looking to China for growth. It will be KarenSoft's first venture overseas, but it has taken a cautious approach. The company is planning to "to follow the customer in", and train users, trainers and partners through its KarenSoft Institute of Technology.

Analysts note that KarenSoft's margins seem to be higher than other listed technology companies. At an estimated 45 per cent, it is yielding better returns than other software, hardware or services operators. HiTech Padu, which is predominantly a software operator, on average sees profit margins of about 30 per cent, while hardware-cum-services providers like Computer Systems Advisers (M) have profit margins estimated at around 10 per cent.

"That it is able to grow at a time where its target companies are not keen to invest in IT [information technology] is itself an encouraging sign," says an analyst with a local stockbroking house.




KarenSoft Technology Bhd
IPO details
Mesdaq Market of the KLSE
Issue price: 61 sen
Par value: 10 sen
Paid-up capital: RM6.80 million
Estimated free float: 25.4 per cent
Controlling shareholder(s): Chee Chong Hwa (49.04 per cent, directly and indirectly held); Khaw Teik Gim (11.13 per cent, directly and indirectly held)
Bumiputera allocation: Nil
Oversubscribeb by: 17.5 per cent
Fair value: NA
Listing date: Feb 24


EARNINGS PROJECTIONS
YEAR-END DEC 31
RM MIL
2000 2001 2002
(ANNUALISED)
Pre tax profit 0.054 -0.471 1.45
Net profit 0.021 -0.531 1.27
Net EPS (sen) based on share capital of 68 million 0.03 (0.78) 1.87
Net PE based on offer/issue price of 61 sen per share (times) 2033.33 NA 32.6
Net dividend per share (sen) NA NA NA
Net dividend yield (per cent) NA NA NA

NA - not available






By LEE CHUR YU