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DIS TECHNOLOGY HOLDINGS BERHAD (“DIST”) RESEARCH REPORT FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 1. FINANCIAL PERIOD UNDER REVIEW Financial year ended 31.12.06 RM’000 83,042 2,201 Financial year ended 31.12.05 RM’000 52,979 1,299 Revenue Profit Before Taxation (“PBT”) Profit After Taxation (“PAT”) Quarter Ended 31.12.06 RM’000 20,974 348 Quarter Ended 31.12.05 RM’000 16,267 353 Percentage change % 28.94 (1.4) Percentage change % 56.75 69.44 347 353 (1.7) 2,200 1,299 69.36 Revenue and Profit Before Taxation For the current quarter under review, DIST and its subsidiary companies (“DIST Group” or “Group”) achieved a revenue of approximately RM20.97 million as compared to RM16.27 million in the preceding year corresponding quarter. The Group recorded a slight decrease in PBT of approximately RM0.34 million as compared to RM0.35 million in the preceding year corresponding quarter, mainly due to higher staff cost incurred and higher finance cost due to the utilization term of loan and trade facilities. For the financial year ended 31 December 2006, the Group had achieved a significant increase in revenue of approximately RM30.06 million to RM83.04 million or 56.75%. This impressive result was attributable to the higher revenue generated by the Group as a result of its ongoing brand awareness, aggressive marketing efforts undertaken by the Group and global consumers‟ acceptance of its products. In line with the growth in the revenue, the Group‟s posted a profit before taxation of approximately RM2.20 million for the current year to date, as compared to approximately RM1.30 million in the preceding year. 2. SUMMARY OF FINANCIAL RESULTS Audited results for the past four (4) financial years 2002*^ 2003*^ 2004 2005 28,380 1,278 4.5 959 100,345 41,082 2,752 6.7 2,020 100,345 41,582 3,233 7.8 2,980 102,827 52,979 1,299 2.45 1,299 143,268 Year ended 31 December Revenue (RM‟000) PBT (RM‟000) PBT margin (%) PAT (RM‟000) Weighted average number of ordinary shares in issue („000) Gross earnings per share (“EPS”) (sen) Net EPS (sen) Unaudited 2006 83,042 2,201 2.65 2,200 143,268 1.27 0.96 2.74 2.01 3.1 2.9 0.91 0.91 1.54 1.54 DIS TECHNOLOGY HOLDINGS BERHAD (“DIST”) RESEARCH REPORT FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 Notes: ^ * There were no Group results prior to the financial year ended 31 December 2004. Extracted from the Accountants Report dated 17 November 2004 as disclosed in DIST’s Prospectus dated 29 November 2004, based on the assumption that the Group structure has been in existence throughout the years under review. 3. 3.1 INDUSTRY OUTLOOK AND FUTURE PROSPECTS Overview of the Malaysian Economy Malaysia has achieved significant progress in developing the economy and improving the quality of life of its people, despite the difficult and volatile external environment in recent years. Economic management in 2006 remains challenging amidst an environment of persistently high crude oil process, rising global interest rates and increasing competition from China, India and other emerging regional economies. With pragmatic macroeconomic policies coupled with strong economic fundamentals, including robust private investment, low unemployment as well as steady consumer spending, real Gross Domestic Product (GDP) is projected to grow at 5.8% in 2006 (2005: 5.2%). The growth momentum in Malaysia remains strong, driven by robust domestic demand and favourable export performance. Growth is supported by favourable financing and stable labour market conditions. The Government‟s strategic decision to move from a fixed exchange rate regime to a managed float was well-received and contributed to further boosting investor and consumer confidence. These factors, coupled with pro-business policies and political stability, continue to provide the enabling environment for the economy. Growth in 2006 is expected to be broad-based with positive contribution by all sectors, led by services, manufacturing and agriculture. Strong domestic consumption and continued expansion in trade-related activities are expected to support growth in the services sector, especially in the wholesale and retail trade, hotel and restaurants; transport, storage and communication; and financial services sub-sectors. The global uptrend in demand for electronics will impact positively on Malaysia‟s exports of electrical and electronic products, leading to a stronger growth in manufacturing output. The manufacturing sector is expected to expand further, increasing by 7.3% in 2006 (2005:5.1%), with production in the export-oriental industries contributing 63.6% to total output. The robust performance of the manufacturing sector is based on higher output growth of 8.7% registered in the first six months of 2006 (January-June 2005: 3.8%) and anticipated continued expansion in the second half. The economic growth momentum in 2006 is expected to continue into 2007 at a stronger pace of 6%, supported by sound domestic economic fundamentals and a conducive business environment. (Source: Economic Report 2006/2007) DIS TECHNOLOGY HOLDINGS BERHAD (“DIST”) RESEARCH REPORT FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 3.2 Overview and Outlook of the Malaysian Information and Communications Technology (“ICT”) Going into 2007, the Association of the Computer and Multimedia Industry of Malaysia (PIKOM) foresees the ICT market to perform slightly better but the pace will remain moderate. Growth is expected to be around 13%, with the Government sector expected to remain as the main driver. (Source: www.pikom.org.my) Economic activities within the field of ICT will be developed and further strengthened, building upon Malaysia‟s strengths. Malaysia will continue to position itself as a preferred destination for shared services and outsourcing. In terms of new activities, the Government will develop the local digital content industry as well as bioinformatics. To support the growth of the ICT industry as well as bolster general economic efficiency, measures will be taken to increase access to and utilisation of ICT services and facilities, including enhancing e-Government and encouraging the usage of e-commerce among businesses and customers. (Source: Ninth Malaysia Plan 2006-2010) 3.3 Future Prospects of the DIST Group By continuing its cutting-edge research and development, the Group is looking well into the future to develop new and exciting products to add to its product range. The Group will also continue explore and pursue potential business opportunities in countries among others such as Indonesia, the Eastern European regions and various parts of the United Kingdom. In addition, DIST had on 29 January 2007 completed the acquisition of 100% of equity interest in ZEON Computer (M) Sdn Bhd (“ZEON”) and expects positive contribution from ZEON in terms of revenue growth and increasing its market shares with its efficient support service and extended network for the local market and complement its existing international market presence. Barring any unforeseen circumstances, the Board of DIST anticipates that the performance of the Group will continue to grow steadily throughout year 2007. 4. BUSINESS DEVELOPMENT PLAN AND FINANCIAL IMPACT As outlined in the Group‟s Prospectus dated 29 November 2004, DIST aims to make Blue Thunder a leading, globally recognised brand name by offering reliable, innovative products that are competitively priced. The following are the progress of our business development plan to achieve the Group‟s objectives: (i) Introducing new IT products DIST has constantly introduced innovative and attractive IT products into its products range. Currently, DIST has eight (8) types of products category as compared to six (6) types at the time of listing. The latest two (2) categories are Digital Audio Broadcasting (“DAB”) radios and Multi Charger. At the end of the financial year ended 31 December 2006, DIST has more than fifty (50) types of products. (ii) Promoting and marketing the Blue Thunder brand name To further increase brand awareness, DIST has and will continue to carry out promotions and sponsorships and to participate in and attend industry exhibitions, trade shows and IT fairs both locally and abroad such as The International Consumer Electronics Show (CES), CeBIT, ASEAN Communication Expo & Forum and etc. This serves as an avenue to meet potential customers and suppliers and also to increase public awareness of the Blue Thunder brand name. Such events will also help the management to keep abreast with new developments and technology in the market as well as to generate new ideas for the business. DIS TECHNOLOGY HOLDINGS BERHAD (“DIST”) RESEARCH REPORT FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 (iii) Strengthening after-sales support and expanding the Group’s distribution network DIST understand that good after-sales service and support is a key to the Group‟s future growth. DIST believes in giving more value for money by providing warranty and continuous online technical support for all Blue Thunder products. Feedback is taken seriously and continuously to improve future product designs. DIST has set up a marketing office in Kuala Lumpur to expand its market share in southern and central region of Malaysia. DIST has also set-up a sales and service center in Penang in 2005. This center has been set up with the purpose of servicing clients, collecting useful market information and promoting brand awareness. DIST had on 29 January 2007, completed the acquisition of 100% of equity interest in ZEON. DIST‟s plans to utilize the strong presence of ZEON in terms of distribution and marketing, to extend its marketing and expand its market share of Blue Thunder product line locally and to complement its existing international market presence. Utilizing ZEON‟s extended network, DIST intends to penetrate into new markets such as the increasing number of local universities, colleges as well as the corporate market, a totally new market from its traditional target consumer market. In addition, DIST is able to extend its after-sales service through the various branches of ZEON located throughout Penang, which would strengthen its Return Material Authorisation support and DIST's commitment in delivering top rated customer service to its loyal customers. (iv) Human resource In line with the Group‟s expansion and commitment to tap on the global market, the present staff strength of the Group has increased from 33 employees in 2004 to 71 employees at the financial year ended of 31 December 2006. It is the Group‟s intention to recruit, train and impart knowledge and skills to Malaysian employees to be part of the Group in order to deploy, support and carry out research and development on the products. The Group also recognises the importance of its employees and updates and enhances their knowledge on the latest developments in the industry by sending them to participate in various courses throughout the year. (v) Dolarmaker.com Since its official launch in May 2005, dolarmaker (www.dolarmaker.com) has been making improved strides to market itself as the place to be for online purchasing of Blue Thunder range of products. Dolarmaker also signed up with Maybank2U.com and Pay-Pal.com for its first e-commerce payment gateway and has recently added another payment gateway known as the Financial Payment Exchange (FPX). As a result, online buyers can make payments via Maybank2U, Bumiputera-Commerce Bank, Public Bank, Hong Leong Bank, Bank Islam and also via Major Credit Cards. To date, dolarmaker has successfully signed up for more major online computer gaming companies based in Malaysia as its new business alliance. These companies collectively, control nearly 85% of the total online gaming market within the country. DIST have been working closely with online computer gaming companies to promote special package deal cater to sell in dolarmaker.com and this have proven to be an effective way to attract buyers to purchase more with attractive discounted prices. Dolarmaker had launched its Cyber Store in mid May 2006. The marketing team of dolarmaker.com have been working with various distributors to sell IT products online and had successfully added more IT and accessories products and also introduced more games into the website. As at end of December 2006, Dolarmaker had more DIS TECHNOLOGY HOLDINGS BERHAD (“DIST”) RESEARCH REPORT FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 than 2000 IT products constantly selling online and with the frequently up-to-date prices. By working in partnerships with the distributors, DIST has the potential to source for the latest products at competitive prices for buyers as well as corporate purchasers. To date, Dolarmaker had managed to attract some corporate companies and multi-national companies and even some computer shops placing orders from Dolarmaker. Besides its own Cyber Store, Dolarmaker is also working with Maybank2U.com to sell its products online on Maybank2U.com, and will also be working with Pos Malaysia to sell its products on Pos Malaysia website by end of March 2007. Dolarmaker has been offered „Fraud Chargeback Guaranteed‟ by Moneybookers.com, one of the largest Europe online payment gateways due to Dolarmaker‟s good and low percentage of Fraud Cards records. The business development plan is carried out as planned. The progress of the business development plan has no material financial impact on the DIST Group. Barring any unforeseen circumstances, the plans undertaken by the Group are expected to contribute positively to the Group‟s financial position in the long term. 5. RESEARCH AND DEVELOPMENT (“R&D”) The Group recognises the importance of R&D to ensure its business sustainability and in facilitating its future growth. As at to date, the Group‟s on-going R&D projects are as follows: (i) DAB Radio DAB is a technology for broadcasting audio programming in digital form that was designed in the late 1980s. The original objective of converting to digital system was to enable higher fidelity, greater noise immunity, mobile services, and new services, and the audio quality of stations broadcasting in DAB is superb. DIST has successfully created the first of its kind ever in the world and first-made-in-Malaysia Blue Thunder DAB Radio with MP3 playback. It embraces the latest and most advanced broadcasting technology available. It has won the PIKOM-Computimes ICT Award 2005 and has received overwhelming response in its recent launch in CeBIT 2006 Hannover, Germany. This has again reaffirmed DIST‟s success in its transformation into a major international Digital Broadcasting Design House. In year 2006, DIST has completed the design and development of all the 300 series of DAB radios. The models are LX300, DX300 and MX300. As at to date, DIST is working on the updated versions of the 300 series. The newer models, dubbed 350 series, will feature enhancements such as alarm/clock, infrared remote control, „live® rewind‟ features, SRS WOW surround sound, and other interesting features. The 350 series will maintain the competitiveness of the DAB radios of DIST, both technologically and value-added feature-wise. The 350 series will spot a totally new cabinet designs that are both unique and futuristic in order to cater to the wider range of consumers. As the DAB market is widespread across all the demographic age groups, the newer and futuristic designs will bode well with our expected targeted end users. The 350 series of DAB radios are expected to be ready in time for CeBIT 2007 in Hannover, Germany in March 2007. DIS TECHNOLOGY HOLDINGS BERHAD (“DIST”) RESEARCH REPORT FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 Charger Mate – Smart Portable Charger Charger Mate is the first and only compact, portable rechargeable battery/charger for a myriad of electronic devices such as mobile phone, personal digital assistant (“PDA”), MP3 player, digital camera and many other battery hungry devices. The uniqueness of Charger Mate is that it enables users to recharge their digital devices instantly and more importantly it‟s the first and only compact rechargeable battery that can be recharged from a variety of ways - from one‟s mobile phone charger, from an AC Adaptor, a car cigarette lighter power socket or even from a electricity powered PC USB port. As of end of 2006, DIST has completed the development of both Charger Mate CB001 and CB002 models. Currently, DIST is finalizing the design for CB003 i.e. a Charger Mate specially designed to cater to Apple‟s iPod MP3 player. CB003 will be capable of charging iPod and yet at the same time, enable to stream the audio from the iPod, processed it ® before outputting it as SRS WOW surround sound audio, all in real-time. Hence, with CB003, all iPod users can now enjoy the supreme surround audio effect ® of SRS WOW on all their songs and movies stored in the iPod. At the same time, the playback time will be increased significantly because CB003, which is also a complimentary gadget to iPod owners, will act as a backup battery to the iPod itself. CB003 is expected to be ready in time for CeBIT 2007 in Hannover, Germany in March 2007. For the year ended 31 December 2006, the Group has spent a total of RM12.8 million on R&D activities. The R&D is carried out by the Group‟s in-house R&D team. To date, apart from their salary costs, there are no major capital outlay attributable to R&D activities. The Board of Directors and management are of the view that the allocation for R&D is in the normal course of business which will not have any significant financial impact on the Group 6. TEN (10) LARGEST SHAREHOLDERS Set out below are the details of the Group‟s ten (10) largest shareholders based on the Record of Depositors as at 31 January 2007 and their respective shareholdings: Name 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Cheah Yew Keat Radziwill Bin Mohamed LHS Capital Holdings Sdn Bhd Nadin Bin Ibrahim Yap Lee Boon Yeng Lee Boon Kheng Lee Boon Teik Tan Eng Chang Siew Poh Ngan Lim Koon Seng TOTAL No. of shares held 57,307,520 17,908,500 9,304,200 6,670,000 4,606,000 3,429,000 3,000,000 2,332,000 2,282,900 1,362,000 108,202,120 % held 40.00 12.50 6.49 4.66 3.21 2.39 2.09 1.63 1.59 0.95 75.52 (ii) DIS TECHNOLOGY HOLDINGS BERHAD (“DIST”) RESEARCH REPORT FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2006 7. PROFIT FORECAST The Group did not disclose any profit forecast in respect of the financial year ended 31 December 2006. 8. UTILISATION OF PROCEEDS For the financial year ended 31 December 2006, the Group did not have any proceeds from equity financing exercises to be utilised.
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