I Synergy Group Ltd, a homegrown affiliate marketing solutions provider, is joining a growing list of Malaysian companies that are going overseas to make their initial public offering (IPO) debuts. In I Synergy’s case, the Australian Securities Exchange (ASX) promises higher valuations.
The company is looking further afield because it found little investor interest in Malaysia for an entity that specialises in affiliate marketing services, which is a relatively new area of business.
The company is going for a listing on ASX on Dec 22, and aims to raise up to A$8 million from the IPO, as stated in its prospectus, with a minimum target of A$5 million.
According to its founder and managing director Datuk Lawrence Teo Chee Hong, there is still a fundamental lack of understanding in Malaysia on what affiliate marketing is all about and how it works.
“Two years ago we spoke to a couple of investment bankers here to explore whether we should list on Bursa Malaysia, the Singapore Exchange or ASX. We identified these few bourses because the market we want to capture is Southeast Asia. However, we realised that the understanding of affiliate marketing among the [Malaysian] investment community was still low and that it could take us a lot of time [to educate retail investors],” he tells The Edge.
“[When the level of understanding is low], appreciation [of a company] tends to be low as well, resulting in the price-earnings ratio (PER) or valuation being less attractive. But affiliate marketing is commonly practised in Australia, thus, it is easier to market ourselves there. They appreciate the business better and can give the company a better valuation.
“On top of that, listing on ASX will help position us as an international firm.”
Still, Teo says the company is not discounting the possibility of a dual listing if the Malaysian environment improves and its stock sale in Australia receives overwhelming response from investors.
Teo had started out as an electrical engineer and founded I Synergy in 2008 with a start-up capital of RM100,000. Post the IPO, he will own 69.9% (assuming full subscription) to 75.4% (assuming minimum subscription) of the shares in I Synergy.
“When I started the company to offer affiliate marketing services, the e-commerce environment was not yet mature. Not many people bought products online at the time except for air tickets. Not everyone was using the computer at that point in time,” he recalls.
The initial three years were tough for the company, says Teo. Despite accumulating losses of RM1.4 million, he did not throw in the towel.
“If you look at the overall mechanism, the conception framework of affiliate marketing is logically sound. It is something that will happen sooner or later. It is just a matter of awareness and how mature the ecosystem is. So, when it is getting more and more mature, ultimately, it will be something everybody will be aware of and it will be something that advertisers will happily do to take the services due to the uncertain economic conditions. With that belief and passion, I persevered and kept moving forward,” he adds.
I Synergy turned in a profit in 2011 and it has never looked back. In its financial year ended Dec 31, 2015 (FY2015), the company’s net profit jumped 47.4% year on year to A$4.11 million. In its first half ended June 30, I Synergy posted a net profit of A$1.68 million.
While Teo expects FY2016 revenue to grow about 10%, net profit will be lower due to higher expenses as the company moved into a new office. However, its revenue is expected to shoot up 30% in FY2017 while net profit is projected to jump 20% to A$5 million as e-commerce in Malaysia grows rapidly and the company expands to Indonesia and the Philippines.
I Synergy can potentially benefit from the growth of the affiliate marketing industry, which accounted for only 1.4% of the A$2.8 billion spent on advertising in Malaysia in 2013, according to online statistics portal Statista, says Teo.
What is affiliate marketing? Also commonly referred to as performance-based marketing, it differs from traditional advertising methods in that the advertiser [merchant] is only charged a fee when an actual, pre-defined result is achieved.
“The advertiser connects with affiliates [publishers] through the relevant affiliate platform [such as I Synergy’s Affiliate Junction technology]. The affiliate is then notified that the advertiser is commencing its new campaign. The advertiser then connects with the affiliate and provides relevant materials, information and content.
“The affiliate commences audience targeting and is incentivised to achieve the specific pre-determined result, typically by way of payment of a commission from the advertiser. The affiliate marketing company tracks campaign results and facilitates commission payments to the affiliate on behalf of the advertiser, typically taking a commission for doing so,” explains Teo.
Currently serving the Malaysian market through its Affiliate Junction marketing platform, I Synergy has over 20,000 affiliates from whom it has leveraged sales to over two million users or customers.
Today, I Synergy offers a number of affiliate programmes that can be accessed via Affiliate Junction, including MyKad Smart Shopper, SmartSaver, Sports Access Network and Retail Network Affiliate Programme.
Meanwhile, I Synergy will offer up to 40 million shares for A$0.20 apiece through the IPO, which gives it a PER of nine times compared with the 15 to 20 times of other Australia-listed digital advertising firms. The offer closes on Dec 8. The indicative market capitalisation upon completion of the offer is between A$38.5 million and A$41.52 million.
Forty per cent of the funds raised will go towards growing its reach in Indonesia and the Philippines, another 30% will be used for technology enhancements and product expansion, and the rest for sales and marketing and working capital.
“We plan to eventually replicate our business model internationally, including Indonesia, the Philippines and Australia, and potentially Vietnam and Thailand,” says Teo.
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