KUALA LUMPUR: As the Malaysian financial services sector grows its regional and digital footprints, banking software solutions provider eBworx Bhd has been pursuing growth by riding the sector’s new dynamics.
eBworx CEO Tan Suan Fong said the ACE Market-listed firm’s strategy is to grow alongside Tier-1 banks, particularly those that have gone on a regional expansion path.
Its client base includes almost all the local banks as well as those in Singapore, Indonesia, China, Thailand and the Philippines.
As banks set up branches across the Asean region, eBworx hopes to play a role as their technology partner in implementing integrated software systems across their operating markets. There are two dynamics at work; a regulatory factor and a technological shift factor.
“The banking business is changing so fast. After implementing a system, banks need to enhance the system to keep pace with the changes in business,” Tan told reporters at a media luncheon last Friday.
He pointed out that when a financial service provider expands to a different country, it invariably faces limitations on the number of branches it can open.
“The Internet and mobile channels complement their shortcoming in terms of physical presence. We also see banks investing more and more in these channels as Internet and mobile banking become more important due to the technology shift towards the post-personal computer era,” Tan said.
in addition, the software requirements of financial service providers change as and when central banks tweak regulatory guidelines, Tan said.
He said the impending implementation of the Basel III global regulatory standards will also require banks to re-evaluate their internal frameworks, for example in the areas of credit processing and compliance, which will also drive eBworx’s credit management software business segment.
Although the Basel III guidelines have yet to be ironed out, Tan expects the software work to come in from 2013 onwards.
Although eBworx has contributed towards the group’s origins in providing electronic banking software from 1998, it has since diversified its product offerings.
From its earlier bread and butter business of software licensing and implementation, eBworx has in the past few years grown its recurring income stream by providing maintenance and systems enhancement.
Recurring income now makes up about 70% of eBworx’s top line after the group reoriented its business strategy away from one-off software licensing sales.
The bulk of eBworx products and services are now in Internet banking and mobile banking solutions, credit management processing software, helping banks analyse a loan applicant’s credit worthiness and financial services software.
The change in focus came after eBworx’s financial results took a hit in FY08 ended Dec 31.
During the period, the global financial crisis pushed many of its customers to implement cost-cutting measures.
As a consequence, eBworx’s net profit plunged 64.71% to RM2.77 million in FY08 from RM7.86 million a year earlier on a drop in revenue of 18.9% to RM31.23 million from RM38.51 million. eBworx’s earnings have since recovered.
According to unaudited results for FY11, eBworx’s net profit almost tripled to RM11.84 million from RM4.76 million previously. Revenue grew 57.39% to RM51.81 million from RM32.92 million.
For FY11, over half of eBworx’s revenue came from its Malaysian operations while almost 30% was contributed via its Singapore jobs.
Tan said the ideal situation is to have 70% of its top line from operations abroad with the rest from home base.
According to Tan, eBworx is targeting to secure RM70 million to RM90 million worth of jobs this year, adding to its ongoing order book of RM60 million.
eBworx’s share price has been climbing to hit a four-year high of 78 sen on Jan 28, but has since slipped to close last Friday unchanged at 73 sen.
The share’s performance was perhaps boosted by earnings growth and mounting expectation of a dividend payout with the company’s growing cash and bank balance of RM35.2 million.
However, Tan remained mum on eBworx’s potential dividend, saying that the board has yet to make a decision.
Liquidity is a concern given that eBworx’s three largest shareholders collectively control about 70.69% of the company.
Tan is the third largest shareholder with a 16.12% stake after CSE-Infotech Ltd and OSK Ventures International Bhd’s unit OSK Capital Partners Sdn Bhd, which own 29.21% and 25.36% equity interest respectively.
eBworx (market capitalisation RM149.41 million) is currently trading at a price-earnings ratio (PER) of 12.9 times.
Its PER is in the mid-range compared with its closest peers, South Korea-listed S1 Corp Ltd (market capitalisation about RM564.51 miliion) which is trading at a PER of 15.5 times and India-listed Nucleus Software Exports Ltd (market capitalisation about RM754,476) trading at a PER of 7.3 times.
According to Tan, its direct competitors are mostly from the US, Europe and India although companies in India operate on a low-cost software engineering model.
But building on eBworx’s regional experience, Tan said the future focus will be on growing its presence in Singapore, Indonesia and China.
“For the past five years, more than 80% of our revenue comes from existing customers. So we don’t really believe in recruiting a lot of new customers, we want to strike a balance,” Tan said.
This article appeared in The Edge Financial Daily, February 27, 2012.
