FEATURE: Firich wins as casinos, lotteries gain speed in Asia

By Jason Tan  /  STAFF REPORTER

Tue, Jul 17, 2007 - Page 12

Shares of Firich Enterprises Co (伍豐科技), an industrial computer manufacturer known for its point-of-sale (POS) devices, surged recently and a run of good news from the sector has left people wondering when it will surpass the NT$1,000 (US$30) mark.

Firich's stocks rose more than 14-fold within the last three-and-a-half years, to hit a peak at NT$985 on July 10, when the firm announced it would buy stakes in the Singaporean financial consulting firm Armarda Group.

Its shares closed at NT$865 on Friday.

Analysts attributed the company's strong performance to its early foray into the lottery and casino gaming segment.

"The lottery and gaming market in Asia has surpassed the US. This gives Asian makers including Firich a say in determining specifications of new gaming machines," Concord Securities Co (康和證券) said in a report dated July 9.

Macau casinos, for example, are expected to register sales of US$7.6 billion this year, up 10.5 percent from last year. Las Vegas gambling houses, meanwhile, will only post a 0.01 percent rise to US$6.7 billion, Concord statistics showed.

Asian companies faced a high entry barrier in the past, as US firms set most of the gaming specifications. But as Asians have ushered in more casinos and lotteries, Taiwanese industrial computer makers have rapidly cashed in on the gambling boom.

When Firich was listed on the over-the-counter GRETAI Securities Market on Dec. 15, 2003, at NT$70 per share, investors were unsure about the worth of the listing price as it was much higher than the NT$30 per share given to other POS makers.

Today, analysts are wondering when Firich will follow High Tech Computer Corp (宏達電) and E-ton Solar Tech Co (益通光能) in going beyond the NT$1,000 mark.

Firich made its first foray into the lottery market in 2003, when it landed a contract to supply lottery terminals to a South Korean client.

Last year, the Taipei-based company saw business further take off.

Firich commissioned Intralot, a Greek betting technology company, to contract-produce lottery terminals. It also jumped onto the Chinese sports lottery industry by successfully shipping 10,000 terminals to 16 provinces.

"Lottery business will account for as much as 60 percent of our total revenues this year, compared with last year's 40 percent," Firich chief financial officer Lai Ying-fu (賴盈甫) said.

Product margins are lucrative, with Firich making as much as 35 percent on terminals to Intralot, Concord said.

Firich is not alone in pursuing the fortunes generated by rolling dice.

Axiomtek Co (艾訊), another Taipei-based industrial computer maker, is expecting sales of its casino gaming machines to account for over 10 percent of total revenues in the second half of this year.

"The gaming industry is now heating up and we will continue to make more efforts to ensure we gain a stronger footing in the business," Axiomtek spokesperson Spring Yang (楊秀芳) said.

The company has key accounts from Europe and the US and is in talks with a handful of other US clients for possible deals, she said.

ICP Electronics Inc (威達電), Another industry PC player, also contracted the lottery fever this year.

The company, which celebrated its 10th anniversary in April, reportedly obtained its first order of lottery machines from Gtech Holdings, a US online lottery system provider. It beat other rivals including Advantec Co (研華科技) and Flytech Technology Co (飛捷科技) for the deal.

The order, worth NT$3.6 billion, will run over five years, the Chinese-language Apple Daily reported on July 10.

The company refused to comment on the orders.

Despite the high competition, Firich said it found out what it needs to do next to ensure its continued success.

On July 4, the maker signed a pact with Hong Kong-based LottVision Ltd, an operator of lottery solutions, followed, on July 10, by an announcement that it would acquire a 11.3 percent stake in Armarda for S$14 million (NT$647,000) to further boost its sales of POS devices and lottery kiosks in China.

Under the agreement with LottVision, ownership of Wu Sheng Technology Co (伍盛計算機科技) -- Firich's wholly-owned subsidiary in Shanghai making POS systems for the Chinese lottery market -- will be exchanged for a 15 percent to 20 percent stake in LottVision.

As LottVision has started to tap into the sports lottery market in China and other Asian countries, this will be a plus to Firich as it seeks to strengthen its presence across the Taiwan Strait and move into other regional markets, a Concord research note said.

"Selling hardware machines is a one-shot deal and we will have to wait for the orders for replacement in three to five years," Lai said.

But the strategic partnership with LottVision will pave the way for Firich to "gain a share in the lottery operator market as well," he said.

"Operators would gain stable and recurring income from lotteries, which places us one step ahead of our competitors," he said.