| Banking on Indo China's fledging telecom markets |
| By A J Leow |
If you make a call on your M1 or SingTel fixed or mobile line, the chances are good that the connection might be made through transmission equipment installed by the Catalist-listed company, Ntegrator International, a homegrown integration specialist and provider of data and both fixed line and mobile telecom network infrastructure.
 The mature domestic telecom market however will not be the main driver of its growth in the near future for the company which core businesses include the design, installation and implementation of data, video, fibre optics, wireless and cellular network infrastructure as well as voice communication systems. It also provides project management services as well as maintenance and support services.
As its managing director and co-founder, Jimmy Chang noted, revenue contributions from its Singapore operations has fallen in proportion from about a third in previous years to less than a sixth or $6.2 million in FY08 due to the continued influx and bigger-sized overseas contracts from its Indo-China operations, especially Vietnam where Ntegrator set up its beachhead back in 2002, when it was first founded.
"We were there when no one else dares to venture into the new market in Vietnam which was then an unexplored territory for telecom systems and networks. In fact, our connections with Viettel Corporation – which is now the major telecom provider much like Singtel is now in Singapore – dates back to 1996 when it was still an equipment supplier while the founders of Ntegrator were still employees of a local MNC. Viettel only obtained its licence as a telecom operator three years later," he said.
Bolstered by their local Vietnamese connections, Mr Chang and his colleagues decided to strike it out on their own by pooling their own savings as well as the subsequent infusion of venture funds to establish Ntegrator International.
"We had the technical know-how, business connections with the clients as well as suppliers who know us well and who gave us our blessing. We were also able to secure bank financing as we already had projects in hand even before we started," he recalled.
It is a decision that they would not regret. Ntegrator managed to chalk up a turnover of about $20 million for the first year and "was profitable from day one." The company, which was listed in 2005 has since seen its annual turnover grow at a compounded annual rate of 23.6% since 2002, while net profit has grown at 11% per annum. It has now a staff strength of about 80, with 20 of them located in Vietnam.
The Vietnam market accounted for 47% of the company's total revenues in FY08 and by Mr Chang's estimate could rise to more than 70% by year-end even as its first half current order book hits $45.3 million as of end-June, with full-year orders expected to easily surpass that for FY08 at $47.9 million due to more jobs normally coming in the second half of the year. Ntegrator had turned in a 47.9% increase in 1H09 sales to $31.6 million from $21.3 million in 1H08.
Viettel, which according to Mobile World ended Q1 '09 with 21.7 million customers, or a market share of just under 30% is expected to make up the bulk of Ntegrator's order book in FY09. Viettel is also committed to providing 3G services to 86% of the Vietnamese population by April 2010 and 100% by August 2012.
Citing a New York-based research company, Seeking Alpha, Mr Chang noted that Vietnam is expected to be the fastest growing mobile phone market with a subscriber base of 120 million by 2014, which is on par with the figures for Japan.
According to official statistics, both Internet and fixed line penetration are also expected to grow exponentially from the current penetration rate of less than 15% as of end-2008 with much of the rural areas still lagging behind the country's main cities and urban areas. The Vietnamese government has announced plans to increase the country's Internet penetration to 35% by 2010.
First mover advantage
 The potential for growth in Vietnam is hence huge, said Mr Chang who noted that its main client, Viettel is currently only beginning to extend its mobile services to suburban areas with the rural hinterland still largely untouched.
He attributed its main competitive edge over its main rivals – mainly telephone equipment suppliers such as Nokia, Ericsson, Nortel and Alcatel – to the company's 'first-mover advantage'. In fact, some of these suppliers like Alcatel for instance, may also rope in Ntegrator for the installation of the equipment for the projects they undertake in Vietnam.
"We have many loyal clients whom we have served from day one who we are very familiar with. We know our customers well and the same goes to our suppliers, which means that we get to enjoy better pricing and credit terms from them. We also explore with our suppliers various business opportunities that may arise to secure or increase our sales," said Mr Chang.
In addition to Vietnam, Ntegrator has also set up established a foothold in other relatively untapped markets such as Myanmar where mobile phone, fixed line and Internet penetration are all less than 2%, and more recently in 2008 in Cambodia where it clinched four contracts through Viettel’s own foray into its Indo-Chinese neighbour. Current mobile penetration in Cambodia is about 25%.
Ntegrator enjoys a gross margin of between 10% and 40% for its projects in which it is paid on a milestone or progressive basis – after an initial downpayment of 5% to 10% – depending on the stages of completion, which normally takes between three and six months to complete. Typical job sizes ranges from about S$100,000 to S$20 million.
The company has so far incurred negligible annual foreign exchange losses as its equipment purchases and payments upon completion of its projects are usually denominated in US dollars.
Looking ahead, Mr Chang said that the management hopes to grow Ntegrator’s revenue base to at least S$100 million a year in two to three years' time. By then, he also hopes to see the company graduate to the main board of the Singapore Exchange.
About 43% of the company's shares are traded on the exchange, with venture capitalist funds Maclean Watson holding 15.1%, the Fortune Tech Fund 14% with the rest owned by the company’s founders and its staff.
Instead of a dividend payout earlier this year, Ntegrator has chosen instead to reward its shareholders with a bonus issue of three warrants for every 10 ordinary shares.
Said Mr Chang, "We remain confident of the long-term growth prospects in the burgeoning Indo-China region, which is still in its initial stage of information technology developments. The proposed bonus warrants will provide shareholders the opportunity to participate in the group's future growth, while allowing Ntegrator to conserve cash for its future growth plans."
|
Up to-date current Financial News for Investors
