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KarenSoft’s dilemma
Star Bizweek, Saturday, April 9, 2005
THERE was a margin facility. Then there was force selling. The share price plunges and throws a spanner in the works in the company’s proposed fund raising exercise via a private share placement. Does that sound familiar?
Mesdaq-listed KarenSoft Technology Bhd witnessed exactly that over the week. It must have been a traumatic experience for the founder of a company to watch his share price plunge more than 4 fold from a high of RM1.15 (mid-September 2004) to 26 sen (current level).
But for chief executive officer Chee Chong Hwa, life has to go on. In fact, contrary to expectations, he was in bright spirits when BizWeek met up with him. On the same day of the interview, he had delivered a speech on “Nurturing Information and Communications Technology Entrepreneurs” and “A start up to being a public listed companies” in an event organised by the MCA.
Still, the market has its own peculiar quality of spinning rumours. Chee impatiently quashes them as baseless. “I am hail and hearty. And since the listing of KarenSoft in January 2003, no director has left the board,” he says. He needs to say this as there were several spins in the marketplace that the reason for the plunge in KarenSoft’s share price was that “he was ill” and together with some directors, might leave the company.
“I’ve spent the last 6-12 months getting the ISO 9001-2001 certification to enhance our branding. We just turned around last year, and we expect our first quarter (results) to be profitable. I believe in my company. Why would I want to sell out from my own company?” he says.
Part of the reason for the sharp fall is that Chee holds a substantial amount of his shares on margin. As the shares had fallen below 50 sen, it had triggered force selling. Chee elaborates that he did not have sufficient funds to retain the shares and had to let go of some 15.57 million shares daily between March 29 and April 4.
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Kee quashes rumours onhis health, saying "I am hail and hearty". |
As of March 22, Chee had a 39.69% stake
in the company. Since then, his shareholding
has dropped to 20.4% (largely due to the
force selling) but he retains his position
as the company’s single largest shareholder.
“I am still in the driver’s seat,” he
says.
As typical in most cases of force selling, it spooked other investors who started to offload the shares, hence resulting in a steep fall in the share price.
Chee says: “I was slightly disappointed. The market doesn’t seem to recognise our fundamentals. But that’s reality. Now, its back to business as usual.”
Not quite, really. Hanging on uncertainty is KarenSoft’s planned 10% private placement that is meant to be completed by June 30. The placement was to raise funds to market its Execsuite software.
Kenanga Research says that the sharp decline in KarenSoft’s share price means that the chances of it placing out an additional 10% of its issued and paid-up capital is slim. “This also means that it would be highly unlikely for the company to fund an aggressive advertising and promotions campaign for its Execsuite software,” says Kenanga Research.
Chee says the ideal price for a private placement would be around its initial public offer price of 61 sen. As it stands, the current share price is quite some way off that target.
But there are alternatives, according to Chee. “We might do it in tranches ... or we could postpone the exercise until market conditions improve. Nonetheless, our 1-2 bonus issue will go on and will be done once the placement is completed,” he says, pointing out that the placement exercise can be extended with the relevant approvals.
Time for a turnaround
In the financial year ended December 2004, KarenSoft made a net profit of almost RM1mil. It managed to turn around from a net loss of RM595,000 in FY03. Turnover was 17% higher at RM6.15mil. KarenSoft attributes this improvement in profitability to higher sales and reduction in operational cost especially staff costs.
The higher revenue was a result of overall improvement in the flagship product, KarenSoft ERP2 and introduction of new product, KarenSoft ExecSuite.
Of late, there has also been talk that KarenSoft has emerged as an attractive merger and acquisition target due to its cheap price and its branding as a respected software house. However, Chee says no talks towards this end are currently being pursued.
“Should a proposition add value to KarenSoft and make it stronger, then why not?” he adds.
Over the week, KarenSoft announced its interest to obtain Level 5, Capability Maturity Model Integration (CMMI) accreditation after the completion of its ISO9001:2000 certification process.
With the ISO9001:2000 certification, KarenSoft would be at least par with Level 2, CMMI accreditation. The next logical step would be for the company to target the attainment of Level 5, CMMI certification.
On Thursday, KarenSoft announce the availability of its new mission critical application, KarenSoft Mini ERP. This has made KarenSoft an ERP provider of a full range of ERP systems targeted at difference business segments from the mid-tier down to the micro-mini level.
Chee says the soon-to-be-launched KarenSoft Mini ERP will be offered at an attractive price coupled with financing facility to eligible customers. This new product would be targeted at the SMIs while the micro-mini ERP, also known as KarenSoft ExecSuite, is targeted at SMEs level.
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