KUALA LUMPUR: Omesti Bhd, formerly known as Formis Resources Bhd, has been busy reinventing itself over the last nine months into a more innovative company with steady recurring income.
The technology solutions provider to small and medium enterprises (SMEs) and the financial services sector started to see interest in its shares last month, which surged from 50 sen to a one-year high of 75 sen. But it lost some upward momentum after the release of its earnings for the fourth quarter ended March of financial year 2015 (4QFY15). It retreated to 61 sen last Friday.
The swing of Omesti’s share price caught investors by surprise as the stock was on a downward trend last year, falling from the peak of 83 sen to 50 sen early this year.
The company’s net profit for 4QFY15 has more than halved to RM4.49 million from RM12.13 million a year ago. Revenue, however, was higher by 13% at RM100.85 million from RM89.22 million in the previous corresponding quarter.
The lower net profit was attributable to a lower gain on a dilution of equity interest in an associate, a lower gain on fair value adjustments on other investments and a marginally higher impairment loss on goodwill.
Chief executive officer Datuk Larry Gan said the weaker financial results were largely seasonal as most companies see their budget spending towards the end of the year.
For the full FY15, Omesti posted a net loss of RM335,000 against a net profit of RM31.97 million, despite higher revenue of RM435.47 million against RM352.29 million.
Gan told The Edge Financial Daily that Omesti aims to double its revenue to RM1 billion in three years’ time, by banking on growth in its new start-up businesses to bring in “exponential” and recurring income.
Gan has high hopes for Omesti’s connectivity business via fibre-based service offerings, fibre@home and its Internet Service Provider (ISP) focused telco, Ohana — a reseller of Telekom Malaysia Bhd’s (TM) high-speed broadband — to power up residential and commercial areas to home users and SMEs.
“We are currently in talks about wiring Putrajaya and will soon be speaking to developers of affordable housing like PR1MA,” said Gan.
Omesti’s edge in this area lies in its strategy of partnering with leading property developers to implement “last-mile installation”, where Omesti redirects TM fibre cables to each new property development and lays them out in each residential or commercial unit.
As it does not tie down property developers to specific services, it gives consumers the freedom to choose from among any service provider instead of tying them down to a specific service provider. The greenfield development will eventually turn into brownfield and bring in monthly recurring income from tenants.
“We have won eight or nine out of every 10 new property developments that we have bid for,” said Gan, adding that Omesti will look at replicating this concept in shopping malls, starting with Pavilion 2.
Omesti has currently secured 10 major developers and over 30 property projects to power 15,000 homes. Nine of these projects are expected to be completed by March 2016.
“We aspire to reach 100,000 connected homes in 2018 and 50,000 SMEs by 2019,” said Gan.
“These two companies (Ohana and fibre@home) have so far been contributing losses as we’ve been working on building market presence. However, revenue from these two companies alone rose from RM600,000 the year before, to an excess of RM10 million in the most recent year,” chief financial officer Richard Voon remarked.
Last year, Omesti undertook a reorganisation of the group’s structure, which saw five subsidiaries injected into its listed subsidiary, Microlink Solution Bhd.
Consequently, the net profit of Microlink, in which Omesti owns a 79% equity interest, jumped sixfold to RM9.21 million in the quarter ended March 2015, from RM1.51 million in the previous corresponding period. Revenue also swelled six times to RM61.94 million from RM10.29 million as a result of significant software sales contributed by the consolidation of its newly acquired entities.
“I think Microlink’s potential is slowly being recognised, as reflected in the share price. If you look at the potential articulated, Omesti is severely undervalued,” Gan noted.
Microlink is a provider of end-to-end banking solutions for financial institutions and it is a leading player in Islamic banking applications. Its share price had risen to an all-time high of RM1.85 on June 1 from 74.5 sen a year ago. It closed at RM1.62 last Friday, with a market capitalisation of RM246.49 million.
Microlink’s earnings have met regulatory requirements to be transferred to the Main Market of Bursa Malaysia.
To widen its public spread, Omesti has announced a plan to distribute up to 5.98 million shares to entitled shareholders, on the basis of one Microlink share for every 100 Omesti shares held.
Among Omesti’s substantial shareholders are Datuk Mah Siew Kwok with 24.6%, Tan Sri Megat Najmuddin Megat Khas 5.44%, who has sold part of his stake to Mah, Insas Bhd 11% and Red Zone Development Sdn Bhd 17.79%.
This article first appeared in The Edge Financial Daily, on June 15, 2015.