Who we met: Mr Gurcharan Singh (Group CFO)
Going forward, the growth of the company is expected to be driven by its latest brainchild known as the FluCard, a form factor of the Secure Digital (SD) card.
Presently, while there are cameras or other SD cards with Wi-Fi attributes, we understand from management that these products are only able to transfer data on a limited number of networks.
The FluCard, however, is compatible with all existing digital cameras with SD card slots and has a memory of up to 30 secured networks. Furthermore, there is also an online portal for FluCard users to upload their digital content.
Key takeaways:
1) Financial Review - Trek 2000 reported 2Q10 revenue of US$21.1m (+52% YoY, -0.9% QoQ) while net earnings came in at US$0.8m (+84.5% YoY, +151.3% QoQ) as its higher-margined mobile media solutions business drove growth. However, we are expecting 4Q10 earnings to be way higher than what was seen in 2Q10 as contributions from its FluCard would then be recognised.
2) Industry Review - The IT landscape in which Trek is involved is highly competitive, thus leading to relatively low earnings for Trek in the past two years where net earnings amounted to less than US$1.5m collectively. Margins have been generally low, although we do recognize that this issue is also seen in the company's competitors as well.
Players in this industry are required to come up with their "killer products" should they wish to alter this equation, and Trek believes that its FluCard to set to take up this challenge.
3) Company Review - We surmise that Trek's previous strategy pertaining to its ThumbDrive was not well-executed as the company opted to market this innovative product without any major backing from any MNCs. However, in promoting the FluCard, Trek would be working very closely with major shareholder Toshiba where a consortium of MNCs will be formed to sell this new product. Given the robust backing from this tech heavyweight, we therefore strongly believe that it would be different for Trek this time round as Toshiba will appoint the company as the official OEM for the FluCard while overseeing its IP protection rights along with the consortium.
Our view:
We are expecting market reception for the FluCard to be highly positive and that meaningful contributions from this product should kick in during 4Q10. Therefore, we estimate that FY10 net earnings should be no less than US$4.5m as compared to the US$0.7m that was seen in FY09. For FY11, we believe that net profitability should also more than exceed the US$10m mark as it ramps up its production of the FluCard while demand is expected to be supported by the various camera makers.
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