VETECE Holdings Launches IPO, Subscription Opens on August 8th

The company was incorporated in Malaysia on November 22, 2023, as VETECE Holdings Sdn Bhd, a private limited company, and later converted to a public limited company on December 8, 2023, to facilitate its listing. The company's business operations are primarily based in Malaysia. It operates as an investment holding company with subsidiaries VTCM and VTCS, primarily providing enterprise IT solutions, including implementation, maintenance, support, professional services, and the resale of hardware and software.

The value chain of the enterprise IT services industry is depicted as below:

VETECE is principally an enterprise IT solution provider, primarily focusing on providing implementation services, maintenance, support and professional services, as well as resale of hardware and software. And the major clients of VETECE’s enterprise IT solutions are primarily in the telecommunication and financial services industries in Malaysia. The company's business model is illustrated as follows:

The company's financial performance has continued its upward trajectory, with revenues increasing from RM20.05 million in FYE 2021 to RM23.13 million in FYE 2023. This represents a compound annual growth rate (CAGR) of approximately 7.43% over the three-year period. Gross Profit (GP) has also shown a significant rise, escalating from RM5.88 million to RM9.74 million, reflecting a CAGR of about 28.75%, indicating a robust growth in profitability.

Profit Before Tax (PBT) has experienced a substantial increase, growing from RM4.13 million in FYE 2021 to RM8.70 million in FYE 2023. This translates to a CAGR of approximately 45.17%. Profit After Tax (PAT) attributable to the owners of the Company has similarly grown from RM3.14 million to RM6.56 million, with a CAGR of around 44.61%, underscoring the company's ability to convert profits into net income for its owners.

For the financial period end (FPE) 2024, the company's financial performance continues to reflect its strong financial progress and growth. Revenue for this period is at RM11.27 million, with Gross Profit (GP) at RM4.74 million. Profit Before Tax (PBT) is RM3.93 million, and Profit After Tax (PAT) is RM2.98 million.

The information and communication technology (“ICT”) industry is centered on providing technologies and services that facilitate the access, storage, processing, transformation, alteration and dissemination of information, including the transmission of voice, image, and data over various communication media.

In Malaysia, the ICT industry encompasses businesses involved in manufacturing or providing ICT products and services. According to the Department of Statistics Malaysia (“DOSM”), the primary categories of the ICT industry include ICT manufacturing, ICT trade, ICT services as well as content and media.

In 2022, the ICT services industry experienced a 5.6% growth, reaching a value of RM102.14 billion, up from RM96.69 billion in 2021.

The main categories of the ICT services industry and its key features are set out below:

The enterprise IT services industry is considered a sub-sector of the ICT services sector. In general, enterprise IT services encompass a wide range of IT services that are aimed to support businesses or organisations in achieving and improving operational efficiency. These services include design, planning and implementation of IT systems and infrastructure for company operations with the use of technologies such as artificial intelligence (“AI”) and the Internet of Things (“IoT”), along with a combination with computer hardware and software. Enterprise IT services also include maintenance and support services such as IT management, application and hosting services, installation and support of software and hardware, system integration, as well as IT education and training services.The industry also covers business outsourcing services, where IT-based business processes such as human resources, finance, accounting and customer services are outsourced to third-party service providers.

In 2022, the enterprise IT services industry in Malaysia was valued at an estimated size of RM21.30 billion, marking a 6.6% increase from the RM19.98 billion recorded in 2021. The surge in demand for enterprise IT services, particularly for digitalisation of business operations, has been a notable trend in recent years. Additionally, the introduction of new digital technologies such as 5G and the emergence of tech-driven sectors like financial technology further fuelled the demand for enterprise IT services. Although the local enterprise IT services industry is expected to slowdown in 2023 due to global economic uncertainties, the industry is still projected to register positive growth throughout the year. The market size of the enterprise IT services sector in Malaysia is expected to increase to RM22.36 billion in 2023. Going forward, the industry is forecast to reach RM23.48 billion in 2024 and grow to RM29.51 billion by 2028, registering a CAGR of 5.7% for the 2024-2028 period, driven by the ongoing digital transformation of the local economy.

Based on the IPO Price of RM0.25, the total gross proceeds of RM24.50 million from the Public Issue will be used by the company in the following manner:

Roll out of new core products and services: The company intends to allocate approximately RM2.192 million, which represents 8.95% of its budget, for the expansion of new core products and services, particularly focusing on the development of new AI-driven data handling and analytic solutions.

Strengthening of Singapore operations: The company has a presence in Singapore through its subsidiary, VTCS, which was established in 2005. However, its Singapore operations have been supported by IT professionals from Malaysia who travel there for implementation, maintenance, support, and professional services. It plans to allocate approximately RM3.293 million, or 13.44% of the total proceeds to enhance its Singapore operations by recruiting local talent and establishing a local base.

Establishment of a COE for software solutions: The company intends to allocate approximately RM3.795 million, which is 15.49% of the Public Issue proceeds, to establish a Center of Excellence (COE) for software solutions in Malaysia, enabling it to remotely undertake projects for overseas clients. By setting up a COE that complies with international IT security standards, it aims to meet the needs of cost-conscious overseas clients and accommodate those with local IT offices in Malaysia for the group's IT professionals to work on their premises.

Hardware and software licensing fees: The company plans to allocate RM6.52 million, which corresponds to 26.61% of the proceeds for the acquisition of new hardware and software licenses, as well as the renewal of existing licenses for Oracle and WSO2. Additionally, the allocation will cover the procurement of new licenses from other technology partners, contingent upon client requirements and the terms of contracts.

Loan repayments: The company intends to use RM4.004 million, equivalent to 16.34% of the proceeds from its Public Issue, to repay loans that were taken to finance the acquisition of properties. It has secured bank loans to purchase four properties, two of which serve as its main offices. As of the latest financial reporting date, the outstanding amount of these bank loans for the properties owned by the group is RM4,078,000.

Estimated listing expenses: The company estimates that the listing expenses for its Initial Public Offering (IPO) will amount to approximately RM4.696 million, which accounts for 19.17% of the proceeds from its Public Issue.