JK Technology Group Limited (JK Tech) was founded in 1990 as a Singapore-based IT solutions centre serving two segments ‒ supply and delivery of software and hardware, and systems integration (SI). Its clients include government organisations and major market players such as OCBC, SingTel and DBS, among others.
JK Tech made its debut on Singapore Exchange’s (SGX) former Sesdaq board in March 2003. Strong demand for its SI services boosted sales in the first few years of its initial listing. But over-rapid growth financed by debt, coupled with low-margin projects and soaring wage costs, hit its bottomline hard. Finally, the global financial crisis in 2008 spelt the end of JK Tech’s Sesdaq listing with St James Pte Ltd completing a reverse takeover of the IT company in August of the same year.
Undaunted, the company retained its IT business, underwent significant restructuring with a reduction in staff strength and became more selective of projects it took on.
Recently, JK Tech once again sought a Catalist listing by lodging an offer document with the SGX. In an interview with Biz Daily, Eugene Ang, Managing Director of JK Tech, shared why the company plans to list again after the original listing’s setback.
Why did JK Tech enter into a reverse takeover agreement with St James Pte Ltd in 2007?
At that time, we grew too big and profitability was affected by our rapid growth. Back then, we were focusing on growing our topline at the expense of our bottomline, with our turnover shooting up by six times between 2003 and 2007. We found that we could not generate adequate bottomline and grew too big in terms of staff strength. So we felt we had to look for an exit for our shareholders. And our board felt that the best course of action at that point in time was a reverse takeover.
How did the reverse takeover affect your IT business?
In a reverse takeover, it is common for the incoming target company to be from a different industry than the acquiring company. When St James took over our listed shell name, JK Technology Group Limited, we took our IT business back. In most reverse takeovers, the new owners take over the existing business because the existing owners do not want that business anymore. But because we are very passionate about the tech business, we decided to take it out and try to turn it around, which we actually did over the last few years.
Why do you want to list again on SGX and how confident are you of your listing’s success this time?
Listing has always been our dream and has many benefits for a company of our size. We are the only IT systems integrator of our size to be listed in Singapore, which gives us a significant advantage over our competitors. That’s because major vendors will not hesitate to work with us on programmes that target the SME market, such as seminars, conferences, product launches, and sales leads. We actually benefited from this before from 2003 to 2006 before we grew too big.
Since we launched our prospectus for the second listing and met up with investors, the response has been very encouraging so far.
What do you plan to do differently this time round compared with your first listing?
While our business side has been able to take care of itself, we hope to better manage our HR policy this time round. Singapore is short of qualified, dedicated and committed IT staff. Listing can help us attract many people to work for us, but once we attract them, we have to manage them. One of the things we did not do so well last time was managing the growth of our staff numbers to ensure that productivity also grew to the expected level.
But besides HR policy, our overall organisational structure will remain more or less the same after the listing because it has been a successful one.
What are your corporate governance plans to maintain investors’ confidence after the listing?
The listing process today on Catalist is much more stringent than for the former Sesdaq because we need to go through a sponsor, which was previously not required. The sponsor has asked for many controls to be implemented in our company. Now, besides our regular external auditors, we have also commissioned an internal auditor who has spent much time going through all our systems and procedures. In areas that they felt to be deficient, they have given many recommendations for us to work on for improvement. So far, we have implemented almost all the procedures recommended by our internal auditor.
What manpower strategy do you have to mitigate the risk of any sudden loss of key management personnel?
We now have a mostly new management team, although three of our four executive officers have been with us for more than five years and know how our company operates. We are careful to pick our executive officers and most of our staff are very loyal to the company. When we are a listed company, we will have share performance and incentive plans to ensure that staff are fully motivated to work for us because they will be able to see the returns from their efforts for the company.
I also give my executive officers much autonomy and one of my plans is to raise their industry profile, which is currently inadequate. For example, I want them to do certain things that I do such as giving interviews and presentations to the press, so that they will be featured instead of me. I also want them to take on other leadership positions for the future. This will give them a sense of job satisfaction as their efforts are being recognised.
Currently, we have about 76 staff. More than half of them are engineers because demand for our IT support has grown and we have some manpower outsourced at our customers’ premises.
Given your strong dependence on Singapore’s economy, how will you prepare for an expected slowdown next year amid global uncertainties?
You can gauge the purchasing power of Singapore’s IT market by looking at the popularity of the four major local IT shows, namely SITEX, PC Show, COMEX, and IT Show. These four shows have had record participation every year even throughout the global financial crisis; there was never a drop in any year. This shows that organisations’ and consumers’ buying power of IT equipment increases every year.
Singapore is also a very IT-literate country and well-hooked up electronically, so whenever there is a new product, there will always be demand. If we want to know what will bring down the IT market, we only need to observe the three major IT players ‒ Microsoft, Intel and more recently, Apple. As long as Microsoft and Intel continue to release new product versions, the IT market will continue to boom whether there’s a crisis or not.
We are a one-stop shop and a reseller, and are not aligned to any particular operating system or brand. We have adapted to the changing competitive landscape over the years and are confident of further adaptation in the future. All our vendors invite key partners like us to training programmes whenever any are available to familiarise with their products.
How is your current business model different from the past?
The new area of business that has largely contributed to our turnaround in the last few years is our short-term rental business. This is very important for us because it is one of our key growth areas that supports our supply and delivery and SI businesses. We established the short-term rental business because many companies are very receptive to the idea of renting notebooks, rather than buying them. This is because they feel that the lifecycles for PCs and notebooks are very short, or they might only need additional temporary manpower for certain projects on a short-term basis who could use the rented equipment.
Short-term rental demand for IT equipment also comes from Singapore’s MICE (Meetings, Incentives, Conferences, and Exhibitions) market, which is growing very fast, especially after the completion of the two integrated resorts. We intend to focus heavily on tapping this market for our future growth.
While there is still much room for us to grow our MICE market share for the commercial space, we want to become the leader in this market. To achieve this, we might explore partnership opportunities with the hotels and integrated resorts, event managers who set up the infrastructure for big events, and leading event organisers. And with a listed company status, I am confident that they will be more willing to work with us.
Although currently accounting for only a small portion of overall revenue, the short-term rental business in our last financial year is estimated to contribute a significant 20 per cent of our gross profit and is poised to grow in the coming years.
