Mustek’s headline earnings fell 58.81% to 91.34 cents a share in the six months to December after revenue fell due to a marked decline in green energy product sales, but it is banking on AI to also drive future growth.
“We are cautiously optimistic that the AI PC will bring a new round of potential growth in the PC market,” the ICT supplier’s directors said in the interim results.
They said they would continue to drive market share growth from the group’s IT stack such as network and infrastructure, and continue to ensure efficiency in its operations.
The recent release of AI-capable systems by OEMs (original equipment manufacturers), together with a strong focus from operating system providers in 2024, was likely to drive fresh demand in the commercial sector, Mustek said.
“AI-generated content and large language models require tremendous computing power, bandwidth, and high availability of data. Not only does this drive opportunity for hardware refresh, but also for the enablement and training of skills that are required in the market to apply these technologies responsibly, securely, and sustainably,” the group said.
The wider availability of Microsoft Co-Pilot due to a relaxation of the licensing rules would likely be the first driver, Mustek directors said. Small and medium-sized businesses that had delayed upgrading due to economic conditions remained a large PC growth sector.
“Traditional infrastructure business is expected to see growth in the form of connectivity, storage and compute as cloud repatriation sees certain workloads return to the edge,” the group said.
Alternative energy management would continue to drive business continuity as pressure mounted for all consumers of electricity to be self-sustainable.
Operating profit for the six months fell by 25.3% to R180.6m. Net asset value per share came to 2 725.09c, up by 5.5%.
The decline in performance reflected local and global economic challenges, such as high inflation, high interest rates and low consumer and investor confidence.
There was weaker demand for green energy products, a key driver of revenue growth in the comparative period. This saw revenue fall 13% to R4.27 billion. Sales volumes of green energy products fell by about 53%.
The rest of the business was more stable. The two largest business segments, Mustek and Rectron, saw their revenue decline 15% and 9.9% respectively.
The IT training company, Mecer Inter-Ed, also experienced a slight decline in revenue to R46.2 million from R48.8m from tougher market conditions.
The gross profit margin decreased to 13.4% from 14.1%, due to competitive forces in green energy products, product composition and the effort to lower stock levels.
Gross profit on green energy products fell by some R100m year-on-year. Despite fluctuations in foreign exchange rates, a forex profit of R10.6m was realised versus a forex loss of R62.9m in the comparative period.
Distribution, administrative and other operating expenses grew 3.4%, which is lower than inflation. However, the cost base as a percentage of revenue increased to 9.4% from 7.9% due to the revenue decline.
Finance costs remained a focus area. The higher interest rates resulted in a 50.5% increase in finance costs to R115.1m.
About 60% of working capital facilities are US dollar based and exchange rate fluctuations also played a role in the increased trade finance costs.
Associates contributed a loss of R2.4m versus a R3.8m profit previously, mainly from the poor performance of Zaloserve, which faces operational challenges and cash flow constraints.
Khauleza, despite showing a loss, was projected to be profitable by year-end. Continuous Power Systems and YOA managed to stay profitable and keep market share.
The group said that the macro landscape remained challenging due to factors as varied as the upcoming local elections, climate change, the digital divide and emerging geopolitical risks.
“The group will continue to work closely with vendors and pursue the sourcing of innovative products, while also focusing on environmental impact reduction, social equity, and operating fairly and ethically. While demand for PCs declined after the rampant post-Covid era, it has been stabilising.”
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