Azeus Systems Holdings

[weijian]

Prof Mak has attended countless AGMs and so I guess getting his thumbs-up means something. Also a vote for Convene AGM solution I guess?

AZEUS SYSTEMS HOLDINGS’ AGM: A SEAMLESS HYBRID MEETING

This morning, I attended the hybrid AGM of Azeus Systems Holdings as an observer. I was invited to attend and had the option of attending in person or electronically, and opted to attend in person. I had also attended its hybrid AGM as an observer in person last year.

On the two test questions that the company conducted about virtual meetings , the results are not surprising. A total of 78.64% of the shares which voted preferred hybrid meetings, while 16.64% preferred physical only meetings. Only 4.72% preferred entirely virtual meetings. The top 3 reasons for why hybrid meetings should be adopted were “Maximises reach” (33.2%), “Better engagement” (31.31%) and “Greater transparency” (28.64%).

https://governanceforstakeholders.com/20...d-meeting/

[weijian]

Azeus's FY23 results have tapered off compared to FY22's turbocharged gain from operating leverage, as employee and sales/marketing costs increased. Nonetheless it remains to be seen whether the investments in these costs will help to bring about further improvement in sales in the future.

On Azeus's balance sheet, contract liabilities are services paid in advance by customers on a subscription basis. And contract liabilities are as follows - FY23:86mil, FY22:68mil, FY21:64mil and FY20:37mil.

Does the jump in contract liabilities for FY23 suggests that adoption of their SaaS products are accelerating and the immediate future bodes well?

FY23 results: https://links.sgx.com/FileOpen/Azeus%20G...eID=761098

[¯|_(ツ)_/¯]

Azeus@SGD8.5

Should be from Azeus product "Convene Records" aka from the product and implementation services of the HK$1.0 billion contract -  Central Electronic Record Keeping System (CERKS) awarded by HK Government in May 2022.  Revenue expected to be contributed until FY2037.

See page 8 of latest Annual Report

See page 31 of latest Qtr report

[weijian]

Azeus@SGD8.5

Should be from Azeus product "Convene Records" aka from the product and implementation services of the HK$1.0 billion contract -  Central Electronic Record Keeping System (CERKS) awarded by HK Government in May 2022.  Revenue expected to be contributed until FY2037.

See page 8 of latest Annual Report

See page 31 of latest Qtr report

A shareholder has asked about the contract liabilities and it seems they are not related to the CERKS contract! Usage seems to be accelerating!

What percentage of Contract Liabilities are related to the Records deal? Will you break this out in the future?

- As of 31 March 2023, there are no Contract Liabilities related to the CERKS project. On the other hand, there was a balance of HK$14.3 million (equivalent to US$1.9 million1 ) which was recorded under Contract Assets. HK$4.3 million (equivalent to US$0.6 million1 ) was subsequently realised as the payment milestone was reached as per the Contract requirement.

- Note 16 on page 62 of the Annual Report disclosed the breakdown of Contract Assets and Liabilities by segments, in compliance with disclosure requirements. We have not historically disclosed details of specific projects due to confidentiality.

https://links.sgx.com/FileOpen/Response%...eID=766488

[weijian]

Azeus's FY23 results have tapered off compared to FY22's turbocharged gain from operating leverage, as employee and sales/marketing costs increased. Nonetheless it remains to be seen whether the investments in these costs will help to bring about further improvement in sales in the future.

On Azeus's balance sheet, contract liabilities are services paid in advance by customers on a subscription basis. And contract liabilities are as follows - FY23:86mil, FY22:68mil, FY21:64mil and FY20:37mil.

Does the jump in contract liabilities for FY23 suggests that adoption of their SaaS products are accelerating and the immediate future bodes well?

FY23 results: https://links.sgx.com/FileOpen/Azeus%20G...eID=761098

Azeus's FY24 results (especially in 2H) has been turbocharged again with the start of the implementation of the HK Gov CERKS project.

On Azeus's balance sheet, contract liabilities are services paid in advance by customers on a subscription basis. And contract liabilities are as follows - FY24:101mil, FY23:86mil, FY22:68mil, FY21:64mil and FY20:37mil.

Things are looking good for the company.

FY23 EPS~30cents
FY23 share price~8.50sgd, with market pricing it at P/E~28

FY24 EPS~50cents
FY23 share price~9.50sgd, with market pricing it at P/E~19

In FY23, the market had high expectations for the company and it managed to +70% NP for FY24, meeting expectations. On hindsight, Mr Market has been right on cue here.

This is a company with just 30 million shares and the controlling shareholders (husband and wife) holds 82% of the company, indicating just 5.4mil of shares are free float. The current market cap of the free float is ~50mil but before it became the multi-bagger (10x?), the free float market cap was just 5mil. Lack of free float has always been conveniently mentioned by many parties when OPMIs bemoan undervaluation of the company's shares. That is largely true though but it also depends on Mr Market's expectations, isn't it?

When a company meet Mr Market's rosy expectations, lack of free float turbo-charges the share price. When a company meet Mr Market's pessimistic expectations, lack of free float amplifies the discount. So is lack of free float the true determiner?

[weijian]

The Azeus System guys did not give specific numbers like the ones at IFAST did, so the OPMI had to ask. But the OPMI was also brave enough to ask "what happens after the project is completed?" and Azeus System guys were braver to answer directly.

MINUTES OF THE ANNUAL GENERAL MEETING

Regarding the HK$1 billion project with the Hong Kong government, could you clarify how much of that revenue has already been recognised, and when will the remaining portion be recognised? Additionally, once the revenue from this project is fully recognised, should we anticipate a significant decline in revenue, given that there will be no further one-off revenue from this project after fiscal year 2027?

Response
The HK$1 billion contract, that is, the CERKS Convene Records contract with the Hong Kong Government, comprises a one-time implementation and customisation service, as well as recurring system maintenance and support service which is for a 10-year contract period.

The implementation and deployment phase is expected to be completed by fiscal year 2027. The license fees revenue component of the project is based on the actual number of users procured by each government department and bureau. At the current stage, all the customisation work is completed and CERKS is being deployed to the various Hong Kong government departments and bureaus. We are on track with the project work plan.

We are unable to predict the overall revenue growth for fiscal year 2028 after the Convene Records project deployment is completed. However, the contribution of Convene Records to the Company’s revenue is expected to be significantly reduced.

MoM:
https://links.sgx.com/FileOpen/Azeus%20F...eID=817525

[dzwm87]

It's material non-public information which management obviously couldn't guide for. The latter is also obvious when Convene Records is mostly derived from the project alone: when the project ends, the contribution will definitely reduce.

Interesting company but unfortunately a lack of desire/interest for institutional coverage and free float is just too thin. For an Asian SaaS company, it has done very well in establishing a niche. Likewise for its share price appreciation. I only find it peculiar that management has zero incentives from any equity upside -- just straightforward salaried employees.

[weijian]

A pleasant surprise to find Azeus mentioned on angmoh's blog. It's a bit like finding your urbanite fellow countryman when you are touring some Southern American slums, I suppose.

I have been following Azeus since it appeared on mainstream. I thought it was expensive (no way I'm going to be the "bigger fool" lor) and then subsequently proven (temporarily) right when the price dropped dragging down the "super high" P/E. Although late by 2 years, I had also looked at the same thing that Nick did - He did so at FCF while I looked at the contract liabilities, which were very similar.

So we both looked at similar things - we had wholly different results because I didn't act. Even after accounting for the 2 year delay, if I had acted like Nick did, I would probably be ~30% ahead now - a big "If I had acted like Nick". Plenty of un-doing I need to do to breach this error of omission I suppose.

The best ideas are the ones that don’t screen.

Remember, the best ideas are the ones that don’t screen. The fluctuations of the IT business masked the growth of the smaller and more profitable software segment.

https://dirtcheapstocks.substack.com/p/a...y-investor

[dzwm87]

It's an operating leverage story. They are at the start of recognizing revenue from their single record high HK Convene Records project while most of implementation cost had already been incurred upfront. This of course will drop once the project phase is over as the subsequent maintenance revenue portion is small. Convene ESG would then be the next phase depending on how well they execute.

[ghchua]

A pleasant surprise to find Azeus mentioned on angmoh's blog. It's a bit like finding your urbanite fellow countryman when you are touring some Southern American slums, I suppose.

Hi weijian,

I am not surprised. There are angmoh investors in Azeus. Hint: Look closely at their top 20 shareholder list.

If you have also attended their AGMs, those angmoh investors filed in very difficult questions for the board to answer. These are obviously not your normal retail investors out there.