Analyst Report On Accs

1. Economic and Industry Outlook

1.1 Asia-Pacific Economic Outlook

Asia Pacific region growth in 2005 is comparatively slower than 2004 but still robust. The average real GDP growth for the Asia-Pacific (AP) economies in 2004 was 5.4% (2003: 3.7%). In 2006, it is expected that the GDP growth for the AP region will be around 4.6% , translating into good news for ACCS whose operations spans across the AP region.

There are several considerable regional risks:

i) Surging oil prices can impact oil dependent Asian economies, resulting in inflation, e.g. China and India, or worse, a recession if hike persist .

ii) The political tensions lurking between and within countries, e.g. Beijing & Taiwan standoff and Bangkok's election demonstrations. Such tensions generally dampen the investment climate.

iii) The possibility of another avian influenza outbreak.

1.2 Telecommunication Industry Outlook

The telecommunication industry in both developed and emerging markets is growing as mobile phones have become a fashion statement beyond their basic functions. Despite the phone market approaching saturation in developed markets such as Singapore (See Appendix A) and Australia, consumer demand is still expected to develop strongly over the years boosting.

Furthermore, modernization of developing markets such as China and India and its large population, will contributes to the industry growth. Currently, China is the world leader in the mobile phone users at 340 million users in 2005 and having a market worth of US$72.1 billion .

2. Fundamental Position of the Group

2.1 Business Model

Established in 1999, ACCS's primary line of business centers on being an outsourcing solutions partner for major mobile phone manufacturers and telecommunication network operators. It accomplishes this through the provision of after-market services (AMS) and distribution management solutions (DMS) for mobile communications and high-tech consumer products.

In AMS, it offers integrated after-sales services, including customer relationship management and technical services management. Through Distribution Management Solutions Limited, the Company also provides distribution and retail of mobile communication equipment and mobile-related services through DMS' distribution network of over 100 retail outlets, comprising authorized dealers and owned retail outlets operating under the 3 Mobile, Handphone Shop and Super Mobile brands.

2.2 Business Strategy

ACCS recognizes that one of their competitive edges lies in its AMS division and the vast distribution networks within DMS; providing a distribution channel to the market for its partners. As such, ACCS seeks to continuously build on these strengths and, through vertical integration, produce synergy between its two complementary divisions.

Another key strategy is the continual fortification of current relationships with their business partners due to the similarities between services offered. This is to be achieved through upgrading of the group's management information system, e.g. ACROSS, to improve control and coordination between the many different operations. This will translate into better customer service quality.

Aggressive expansion beyond the Singapore market and venturing into the refurbishment business looks to be an area of potential high growth, especially in countries with huge second hand market, e.g. Indonesia and India for ACCS in the coming years.

2.3 Competition in the Industry

Generally, ACCS does not have a direct competitor with the exact replica of its business model across the same geographic trail. Also, ACCS has gained a first-movers advantage as it entered emerging profitable markets such as China. By seizing a pie in the AP market, ACCS has become approximately 10 times larger than its closest competitor. ACCS major competitors can be identified as the Original Equipment Manufacturer (OEMs) themselves, their other distributors, and the vast number of small players such as retail outlets. (See Appendix B)

For DMS, where the bulk of the revenue comes from mobile phone retailing, ACCS's direct competitors range from big players like Singtel, M1 and Starhub to smaller retailers that are often neighborhood based. Even as recent as 2006 has ACCS been expanding. As reported in the latest news on 1 March, 2006, ACCS has acquired SESDAQ-listed Semitech Electronics AMS business to enlarge its geographic trail.

Most of ACCS's competitors either lack a wide distribution network or focus on a different market.

In conclusion, with its vision set forward, ACCS is set to flourish in the future years despite all the potential threat from competition.

2.4 S.W.O.T Analysis

2.4.1 Strengths

A wide and diverse network as well as a multitude of different activities helps them in diversifying their business. Another key strength is lies in their clear cut management system.

2.4.2 Weaknesses

Bonuses for senior management are based on performance which gives rise to undue pressure on senior management to manage earnings and creating "agency problem" of conflicting interest. Another weakness is the over reliance on a selected few business partners, implying significant loss of revenue for the company should a major client pulls out. The vast network of ACCS makes it harder for management to communicate and align the company's goal.

2.4.3 Opportunities

Being one of the few companies to offer both AMS and DMS in Asia, the possibility of being capturing a major share of the Asian market is viable, especially in China. With the emergence of new mobile phone makers, it presents opportunity to ACCS to expand it clients' network.

2.4.4 Threats

Many of its major clients provide the same service as ACCS. This implies difficulty in its Client Relation Management ("CRM"). Another major threat is high cost in keeping up with technologies changes. Due to ACCS's expansion strategy, the cost of legal compliance with those countries could be huge.

3. Financial Statement Analysis