Don't call Dimerco Data System (
The moniker is one that, at least in company's eyes, conjures up the image of flashy Web sites that emphasize style more than the bottom line.
"We like to say that we provide infrastructure services," said Stephen Chu (
Dimerco does the behind-the-scenes work of coordinating a company's various information systems so that they work harmoniously together, a service that would come in handy for any firm that wanted to set up shop on the Net.
And instead of charging ahead on the infobahn that is the wired world, where businesses like to brag that they move at Internet speed, Dimerco is cautiously plying along in the slow lane.
The company is asking questions about what the Internet means to its clients, and about how the medium can be effectively used. It recently formed a strategy team of senior employees to answer these questions, and its mission is to develop workable business models.
The approach may seem pedestrian, but it's one that could save Dimerco's clients plenty of headaches down the road.
"Once a company decides to step into e-business, it's very easy to spend money," Chu said. "But what about the return?"
Linking customers to the Web
There's no doubt about it: Taiwan's information services market is growing at explosive rates.
According to the Industrial Technology Information Service, the local information services industry is expected to expand 24 percent to NT$115 billion this year and 30 percent to NT$137.4 billion in 2001.
Systems integration is expected to account for NT$20.8 billion of this year's total.
And then there's the Internet's promise, not to mention an alphabet soup of hype -- B2B, B2C, ASP, ISP, DSL, ADSL, IA, ad infinitum. Many Taiwanese companies are pondering their future and contemplating moves online.
"Most of them are just beginning to think about the possibilities," Chu said. "Everyone wants to step into e-business, but no one knows where to go."
What is known now is companies with Web ambitions will need the services of an systems integrator to handle logistics and back office operations. That's where Dimerco comes in.
As a systems integrator, the company could potentially play an important role in helping Taiwan's businesses move their operations online.
"It has the goal of linking their customers' databases to the Web," said Neal Stovicek, equities research head at National Securities Corp, which covers Dimerco. "That's their strategy."
In the running to land 7-Eleven deal
Take for example President Chain Store (
President, owners of the nation's ubiquitous 7-Eleven convenience stores, hopes to sell books, CDs and other goods online, delivering them to customers at its 2,300 outlets islandwide.
A key component is a home package delivery service that President expects to launch with Yamato Transport of Japan this year. In addition to offline transactions, the delivery service could play an important part in handling President's online business should it come to fruition.
"Clearly, through this plan, Dimerco will get some benefit," said Naiwen Kerr, assistant vice president of Taiwan International Securities.
Afterall, someone must develop the logistics system for the service, and someone must maintain the equipment to run it.
Chu said his company was in the running, but he couldn't provide many details.
But an announcement could come any day, as President originally said it would launch the home delivery service by April.
Working in Dimerco's favor is its three-and-half-year relationship with President and its homecourt advantage and knowledge of the Taiwan market; the competitor for the contract is a Japanese consortium.
"We have a good opportunity to get the contract," Chu said.
Exposure to financial institutions
And that's just the beginning.
Dimerco has a long client list of companies, and many of them may decide to make the Web a part of their future.
In addition to President, clients include 17 securities houses, banks such as Land Bank of Taiwan (
Furthermore, an estimated 50 percent of Dimerco's revenue comes from financial institutions -- the kind of companies likely to move some of their businesses processes online in the next year or two.
"Financial institutions have been the first to adapt to computerization because of the huge demand for data processing," Kerr said, adding that his own Taiwan International Securities is among Dimerco's clients.
For securities brokers, Dimerco provides back-office transaction settlement -- a service much in demand as the recent bull market has ballooned trade volume.
"We think this year will be a good year for such a system," Kerr said.
Dimerco also has a lock on the trust custodian business, providing trust management software services to more than 95 percent of the nation's bank trust departments.
In addition, two new trust software products are in the pipeline, and Chu said he expects this portion of Dimerco's business to take off after Taiwan joins the WTO.
"We foresee growth for at least the next five years," Chu said, though declined to offer specific projections.
"WTO entry will create more competition," he said. "Banks will have to create more services."
And prospects look good for Dimerco's work in other industries, such as transportation, services, retail and distribution.
"We expect that this year and the next two or three years that most of our revenue will come from supply chain management and customer relationship management," Chu said.
To that end, Dimerco plans to acquire a North American software firm or its technology. The company is sitting on roughly US$3 million in cash, and plans to make an acquisition in the next year or two.
Chu also said Dimerco was negotiating a major software services contract that could wind up comprising a major portion of its revenue.
His hints included: the potential client was a past customer of Dimerco's hardware services, and it is also an internationally known company.
When asked if it was IBM, for which Dimerco has been a vendor for many years, Chu let go a hearty laugh. The response could have signalled that the question was right on the money, just as easily as it could have meant the inquiry was way off the mark.
Then came a denial of sorts: "I don't think IBM will be our customer -- just our partner."
`Deserves some upside potential'
Regardless of whether Dimerco wins the contract, or for that matter, the job to set up and maintain operations for President's home delivery service, the analysts that cover Dimerco say the company's prospects this year are good.
"I think overall this company is going in the right direction," Kerr said, noting that Dimerco's services will be needed more and more "as society gets more complicated and businesses become more computerized."
For this year, Kerr estimates Dimerco's revenue will grow to NT$730 million, up 38.2 percent over last year's NT$528 million. He expects earnings to hit a net NT$82 million, or 32.2 percent more than last year's NT$68 million for an earnings per share of NT$4.40.
Still, while Kerr is positive on the company's outlook, Taiwan's retail investors haven't seemed to notice Dimerco, he said. Instead, retail investors, which account for an estimated 90 percent of market turnover, are more enamored with the telecom companies and upstream electronic products they come into contact with as consumers.
"I don't think the market realizes the value of this company yet," Kerr said. "I think Dimerco deserves some upside ... Other rivals enjoy a much higher P/E ratio."
For example, Systex, the nation's largest systems integrator, trades at 61.6 times estimated 2000 earnings of NT$3.427.
On the otherhand, Dimerco trades at 33.6 times estimated 2000 earnings.
Then there's Ares, which is a little more closer in size to Dimerco in terms of revenue. Ares trades at 49.1 times estimated 2000 earnings of NT$2.31.
Proyoung, which trades at 43.8 times estimated 2000 earnings of NT$3.20, also commands a premium compared to Dimerco.
Stovicek of National Securities also sees tremendous growth on the horizon, with many Taiwanese companies turning their attention to developing e-commerce strategies now that Y2K spending is over. "Our sense is that there will be more opportunities" for Dimerco, he said.
Over the next four years, Stovicek expects the company's net earnings to grow between 17 percent and 25 percent, hitting NT$142.2 million in 2003.
Stovicek also likes the company for its increased focus on software, which offers higher margins compared to hardware sales. According to his research, margins for hardware in 1998 came in at roughly 20.9 percent. For software, it was 64.2 percent.
While hardware accounted for 75 percent of sales and software 25 percent last year, Dimerco's goal is to have the percentages be 60 percent and 40 percent, respectively.
And although the company hasn't skyrocketed 200-plus percent like No 1 systems integrator Systex, its prospect's make the firm a good holding, Stovicek said. "You need to build a broader portfolio of stocks related to IT convergence," he said.
National rates Dimerco as an "accumulate," with a six-month price target of NT$175 and a 12-month price target of NT$195.
On Friday, Dimerco closed at NT$148, 17.7 percent off its 52-week high of NT$180 reached on Dec. 27.
In summing up Dimerco, Stovicek described the company as a "journey man's" stock. It's not a hot shot in the IT world, but it knows how to get the job done.
"It doesn't offer any new technology. It's not in the business of developing new software, like Microsoft," Stovicek said. "It's a professional services business with technology exposure."
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