This article first appeared in The Edge Malaysia Weekly on December 16, 2024 - December 22, 2024

RADIANT Globaltech Bhd (KL:RGTECH), an ACE Market-­listed technology firm, is in the midst of acquiring an 80% stake in Rymnet Solutions Sdn Bhd for RM52.5 million. This strategic acquisition is aimed at enhancing its existing IT solutions by integrating human resources (HR) management system modules, thus allowing Radiant to offer a more comprehensive and integrated service to its customer base.

The deal, which marks Radiant’s largest merger and acquisition (M&A) transaction, includes a profit guarantee of RM11 million from Rymnet for two years.

Radiant vice-chairman and senior executive director Paul Yap Ban Foo highlights that the acquisition of a majority stake in Rymnet is expected to contribute significantly to the group’s future profitability.

“Rymnet is anticipated to account for half of Radiant’s profits in the coming years. In terms of deal size, this acquisition is also our biggest M&A exercise to date,” he tells The Edge in an interview at Radiant’s headquarters in Bangsar South, Kuala Lumpur.

Rymnet is an IT solutions provider with a focus on HR management operations, including payroll, time attendance and e-learning software modules.

According to Rymnet founder and CEO Bryan Un Sze Hau, the company was one of the earliest firms to adopt cloud elements in its solutions, which is aligned with its vision of delivering future-ready, scalable and efficient IT systems to its clients.

“Rymnet is actually profitable enough to go for a listing by itself, but we decided not to pursue our own IPO (initial public offering) and instead have opted to align with Radiant due to the strategic synergies. This expanded market works both ways. For instance, we can leverage Radiant’s reach into Indochina,” Un explains.

Paul concurs that as Radiant integrates Rymnet into its ecosystem, the group anticipates cost efficiencies and the ability to offer bundled solutions, making it even more competitive in the IT solutions market.

“Our aim is to enable businesses to streamline their operations, and the addition of Rymnet’s HR modules will provide our clients with the tools to manage their workforce more effectively. The acquisition is also expected to improve our revenue streams by tapping into Rymnet’s established client portfolio and expertise in a high-demand segment,” he elaborates.

Paul, 59, is the single largest shareholder of Radiant with a 24.75% stake. Meanwhile, Freddy Yap Sin Sang, another senior executive director, is the second-largest shareholder with an 18.65% stake. Paul and Freddy are not related.

Interestingly, 99 Speed Mart Retail Holdings Bhd (KL:99SMART) founder Lee Thiam Wah and his wife Ng Lee Tieng collectively own a 15.77% stake in Radiant. This connection is further strengthened by 99 Speed Mart being one of Radiant’s clients.

Tan Chuan Hock, a former non-executive director of LKL International Bhd (KL:LKL), is also a substantial shareholder of Radiant with a 9.08% stake.

Other top 30 biggest shareholders of Radiant include group CEO Cheng Ping Liong, sales director Lim Kiat Hin, former Grand-Flo Bhd managing director Derrick Tan Bak Hong, Fortress Opportunistic Growth Fund and Tradeview Capital Sdn Bhd.

In 2019, Derrick sold his listing vehicle Grand-Flo to real estate businessman Datuk Seri Yap Ngan Choy’s YBG Yap Consolidated Sdn Bhd. Following the change in major shareholders, Grand-Flo underwent a transformation, adopting the name of NCT Alliance Bhd (KL:NCT) and shifting its focus to property development.

In 2020, Grand-Flo sold an 80% stake in its enterprise data collection and collation system (EDCCS) solutions unit, Grand-Flo Spritvest Sdn Bhd, to Radiant for RM11.6 million. About three years later, Radiant acquired the remaining 20% stake in Grand-Flo Spritvest for RM12.6 million, making it a wholly-owned subsidiary.

Radiant has close to three decades of experience in providing technology solutions for the retail and industrial sectors. Its expertise spans digital transformation, sales data collection and process automation, as well as supply chain optimisation.

In the retail sector, the group offers business-to-business (B2B) platforms, point-of-sale systems, e-commerce platforms and customer relationship management (CRM) tools that drive customer engagement and sales growth.

For the industrial sector, Radiant’s services include sales force automation and warehouse management systems, and enterprise resource planning (ERP) software integration, all designed to enhance operational efficiency and reduce costs.

Radiant has a well-diversified customer base across five countries in Southeast Asia, with over 1,000 active clients in the retail and industrial sectors. Among its more prominent clients are FJ Benjamin, Burger King, A&W, Subway, Segi Fresh and 99 Speed Mart.

While Radiant specialises in the retail and industrial sectors, its expertise also extends to healthcare, finance, logistics and the public sector. With a regional presence, the group has successfully implemented projects in Vietnam, Cambodia, Singapore and Thailand, adapting to various market dynamics and regulatory environments.

Radiant’s turnover remained stagnant at above the RM130 million level between the financial year ended Dec 31, 2021 (FY2021) and FY2023, while its earnings were flat at over RM7 million annually during the same period.

For the first nine months ended Sept 30, 2024 (9MFY2024), the group reported RM87.6 million in revenue and RM3.28 million in profit. Its cumulative earnings in 9MFY2024 was 23% lower than the RM4.29 million reported in the same period a year ago. The weaker performance was mainly due to fewer deployment of projects in the hardware and maintenance segment, as well as an increase in impairment of financial assets. At present, more than 90% of its top and bottom line is contributed by its Malaysian operations.

The acquisition of Rymnet is timely as Radiant seeks to double its annual profits. Under the terms of the acquisition, a profit guarantee of RM11 million for two years (FY2024 and FY2025) from Rymnet has been established, ensuring a baseline level of profitability for the acquired business.

“We have received the green light for the acquisition from our shareholders at the recent EGM (extraordinary general meeting). Once the acquisition is completed, Rymnet will start to contribute to our group’s bottom line from 1QFY2025 onwards,” says Paul.

He reiterates that the RM52.5 million investment reflects the value Radiant sees in Rymnet’s technology and the latter’s established track record in the provision of HR management solutions. This will allow Radiant to expand its market share in key sectors.

“Rymnet’s existing client base of 1,000 complements our own customer base of over 1,000, and we see potential in cross-selling opportunities as we integrate its solutions into our offerings. HR management systems are a natural extension of our IT solutions portfolio.

“With this partnership, we are well positioned to tap into industries like manufacturing, FMCG (fast-moving consumer goods), FSI (financial services industry) and retail, where advanced HR solutions are becoming a necessity rather than a luxury,” says Paul.

Un observes that as businesses increasingly prioritise workforce management amid shifting workplace trends, opportunity arises to provide tailored solutions that address these emerging needs.

“There is a growing demand for integrated IT solutions that include HR capabilities. Rymnet brings to the table proven systems and expertise, which are aligned with Radiant’s strategic goals,” he remarks.

Un will retain a 20% stake in Rymnet after disposing of his 80% stake in the company to Radiant in a cash-plus-share deal. He will be paid RM42.5 million of the purchase consideration in cash and the balance RM10 million via the issuance of 30.3 million shares at 33 sen per share.

Upon the completion of the deal, Un will be a new substantial shareholder of Radiant with a stake of more than 5%. Meanwhile, Radiant’s net cash position will deplete to about RM20 million.

A back-of-the-envelope calculation shows that with a profit guarantee of RM11 million over two years, Rymnet would contribute about RM5.5 million per year, which would translate into additional earnings per share (EPS) of one sen to Radiant, whose EPS stood at 1.4 sen in FY2021 and FY2022, followed by 1.5 sen in FY2023.

It is worth noting that the acquisition values Rymnet at 15 times its historical price-earnings ratio (PER) and 12 times its forward PER which, according to Paul, is considered reasonable. Rymnet reported an audited profit after tax of RM4.17 million for the financial year ended Dec 31, 2023.

“The valuation was based on Rymnet’s historical profit, profit forecast and potential growth. The outcome from our principal adviser’s analysis reported that current relevant PLCs (public listed companies) are trading at a PER of 20 to 60 times, at an average of 39 times,” he says.

The share price of Radiant had declined 8% over the past six months to close at 33 sen last Wednesday, giving the company a market capitalisation of RM173.32 million. The counter is currently trading at a trailing 12-month PER of 26 times, against its cumulative profits of RM6.582 million in the last four quarters.

In comparison, ACE Market-listed human capital management provider Ramssol Group Bhd (KL:RAMSSOL) is currently trading at a historical PER of 19 times. 

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