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Sunday, July 15, 2018

New Kangtao KEYASIC?

When I first saw this company name KEY ASIC BHD in the local finance newspaper this morning, it seems so strange to me. It is listed in Bursa since Dec 2011, about 7 years ago. The news boosted about it’s bright future with unique product under Internet of Thing (IOT) industry. That further boosted m curiosity. What does this company does actually? IOT is a very big market from now till the future.

After did some researches, I found out indeed this is a technology company that developing it’s own IOT related products while doing ODM for it’s customers. It specializes design and manufacturing of IOT chips and system, connecting any electronics and non-electronic items to the Internet. Kcard, Kdrive, Mcard and Mdrive are the IOT products currently shipping in the market. It also offers turnkey ASIC design service and SoC design and manufacturing.

If you familiar with Bursa’s technology or semi-conductor listed companies, most of them are OEM and ODM. Those who do OBM are only a few, don’t talk about developing own products. Why is that? For those who doing OEM and ODM, they just need to follow the vendors requirement will do. Hence, the output will be guaranteed purchased by the vendors. The R&D expenses are also comparatively lower comparing to OBM and vendor. A good example will be INARI, GTRONICS, SKPRES, VS, etc. So why OBM or develop own products then?

Let’s look at Apple, Dyson, Nike and Samsung, are they making a lot more money than the OEM/ODM who assist them to make the products? Anyway, there’s no the point today we want to talk about. China ex-president used to say, whoever can catch the mice is a good cat.

If you are in the business, developing own product indeed the ultimate way to go. Let’s look at IQGROUP and SALUTE for example, they rather sacrifice their margin and share price but to focus on developing their own products. For KEYASIC, it is mainly focus on developing it’s products since listed and that is why, it is making losses over the past 7 years since listed. It’s bottom line only started to turn black over the last 3 quarters.

Basically I would say KEYASIC product is unique. Their trump card is it has built-in WIFI in the flash card and USB drive, allow the data flow freely from and to the memory. In fact, it’s just launch it’s enhanced product – block chain device named RYC in China last 2 weeks ago, which allow patients to store their own health data under the USB drive and able to retrieve by doctors whichever hospital they go easily. You can read the release from this URL:

The near future prospect for KEYASIC is definitely bright, if the MOH of China decided to acquire these USB drives from KEYASIC for contract basis. The margin is also superb where the previous 2 quarters have about 54-57% gross margin, since it is own developed products.

From the management prospect, it stated:
The Company has recorded two consecutive quarters of profits largely attributed by design fee (NRE), IP licensing and chips sales. The revenue associated with Internet of Things (IOT) has increased and it is expected to continue to do so in the coming quarters. There are a number of new engagement of designs with large companies from US and Japan using Mcard for Internet of Things (IOT) solutions. The Company has also invested additional business development resource in China market in the past few months and there are several new projects currently under development.

About the management trustworthy, I’m not sure at all. They are half Taiwanese and Malaysian board members. No doubt that the Taiwanese is strong in hardware technology development, where American is too strong in software development. But one thing for sure, the management seems not that keen on doing investor relations because I noticed some typo mistakes and errors in the quarterly and annual reports.

The management owns about 36.6% shares, where Khazanah National owns about 22.1%. Both of them took up in total of 59%. This makes me reminds of BIOHLDG where they have about the same arrangement. I guess Khazanah is betting about the better prospect of the company and hence bang on it for huge potential return once the business model is succeeded.

One thing for sure is KEYASIC is running out of money, where their cash balance is left with RM580k while operations and R&D still needs to be ongoing. Hence, they have proposed private placement to raise about RM45m for working capital, which will be 25% diluted upon exercise.  
KEYASIC share price stood at 18.5 cents as of 13 July 2018, valued at RM180m. If you take the latest quarter EPS as full year forecast, it’s PER around 4. The PER is considering very low since it’s a technology company, provided the company managed to sell it’s products and sustain from there. 
Anyhow, they have made loss over the last 8 years and make a lot investors shy away from investing this company. The recent few quarters black turning also does not spur much interest from the investors. It can be due to the current poor market sentiment.

Whether this company can be invested, the key is lies on your insight whether you can trust the management and the so called IOT products can sell? How easily it can be replicated since it’s just a USB drive with WIFI?

Let’s see.

Note: This post is not recommendation of buy or sell of a company shares, but only personal opinion.

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