A palette of good news

  • Business
  • Saturday, 02 Sep 2017

Positive outlook: Eg says recent contract wins will help Palette expand its networking business and further develop its mobile health business in the Russian market.

Positive newsflow lifts Palette Multimedia to 5-year high

Salient points

> Palette has won close to RM20mil of contracts

> Reported a small profit in latest quarter from a loss previously

> The stock touched a five-year high of 17 sen on Aug 29

IT was probably a matter of time before the share price of broadband, wireless and networking services company Palette Multimedia Bhd would stir.

Palette’s shares have been consolidating close to 18 months now, as investors had remained sceptical of the company’s ability to turn around, and would rather wait for earnings to be delivered.

The company did deliver on earnings, albeit only showing a small profit.

Still, over the past few months, Palette seems to have attracted a level of investor attention.

Even with its share price running up by almost 100% to 14.5 sen over the last few weeks, its market cap remains small at below RM50mil.

In the past, Palette has had suitors looking to either buy over the company or take a stake. The company is debt free.

Back in December 2016, it was reported that Palette had received a takeover offer from a local investment fund to acquire a controlling 51% stake in the company.

The company, however, clarified that the offer was made in an email to its major owner Eg Kah Yee, who only owned 17.2% equity interest in the company. Palette also said that the company “did not receive any takeover offer”.

Palette was loss-making then.

Turning around

Early last month, Palete turned around in its fourth quarter ended May 31, 2017.

The company recorded a profit of RM664,000 on the back of revenue of RM4.91mil. For the full year, the company was still in the red with losses of RM802,000 on the back of RM5.71mil in revenue.

There were no comparative figures as the company had changed its financial year in the previous year.

Secondly, the company starting garnering a steady stream of contracts beginning March this year.

For the first contract it announced in March, Palette says that it would contribute positively to Palette’s FY17’s earnings.

The contracts were for the sale of server and hardware products to Trade House Atlantis Ltd and CJSC Gollard totalling RM4.07mil. The deal involved hardware platforms being deployed with various cloud application software including mobile health cloud and network access management.

These companies are associates of RKSS Group, one of the largest telecommunication system equipment developers and integrator in Russia.

Now, subsequent to the March hardware contract, Palette starting announcing a series of similar hardware platform sales to Trade House Atlantis right up to Aug 7.

To date, these contracts now total some RM18.3mil.

While this figure may not appear large for a typical public listed, it is significant for Palette, who’s total revenue over the last five years do not add up to this figure.

The company says that most of these contracts will be recognised within the next 30 to 90 days. This, in turn, should mean that Palette would be able to record earnings from these contracts over the next few quarters.

Despite these developments, the share price of Palette barely budged until last Thursday. From the 8 sen level on that day, Palette’s shares jumped to a high of 17 sen.

Both Palette’s shares and warrants were among the most actively traded stocks over the last few days.

Palette had since settled at 14.5 sen on Wednesday, while its warrants closed at 11 sen. The warrants will expire on March 20, 2018.

Palette managing director Eg Kah Yee says that recent contract wins will help Palette expand its networking business and further develop its mobile health business in the Russian market.

The mobile healthcare business is the new growth pillar that Eg has been working on.

In the last three years, it has diversified into mobile healthcare service via iMedic, a mobile healthcare cloud system that connects to multiple wireless intelligent medical or healthcare devices to doctors, caretakers or hospitals. It targets to help doctors extend their medical services beyond the physical boundaries.

While Eg is pleased that the company’s core business is turning around, he is focused on growing the iMedic business.

Nonetheless, for those who feel the Russian contracts are a one-off, Eg feels orders might continue to come in.

“From my communication with them, there is a lot more hardware needed because there is quite a pipeline of deployment taking place. I wouldn’t want to predict, but I think we should see a repeat of these orders in FY18,” says Eg.

He adds that these hardware contracts are in fact a precursor to the iMedic business.

This is because the hardware is deployed together with the mobile health cloud and network access management.

Eg says that the iMedic service has some 20,000 users licenced to date. While the fees are still small, the uptake has been encouraging.

“We will start to see some contributions from iMedic in FY18. So yes, while the hardware side will support us now, moving forward, it is the mobile health which will provide the recurring income.”

For the uninitiated, the iMedic system is a system used for mobile digital medicine which enables patients to take measurements of their vital signs with home wireless medical devices.

Data from these devices is transmitted to a Cloud (which is an Internet-based database) where doctors have access and can analyse such data at any time and any place via WiFi.

The most important aspect about iMedic is that it manages complete patient information because it includes radiology images such as CT Scan, MRI (Magnetic Resonance Imaging), ECG (Electrocardiography) and ultra sound images, among others.

This mimics the hospital information system in hospitals.

The other key thing is the telemonitoring - this is one of the most valuable functions of mobile health, as it entails the use of an electronic device to generate remote, real-time monitoring of medical conditions, facilitate disease management, and provide patient education.

Eg said that the business model will generate recurring revenue, as typically, once a patient with a disease has signed up to use the system, it is unlikely that they will stop using it.

Palette is now appointing distributors and franchisees to develop the market.

It presently directly partners the doctors or hospitals to use its system for their patients.

Earlier this year, HSC Medical Center and Palette Multimedia Bhd inked a deal to establish Malaysia’s first mobile health hospital, which will provide e-consultation, e-monitoring, e-prescription and management services based on the full digital medical records of the patients that resides in the imedic cloud.

The iMedic, which was developed by Palette, is used by doctors and hospitals in China, United States, Singapore and Taiwan for the management and treatment of cancer, cardiovascular and other chronic diseases.

Eg is the single largest shareholder of the company with a 17.16% stake. He is followed by Lee Khim Hin and Lee See Ming with a 7.54% stake and 6.11% stake.

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Business , Palette , Multimedia , turnaround


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