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OPENING OPPORTUNITIES,
SYSTEMISING FINANCE
IN & BEYOND 2020
 
  • BANKS REQUIRE REINVENTION, OPENSYS MAKES IT HAPPEN
     
  • FOUR SUSTAINABLE BUSINESS REVENUES WITH MINIMAL DEFAULT RISK
     
  • HUGE LATENT DEMAND FOR CRMs IN MALAYSIA, ONLY CAPTURED 30% OF THE MARKET AT MOST
     
  • “BOTF” WITH A MARKET POTENTIAL - ABOUT 2,000 BANK BRANCHES ACROSS MALAYSIA
     
  • BUYSOLAR & SMARTCIT, TWO MORE INNOVATIVE PRODUCTS WITH GREAT POTENTIAL
     
  • RAKUTEN EXPECTING EPS GROWTH OF 15% AND 20% IN FY20 & FY21
     
  • DIRECTORS ACQUIRING OPENSYS SHARES IN JULY AT AVERAGE RM0.75/SHARE
     

BANKS REQUIRE REINVENTION, OPENSYS MAKES IT HAPPEN
While banks have been consolidating their branch footprint and closing some branches in the last ten years, branch network will remain a key service delivery for banks to maintain customer loyalty. Banks are now beginning to reinvent their branch network with new branch of the future concept that are fully digitalized yet customer centric using cash recycling, digital signage, interactive teller machine and tablet technology solutions.
In other words, ‘physical’ and the ‘digital’ are complementary elements that should co-exist to maximize the best of both worlds. OpenSys is in a unique position to make that co-existence of physical and digital happen with their CRM and “Branch of the Future” (BOTF).
Source: Opensys 2019 Annual Report

FOUR SUSTAINABLE BUSINESS REVENUES WITH MINIMAL DEFAULT RISK
  1. Outright Sales – Selling CRMs and cheque deposit machines are sold directly to the financial institutions
     
  2. Software Services - Provide software development services to customers when they need modification to their application software due to changes in their business or regulatory requirements
     
  3. Outsourcing Services - Provide bill payment kiosks to utility, insurance and telecommunication companies over a contract period of 3-5 years. The customers pay a rental for the machines plus a click charge for each transaction.
     
  4. Maintenance Services - Banks pay Opensys an annual maintenance fee of 10-12 percent based on the selling price of the machines. In return, Opensys services and repairs the machines to ensure high availability and optimum uptime.
All Opensys’ customers are blue chip companies. Due to the size and establishment of these companies, the revenues are sustainable and default risk is minimal. Their revenues and profits has been on an upward trajectory since 2016.
Source: Opensys 2019 Annual Report


Source: Opensys 2019 Annual Report
  HUGE LATENT DEMAND FOR CRMs IN MALAYSIA, ONLY CAPTURED 30% OF THE MARKET AT MOST

While the ATM provides many upsides to banks as well as their customers, the downside is that it is expensive to set up and operate an ATM infrastructure. In addition to high capital expenditure in hardware, software and network, the cost of cash represents the largest single segment of operating expenses for ATMs. To mitigate the high cost of cash, the technology trend in recent years is to merge the separate functions of cash-dispensing or cash-deposit into dual-function machines called cash recycling machines (CRM).

Moving forward, there is a huge latent demand for CRMs in Malaysia. Currently, the total number of self-service kiosks for all banks in Malaysia is approximately 17,000 units of ATMs, CDMs and CRMs and 3,000 units of cheque deposit machines. Due to the efforts of OpenSys, the number of CRMs increased dramatically from a small installed base of 200-300 units in 2014 to more than 5,000 units at end 2019.

The total installed base of CRMs now only constitutes about 30 percent of total machine population of 17,000 units. This means that Opensys has only captured 30% of the CRM market at most. There is another 70% CRM serviceable, obtainable market.

Partnering with OKI Electric Japan, the pioneer of CRM, Opensys has installed over 3,900 CRMs in Malaysia and capture a market share of about 80 percent. Our critical success factors can be attributed to having a superior cash recycling technology, better software applications and more reliable after-sales support.

The CRM installed base will continue to grow at the expense of ATMs and CDMs. If this migration rate reaches 90 – 100 percent like in matured countries such as Japan, Korea and China, OpenSys is in a prime position to profit from it.

Source: Opensys 2019 Annual Report



“BOTF” WITH A MARKET POTENTIAL - ABOUT 2,000 BANK BRANCHES ACROSS MALAYSIA

OpenSys achieved the first major breakthrough by successfully implementing a “Branch of the Future” (BOTF) solution that combines the power of CRMs, teller cash recyclers (TCR) and mobile digital tablets in one of the major banks in 2018. This momentum has been carried forward into 2019 and more banks are now evaluating Opensys’ BOTF solution.Opensys expects to begin a live trial with another major bank in 2020.

The market potential for Opensys’ BOTF solution is approximately 2,000 bank branches in Malaysia.

Source: Opensys 2019 Annual Report



BUYSOLAR & SMARTCIT, TWO MORE INNOVATIVE PRODUCTS WITH GREAT POTENTIAL

In February 2020, Opensys launched buySolar, a one-stop online solar marketplace that enables both residential and commercial customers to purchase solar panels with the best financing options. In addition, Opensys’ SmartCIT solution provides a single point of cash collection and kiosk service management. SmartCIT is currently going through customer trials and we are confident that SmartCIT will be well-accepted in the secure logistic market.

RAKUTEN EXPECTING EPS GROWTH OF 15% AND 20% IN FY20 & FY21

In an investment idea note June 9, Rakuten expects OpenSys to achieve record earnings for FY20 and FY21. This is driven by buySolar and SmartCIT, two Opensys’ new growth catalysts. They are expected to contribute 30% earnings in the next 3 to 5 years. At the same time, prevailing net margins remains stable at 11% and is expected to improve gradually over the years. This would catapult Opensys’ earnings to new high and expect growth momentum to continue with EPS to chart growth of 15 % and 20% for FY20 and FY21 respectively.



Source: Rakuten & The Edge Markets

DIRECTORS ACQUIRING OPENSYS SHARES IN JULY AT AN AVERAGE COST OF RM0.75/SHARE

 
In July, Opensys’ directors have acquired a total number of 7,492,700 shares between RM0.70 and RM0.80 per share. Taking an estimated average share price of RM0.75, the directors have bought a total value of RM5,619,525 of Opensys shares, in July alone.
On 13 August 2020, Opensys’ share price showed early signs of bullish trend reversal. It closed at RM0.705 - below the directors average acquisition cost in July 2020.

DISCLAIMER
The article is for sharing purpose only. There is no buy/sell recommendation.

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