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  1. 1. PALETTE MULTIMEDIA BERHAD (“PMB” OR “COMPANY”) RESEARCH REPORT FOR THE SECOND HALF OF 2007 1. UNAUDITED FINANCIAL RESULTS FOR THE 12 MONTHS PERIOD ENDED 31 DECEMBER 2007 SECOND HALF CUMULATIVE 6 months 6 months Current Year Preceding ended ended To Date Year To Date 31 December 31 December 31 December 31 December 2007 2006 2007 2006 RM’000 RM’000 RM’000 RM’000 Revenue 3,358 7,182 7,634 17,922 Profit before taxation (296) 1,542 431 1,723 Taxation (2) - (2) - Net Profit (298) 1,542 429 1,723 Review of performance For the second half of the financial period ended 31 December 2007, PMB and its subsidiaries (“PMB Group” or “Group”) achieved a revenue of RM3.36 million which represents an approximately 53% decrease as compared to RM7.18 million for the corresponding period in the preceding year. This was mainly due to lower revenue recorded. For the 12 months ended 31 December 2007, the Group recorded a net profit attributable to equity holders of approximately RM0.43 million for the current period on the back of approximately RM7.63 million revenue, representing a decrease of approximately 75% as compared to a net profit attributable to equity holders of RM1.72 million for the preceding year corresponding period mainly due to less projects obtained from overseas. 1
  2. 2. 2. SUMMARY OF FINANCIAL RESULTS The financial results of PMB and its subsidiaries (“PMB Group” or “Group”) for the past five (5) financial years are as follows: Audited Unaudited 12-months ended 31 Financial year ended FYE 2003 FYE 2004 FYE 2005 FYE 2006 Dec 2007 (“FYE”) RM’000 RM’000 RM’000 RM’000 RM’000 Revenue 27,568 14,810 5,005 17,922 7,634 Profit/(loss) before tax (4,078) 2,866 (2,755) 1,724 431 (“PBT” / “LBT”) PBT margin (%) N/A 19.35 N/A 9.61 5.65 Profit / (loss) after tax (4,086) 2,862 (2,757) 1,723 429 (“PAT” / “LAT”) and minority interests (“MI”) Number of ordinary 96,000 105,600 105,600 105,600 *293,140 shares of RM0.25 each assumed in issue (‘000)^ Gross earnings per (0.04) 0.03 (0.03) 0.02 0.0015 share (“EPS”)/loss per share (“LPS”) (RM) (1) Net EPS/(LPS) (RM) (2) (0.04) 0.03 (0.03) 0.02 0.0015 Notes: ^ Pursuant to the proposed share split involving the subdivision of every one (1) existing issued and fully paid-up ordinary share of RM0.25 each in PMB into two and a half (2 ½) new ordinary shares of RM0.10 each in PMB (“Proposed Share Split”) which was completed on 4 July 2007, the par value of ordinary shares in PMB has become RM0.10 each. * (a) After the exercise of ESOS Options amounting to 46,000 ordinary shares of RM0.25 each in PMB by Cheng Teck Ee on 2 March 2007; (b) After the issuance and allotment of 9,082,000 ordinary shares in PMB of RM0.25 each (“Placement Shares”) to respective placees on 27 June 2007, pursuant to the first tranche of the private placement of up to 10% of PMB’s issued and paid-up share capital (“First Tranche Private Placement”). The Placement Shares were listed on the MESDAQ Market of Bursa Malaysia Securities Berhad (“MESDAQ Market”) on 2 July 2007; and (b) After the issuance and allotment of 3,706,500 ordinary shares in PMB of RM0.10 each (“Placement Shares”) to respective placees on 27 June 2007, pursuant to the second tranche of the private placement of up to 10% of PMB’s issued and paid-up share capital (“Second Tranche Private Placement”). The Second Tranche Private Placement was completed subsequent to the Proposed Share Split. The Placement Shares were listed on the MESDAQ Market on 11 July 2007. (1) Gross EPS/(LPS) is computed by dividing PBT/(LBT) with the weighted average number of the Company’s ordinary shares for the respective financial years. (2) Net EPS/(LPS) is computed by dividing PAT/(LAT) after MI with the weighted average number of the Company’s ordinary shares for the respective financial years. 2
  3. 3. 3. INDUSTRY OUTLOOK Outlook of the Malaysian Economy The Malaysian’s economy is anticipated to strengthen further to 6% to 6.5% in 2008 with positive contribution from all sectors of the economy. Domestic demand would be the main driver of the economy while external demand was expected to pick up in tandem with improved prospects in world trade. (Source: Economic report 2007/08) Malaysian information and communication industry (“ICT”) for 2008 In 2006, the Ministry of Energy, Water and Communications introduced the Malaysian Information, Communication and Multimedia Services Strategy (“MyICMS 886”), which provides the policy focus to drive the country towards the development of advanced information communication and multimedia services by 2010. The MyICMS 886 Strategy provides the major policy thrust for the further development of ICT. Other development initiatives for ICT include:- - further developing Cyberjaya to be the National ICT Hub, under the second phase of the development of MSC Malaysia, by enhancing the business- friendly environment, wireless broadband facilities and other transportation and infrastructure amenities; and - further intensifying the efforts towards bridging the digital divide through the provision of online services nationwide to enable more Malaysians to gain access to and utilise internet-based knowledge and information resources. It is anticipated that there will be a greater demand for personal computers, with the usage in the number of computers increasing from 21.8 to 40 per 100 population by 2010. (Source: Third Industrial Master Plan 2006-2020) 3
  4. 4. 4. PROSPECTS OF THE PMB GROUP The Group have been actively pursuing new wireless deployment projects and recently engaged in close discussion with most of the wireless spectrum license holders. We expect a significant deployment and booming of wireless connectivity in the coming year 2008 and 2009 as those technologies had started to mature and the cost per client is decreasing due to the increase in demand and production. With the high speed broadband infrastructure rolled out, the Group will benefit through the roll out of infrastructure such as Internet Protocol Television (“IPTV”) and Voice over Internet Protocol (“VOIP”) which we expect to be the next applications to be launched by the license holders to capitalize on the high speed broadband infrastructure. IPTV is a very cost effective way to bring entertainment to the home. It is also a very versatile technology to encourage more interactive application like gaming, chat, e-mail and video conferencing with friends. This will ultimately serve as one of the communication tools for the household. PMB has developed a suite of VOIP system solutions to cater for enterprises in line with the expectation to capitalize on the growing market of high speed broadband and wireless connectivity usage. PMB had also built-in mobility into the VOIP solution thus enabling the user to roam and move freely in the office compound while using their VOIP facility. We are expecting a great take up of this solution in the year 2008 in view of the increase in communication need for globalization. The Group has vast experience in designing telecommunication companies (“Telcos”) and internet service providers (“ISP”) network and based on the current trend, we are seeing a significant take up in the residential broadband in Malaysia especially in a hotspot environment. In order to support the hotspot deployment, PMB had also rolled out the Mobilette solution that serves as a billing and network access control solution. Another significant revenue source that we are seeing a tremendous growth in is the outsourcing of support services by the Telcos and ISP in which PMB had tremendous experience. Year 2008 should also see a significant rise in revenue from hotzone deployments for Telcos around the region, with the first such deployments happening in Indonesia and subsequently in Malaysia. PMB expects to benefit from the increasing trend of adding on high speed wireless access to NGN (next generation networks) using MetroEthernet (MetroE) especially in the area of building last mile high speed wireless access networks. 4
  5. 5. 5. STATUS OF THE PMB GROUP’S BUSINESS DEVELOPMENT PLAN The PMB Group’s status or updates on the development milestones of the business development plan for 2008 are summarised as follows: Description of business development plan Status Deployment of Wimax based Completed the first township in Bandar Iskandar network systems for an ISP Deployment of integrated IPTV, Successfully deployed a triple play network in VOIP and data network conjunction with a major Telcos Roll out AMG II Gateway product AMG II installed in key customer sites Consultancy services Won key projects in Micronesia, Indonesia and Maldives, providing design and consultancy services for Telcos and ISPs. Bandwith Management products Solution deployed to one of the significant customer who is a multinational company with diverse location High Security surveillance networks Successfully deployed high security surveillance network at Majlis Perbandaran Johor Bharu Tendering for the nation wide deployment of wireless CCTV by the government. As at 31 December 2007, the business development plans have been principally carried out with adaptations to suit the constantly changing business environment and market conditions. 6. FINANCIAL IMPACT OF THE PROGRESS OF THE BUSINESS DEVELOPMENT PLAN The progress of the business development plan has no significant financial impact on the PMB Group for the 12-month financial year ended 31 December 2007. However, the plans undertaken by the Group, upon completion, are expected to contribute positively towards the earnings of the Group in future years. 5
  6. 6. 7. RESEARCH AND DEVELOPMENT (“R&D”) The status on the R&D undertaken by the PMB Group is as follows: Planned timeline for completion of Planned R&D R&D project expenditure Status of the R&D Type of projects (Year) (RM) project Commence Design of 18 months > RM350,000 First Commercial AMG V Testing VoIP/VoWiFi System Commenced first > RM500,000 VOIP system over Wimax commercial trial commercialized and deployed for customer Development of Development in > RM300,000 Beta version of wifi WiFi/Global system for progress – 1 year client on mobile mobile communication project testing or GSM cell phone client software Mobilette 6.0 Product design RM1 million – Structural design started RM2 million commenced Integrated Bandwidth 18 months RM500,000 Structural design Manager commenced The Group recognises the importance of continuous R&D in its business operations to ensure its sustainability and future growth in the industry in light of the nature of business of the Group, which requires continuous R&D. Further capital outlay other than those disclosed in the above table for the R&D department will be provided when the need arises. The Board of Directors of PMB is of the view that the R&D expenditure and future allocation of R&D did/will not result in any material financial impact on the Group. For the 12-month financial year ended 31 December 2007, the total unaudited R&D expenses incurred are approximately RM406,000, representing approximately 5.3% of the Group’s total revenue. Overall, new products and/or services arising from the completion of the above R&D are expected to improve the Group’s range of products and/or services and enhance the customer base, and thus bring positive contributions to the financial performances of the Group in the future. 6
  7. 7. 8. TOP TEN (10) SHAREHOLDERS OF PMB AS AT 18 FEBRUARY 2008 No. of Name shares held % 1. Eg Kah Yee 72,834,052 25.07 2. Lee Kin Hin 6,706,100 2.31 3. Ng Geok Lui 6,642,000 2.29 4. See Lee Ming 6,602,500 2.27 5. Chee Pei Pei 5,081,250 1.75 6. ACE Partner Group Limited 4,914,500 1.69 7. Teo Kin Swee 4,061,750 1.40 8. JF Apex Nominees (Tempatan) Sdn Bhd -Pledged Securities Account for Voon Sze Lin 3,523,200 1.21 9. AMSEC Nominees (Tempatan) Sdn Bhd -Pledged Securities Account for Lim Aik Fu 3,125,000 1.08 10. Yap Pin Ho 3,060,000 1.05 9. FINANCIAL FORECAST Not applicable. PMB did not disclose any financial forecast in its Prospectus dated 29 June 2001 and has not disclosed any financial forecast for the financial period ended 31 December 2007. 10. STATUS OF UTILISATION OF PROCEEDS PMB undertook a private placement of up to 10% of its issued and paid-up share capital during the FYE 2007 (“Private Placement”). The total gross proceeds raised from the Private Placement and the status of the utilization of the proceeds is as follows:- Proposed Actual Balance Utilisation Utilisation Unutilised Purpose RM’000 RM’000 RM’000 % Explanation Working capital 2,654 2,654 - - # Private Placement 160 160 - - # expenses Total *2,814 2,814 - - Notes: N/A Not applicable. * Based on the total proceeds raised from the First Tranche Private Placement and Second Tranche Private Placement. # The proceeds from the Private Placement have been fully utilized as at 31 December 2007. 7
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