KUALA LUMPUR (June 21): Tech-driven global business services (GBS) provider Daythree Digital Bhd, which is set to debut on the ACE Market on July 26, has set its initial public offering (IPO) price at 30 sen per share to raise RM36.72 million under the listing exercise.

At 30 sen per share, Daythree Digital is expected to have a market capitalisation of RM144 million after listing, valuing the company at about 23.1 times based on its net profit of RM6.2 million for the financial year ended Dec 31, 2022 (FY2022).

At its prospectus launch on Wednesday (June 21), the group said RM33.12 million of the proceeds will be raised from the issuance of 110.4 million new shares, representing 23% of its enlarged share capital of 480 million shares.

Of the 110.4 million new shares, 24 million new shares will be made available to the Malaysian public via balloting, followed by 12 million new shares for its eligible directors and employees, while the remaining 74.4 million new shares are earmarked for placement to selected investors.  

The IPO includes an offer for sale of 12 million existing shares by Daythree Digital shareholders to selected investors by way of private placement.

Daythree Digital is a GBS provider focusing on customer experience (CX) and lifecycle management services enabled by digital tools developed in-house. It serves clients across industries such as energy and utilities, telecommunications and media, fintech and financial services, construction, e-commerce and retail, healthcare, as well as travel and hospitality.  

Of the proceeds to be raised from the public issue shares, the company plans to use RM14.7 million (44.4%) for working capital to recruit an additional 380 CX executives to enhance its capacity to service growing number of contracts. It will also use RM3.02 million (9.1%) to recruit industry experts to capture growth opportunities in the local GBS industry.

“Within the short to medium term, we plan to double our headcount from 1,800 people currently,” its managing director Raymond Davadass told reporters at the prospectus launch.

Quoting the independent market research by Protege, Davadass said the Malaysian GBS industry is expected to grow from RM24.79 billion in 2023 to reach RM31.74 billion in 2027, representing a compound annual growth rate of 6.3% during the period.

With the company occupying less than 1% of the total market share of the local GBS industry, he thinks it is a positive indication that Daythree Digital, which was founded in 2016, is a young and growing company, with tremendous growth opportunities to capture in the huge GBS industry.

Daythree Digital is also looking into regional expansion, attracting and serving more regional brands, Davadass added.

In tandem with the expansion, Daythree Digital will enter into a lease contract to rent 380 units of computer equipment per CX executive.

A further RM7.1 million (21.4%) of the proceeds will be used to part-finance the additional working space required for its growing customer base and the expansion of its headquarters to cater for the rising number of employees as well as to set up a multipurpose facility for internal training and meetings.  

It will then spend RM3 million (9.1% of the proceeds) for capital expenditure in networking infrastructure, RM1.5 million (4.5%) for branding marketing and promotional activities, and RM3.8 million (11.5%) to defray estimated listing expenses.  
 
Davadass said the company expects its working capital requirements to increase in tandem with the expected growth in scale of its operations.  

"People cost is a significant component in our business and as such, we have allocated 44.4% of the proceeds for working capital for our upcoming projects and/or contracts... This is because the number and size of contracts that we can undertake at any point in time depend largely on the availability of our working capital (and manpower).  

Its net profit of RM6.2 million for FY2022 was 35.42% lower versus RM9.6 million in FY2021, despite revenue climbing to RM65.1 million from RM58.1 million.

The lower profitability was due to a lower net profit margin of 9.6% for FY2022 — versus 16.6% for FY2021 — dragged primarily by lower earnings from its construction customers. It was also impacted by higher administrative expenses due to listing spending, and higher income tax expense as the effective tax rate was higher at 26.9% than the statutory tax rate of 24% due to its listing expenses.  

In FY2020, the group recorded a net profit of RM5.6 million on the back of a revenue of RM47.7 million.

The IPO is open for subscription from Wednesday until July 11, 2023. M&A Securities Sdn Bhd is the adviser, sponsor, underwriter and placement agent for the IPO exercise.