Kronologi allays concerns over growth outlook
Ho Chung Teng 
Teo says the company will focus on consolidating the enlarged group in the next six months, besides growing its recurring income revenue stream

Kronologi Asia Bhd, which provides enterprise data management (EDM) solutions, has its work cut out to garner greater investors’ confidence.

Despite posting higher net profit for its nine-month (9M) FY17 financial period, better that for the whole of FY16 ended Dec 31, 2016, the counter has gained little traction among the investing public. Its share price closed lower at RM1.01 on Nov 15 from RM1.25 on Nov 2 when it announced its Q3 results.

For 9MFY17, it turned in a revenue of RM101.6 mil and net profit of RM8.6 mil, compared with RM81.3 mil and RM7.2 mil respectively in FY16.

Fund managers say the lacklustre share performance after its Q3 result announcement was due mainly to profit taking. The counter rallied to a 52-week high of RM1.28 on Nov 2 from a 52-week low of 24 sen on Nov 15 last year.

However, a fund manager says the lack of investors’ interest is largely due to concerns over the company’s future prospects. He explains that the better Q3 profit growth was mainly inorganic, with contribution from its subsidiary Quantum Storage (India) Pte Ltd, which was consolidated in October last year.

“Due to its competitiveness, the EDM (business) will not have an exponential growth. Profit margins from retailing EDM hardware are also low,” he adds.

To allay investors’ concerns, Kronologi acting CEO and chief technology officer Philip Dominic Teo Chong Meng tells FocusM the company will focus on consolidating the enlarged group in the next six months, besides growing its recurring income revenue stream.

The company has two main business segments, namely, EDM infrastructure technology (retail of data storage hardware) and managed service (backup, storage and recovery of data).

For 9MFY17, the EDM infrastructure technology segment contributed 95.66% or RM97.23 mil in revenue. Net profit margin was 9.3% against 23.17% from the managed service division.

The fund manager says there were also concerns over Kronologi’s future profitability, especially from its subsidiaries, Quantum Storage (India) and Quantum Storage (Hong Kong) Ltd, whose profit guarantees will end in FY17.

“The consolidation of Quantum Storage (Hong Kong) will increase profit, but it is inorganic growth. The investing community wants organic growth as well,” he adds.

The net profit guarantee from Quantum Storage (India) is US$1 mil (RM4.23 mil) each year for FY16 and FY17, while Quantum Storage (Hong Kong) guarantees US$1.2 mil for FY17.

On Oct 9, Kronologi announced plans to acquire Quantum Storage (Hong Kong), and expects to complete the acquisition by year-end.

Plan to double revenue from managed services

One of Kronologi’s immediate plans to grow its recurring income is to double revenue from its managed service segment, says Teo, who is also an executive director.

“Our goal is to double the absolute revenue (from managed services), in the medium term. That is one of the internal goals we have to drive up the contribution from that segment.”

He says the catalyst to achieve this target will be its RM5 mil investment into the transnational data backup infrastructure in Hong Kong. This will serve as a service differentiator to its competitors such as Amazon Web Services, Microsoft Azure and Alicloud.

Kronologi has partnered with Singapore Technologies Electronics Ltd to extend its data storage and protection services at its Hong Kong data centre. Teo says the company has invested up to US$2.35 mil in new equipment which is being deployed there. The former British colony will be its second physical point of presence after Singapore.

However, he says Kronologi is not expecting significant contribution from the Hong Kong infrastructure as in the initial phase, it will be focusing its infrastructure for its existing Singapore and Malaysia customers.

“Down the road, when things are more stable and with our (full) acquisition of Quantum Storage (Hong Kong), there is a probability that we will expand that partnership and even build up the managed service business in Hong Kong.”

In addition, with the industry heading towards a hybrid storage system – a combination of hardware and cloud storage – Teo says Kronologi has architectured a hybrid approach for its clients, enabling them to use both its EDM hardware and cloud services.

“If customers want to move some of their data to the cloud, there is where the managed service segment comes in to complement the EDM segment,” he says.

Kronologi’s 9MFY17 net profit was better that for the whole of FY16

The acquisition of the Hong Kong subsidiary will create more opportunities for Kronologi to expand into China, he adds.

On its earlier planned expansion into Indochina, Teo says plans are still in place. “There are challenges (expanding) into these markets, but they’re still on our radar. We are trying to see how we can best leverage these markets.”


EDM business to stay flat

Compared with its managed services, Teo expects growth from the EDM segment to be relatively flat as the industry has matured.

“The business is maturing. We have some economies of scale which can drive profitability and that is what we are looking for from Quantum Storage (Hong Kong). There will be organic growth that we will push for … I would like to see 300%, but I don’t think (we can achieve that),” he adds.

Nevertheless, Teo remains optimistic of the EDM business prospect as data growth will be one of the certainties in life. “As your data grow throughout the year, you will need to continue to expand the system and add capacity,” he says.

While retailing EDM hardware is a non-recurring business with low profit margin, he says the retailing of EDM hardware is an ongoing partnership with its customers. For hardware, Kronologi partners with US-listed Quantum Corp, whose rivals include Dell, Hewlett-Packard and IBM.

“There will be upgrades which you need to purchase all the time,” Teo explains. In addition, he says the EDM business will also see continuing business due to a refresh of technology or extension.

“So moving forward, business will continue to grow in Hong Kong and India.”

Besides retailing Quantum hardware, Teo says about 10% of Kronologi’s contract revenue is recurring in nature. The company retails its products as a package that includes services, consultation in setting up the solution and maintenance.

“When we sell to customers, we encourage them to buy the maintenance for three years,” he explains.

This article first appeared in Focus Malaysia Issue 259.