PETALING JAYA, Aug 20 — It’s not every day that a Malaysian IT company gets publicly listed on a local bourse, let alone a foreign one. So when news broke last week that that software developer and cloud provider Rapid Cloud International Plc (RCI) had made a positive debut on London’s AIM (Alternative Investment Market), it was significant for Malaysia’s entrepreneur ecosystem.

The positive share price listing on its debut day (August 14) was a big relief to RCI’s majority shareowner and managing director Raymond Chee, something that was evident the day after when Digital News Asia (DNA) met up with him.

Dressed in smart casual attire and looking very relaxed at the interview in Kota Damansara here, Chee says: “I’m pleased with the performance of the shares on the first day of trading [when it went up 29 per cent]. I’m just glad that we managed to make it this far and things are looking positive.”

But if you’d asked Chee how he felt a year ago, he would have said “pretty stressed” and up to his eyeballs in work, as the listing exercise had been a long and arduous one. Beginning with the initial public offering (IPO) process back in June 2011, the entire move took more than two years to put together.

“We pursued a number of options for our listing — Hong Kong’s GEM (Growth Enterprise Market), the Australian Securities Exchange (ASX), London’s AIM and, of course, Malaysia’s ACE too,” he says. “But in the end, we decided to go with London’s AIM as things didn’t materialise in the other markets.”

The affable 37-year-old entrepreneur, who hails from Kuantan, Pahang, says RCI’s management finally chose London’s AIM in line with its plan to raise money for its regional expansion plans.

“London is the recognised financial centre of the world and we believe that any global player should be able to raise money there,” Chee says. “Another important reason was the fact that it’s much more affordable now for companies to be listed on the AIM compared with a few years ago.”

He says that companies trying to list themselves on the AIM some five years ago would have had to pay up to RM5 million, including legal and accounting fees.

But because of competition from other bourses around the world, these fees have been reduced to between RM2.5 million and RM3 million, he says, adding that this is what made it attractive for RCI to be listed on the AIM market.

Groundwork for the listing began last year, which culminated in investment roadshows with prospective investors this year. Finally, on Aug 14, RCI was listed and had a good showing on its first trading day, climbing to £0.69 (RM3.45) or 29 per cent higher than its offer price of £0.54. At of press time (August 20), its share price closed at £0.88.

For its financial year ending 2012, RCI recorded an EBITDA (earnings before income, taxation, depreciation and amortisation) of RM4.3 million on the back of RM9.4 million in revenue.

It also recorded a compound annual growth rate (CAGR) of 25 per cent between 2010 and 2012, while its income as a percentage of sales grew from 5 per cent in 2010 to 39 per cent in 2012, according to company filings.

Starting out in a garage

RCI had its humble beginnings in 1999, when Chee was just a post-graduate student at Universiti Putra Malaysia, reading his Master’s in Science in Computing and Communication Engineering.

“It was the beginning of the dotcom boom, and I decided to get into the web-hosting business from my rented home ‘garage,’ and that’s when I started a sole proprietorship called Emerge Technology,” he recalls.

Chee, who at that time had just completed his Bachelor of Science in Applied Physics at Universiti Kebangsaan Malaysia, wanted very much to run his own business and began by offering web-hosting, web solutions and web design services to small and medium corporate customers.

Realising that the Internet gives parity to those wanting to do their own business, and armed with nothing but the willingness to learn, hard work and a determination to succeed, and a paltry sum of RM2,700, Chee literally went door-to-door trying to convince businesses to take up his hosting services.

“I remember printing pamphlets about my services and going from one business to another trying to convince them to sign up with me. There were some who were nice, while others treated me nastily. It was a humbling experience but I learnt a lot about how to become streetwise in my dealings with people.”

Still, Chee persevered and finally landed his first deal, a computer retailer based in Kajang, a town about 30km from Kuala Lumpur. Finding it tough going attending classes and doing sales by day while working on web designs by night, Chee inevitably dropped out of his master’s programme.

“I had to choose between the two, and I chose to continue my business as it was my passion,” he says.

He later converted Emerge Technology from a sole proprietorship to private limited company Emerge Systems (M) Sdn Bhd. Since then, he also formed other subsidiaries: Emerge Systems (M) Sdn Bhd, Emerge Software Solutions (M) Sdn Bhd, Sharksurf Philippines Inc and Emerge Systems (Thailand) Ltd.

RCI is now the group holding company for these four business entities.

Today, Chee says RCI boasts of a staff force of 100 people, including an in-house research & development (R&D) department of 30 programmers, and about another 40 who are engaged in sales and marketing.

RCI also claims to have over 36,500 customers, of which 90 per cent are in the small- and medium business (SMB) segment, and 10 per cent in the large enterprise and government sector.

From web hosting to the cloud

RCI today provides a range of proprietary products, including core web and mobile site builders and e-commerce products, and also engages in software development projects for enterprises. It also offers infrastructure-, platform- and software-as-a-service (IaaS/ PaaS/ SaaS) to its customers.

Because of its roots in the web-hosting business, RCI is today still seen as primarily a web hosting company, Chee acknowledges. Reinforcing this perception is the fact that RCI, through its subsidiary Emerge Systems, holds the domain www.webhosting.com.my.

However, he says much of RCI’s business has moved away from the commodity-driven, hardware-based web-hosting business to one that leverages on the intellectual property of the software it has created.

“Sixty-eight per cent of our revenue actually comes from our SaaS business and only 25 per cent of revenue comes from our IaaS business,” he says, adding that he expects the SaaS portion to increase in the coming years.

On how he plans to address this challenge to become a more software-focused company, Chee says this would include renaming the holding company to Rapid Cloud International Plc as part of the listing exercise.

Noting that the acronym for Rapid Cloud is the same for his name, he adds, “Rapid Cloud ... connotes the idea of moving quickly into cloud computing and away from being a web-hosting company.

“On the operational front, we have also moved the hosting division of the company to a subsidiary so as to avoid the overlap of software and hardware business functions.

“The rebranding [exercise] will also be regional in nature and has been ongoing since 2010. We will be doing more roadshows and taking up advertisements to show that we’re more focused on enterprise cloud software solutions, as well as up-selling these services to our existing clients through our network of sales consultants and channel partners,” he adds.

What the IPO funds

In RCI’s company filings with AIM, Chee says the money raised from the IPO will be used to fund its growth, and that the net proceeds of the placing will be used for geographical extension and expansion in Indonesia, where the group does not yet have a local presence, as well as in Thailand and the Philippines.

According to company documents, the AIM listing has raised approximately £1 million (before expenses), through the placing of 1,851,948 new ordinary shares at £0.54 per share. 

The placing was arranged by Allenby Capital and First Columbus Limited and the number of ordinary shares in issue immediately after admission was 17,368,971, giving RCI a market capitalisation of £9.4 million on the opening day of trading.

“We’ve reached a stage where in order to take the company to a new level and become a leader in cloud computing in this region, we needed to grow by mergers and acquisitions (M&As) and not just organically from within,” says Chee.

On what type of companies RCI would consider in its M&A plans, he says that it would look at companies that have synergistic value and that basically deal in the software development and cloud space in the Southeast Asian region.

“These companies should own strong positions in their respective verticals,” he adds. “We are not looking at quantity but quality clients — those who have loyalty from their respective customer bases and with good cash flow.”

Asked about competition and how RCI would differentiate itself from multinationals in the SaaS space, Chee acknowledges that while large US-based companies could be seen as competition, RCI may not necessarily compete with them.

“We believe we have certain strengths such as the ability to customise our solutions to local needs,” he says. “Yes, big companies develop complex systems but not all of them fulfil specific local requirements and we think we can do that.

“Cost is another factor as most of our clients are SMBs, and we are able to be more flexible on pricing and payment terms as we own our own intellectual property and do not need to pay licensing fees to use third party software.

“Besides this, we do still partner with certain multinationals and their products are able to sit on our platforms — we are also open to working with best-in-breed players rather than having to re-invent the wheel.”

Quizzed as to how it would continue to grow its top-line revenue given that 90 per cent of RCI’s business is in the SMB sector, Chee says: “We’re not worried about this as Southeast Asia has a huge number of SMBs — something to the tune of 90 per cent of businesses — and we believe we can tackle this market.

“Our company prefers to up-sell higher value services to these large number of SMBs to compensate for having fewer large customers. This way, we’re able to spread the risk despite having lower average revenue per user (ARPU) from each customer. This is our strategy going forward for us in Southeast Asia,” he adds. — Digital News Asia