[This Week's Industry Insight] Supply Chain Management SW Specialist Emro Partners with Samsung SDS for Overseas Expansion

Samsung SDS Acquires Korea's No.1 Procurement Supply Chain Management Specialist
Enhancing Supply Chain Management Solutions with AI Technology
Strengthening Synergy through Collaboration with Samsung SDS and Onine Solutions

Editor's NoteDear individual investors dreaming of successful investments. How well do you know the stocks you invest in with your own money? In the unrefined and chaotic online environment filled with all kinds of information, Asia Economy aims to be your hands, feet, eyes, and ears to deliver accurate information about companies. Each week, we focus on companies that rank high in stock inquiries from the financial information provider FnGuide, delivering everything from basic information to analyses of related companies such as partners, customers, and investors. We will explain companies' financial conditions, performance status, and future value in an easy-to-understand manner. We meet you every week under the name "This Week's Watchlist," highlighting notable stocks. This week, we analyzed Emro, the nation's number one purchase supply chain management specialist company.

Samsung SDS acquired a 33.4% stake (3,744,064 shares) in Emro last March. The acquisition price per share was KRW 29,862, which includes a 28.4% control premium over the closing price of KRW 23,250 the day before the contract was signed. By acquiring Emro, Samsung SDS secured integrated supply chain management (SCM) platform capabilities that cover supply chain planning, purchasing, and execution.

Emro, which prompted Samsung SDS to break its four-year silence and engage in mergers and acquisitions (M&A), is a developer of AI-based supply chain management software. It supplies software and services aimed at strengthening companies' supply chain competitiveness based on digital new technologies such as AI and cloud. Since 2016, Emro has rapidly grown by providing differentiated solutions combining AI-related technological capabilities such as self-developed machine learning (ML), data analytics engines, and high-performance search engines.

Since its establishment in 2000, Emro has worked with over 420 clients and completed more than 1,500 diverse projects. Its main business areas are divided into ▲ enterprise supply chain management software ▲ AI software ▲ supply chain management cloud services. It has developed essential purchasing systems for efficient procurement, partner-integrated evaluation and management solutions for co-growth and collaboration with suppliers, and various analytical and predictive solutions that enhance purchasing efficiency and strengthen supply chain crisis response using AI technology.

A Small but Strong Supply Chain Management Software Company with Long Experience

Since launching its first AI software, 'Smart Item Doctor,' in 2019, Emro has continuously expanded its software product lineup. It has strengthened its position as an AI software company by conducting various projects with leading domestic companies such as Samsung Electronics, LG Electronics, LG Chem, Hyundai Motor Company, Hyundai Oilbank, S-Oil, GS Caltex, Hanwha Construction, Pulmuone, and Daesang.

Emro was also the first in Korea to introduce a supply chain management cloud service that provides standardized purchasing processes as software-as-a-service (SaaS). It has secured over 140 clients, including Yanolja, HYBE, Hansung Motor, and PI Advanced Materials. The company is rapidly expanding its market targeting small and medium-sized enterprises that want to adopt economical and fast purchasing systems.

An Emro representative explained, "Regardless of the industry, companies are actively utilizing AI technology to enhance efficiency across management and production activities. The trend is to process big data accumulated during management activities to derive insights and actively adopt AI technology to utilize them."

Applying AI to supply chain management can maximize efficiency. Previously, many companies had purchasing managers manually analyze complex supplier quotations and review appropriate purchase amounts. Emro provides solutions that automate this process based on AI, reducing workload and enabling objective quotation analysis. The company’s strength lies in its accumulated technological capabilities built over many years. In 2021, Emro registered four domestic AI-related patents, including the 'Method and device for classifying items based on machine learning.' It has also filed eight patents overseas in countries such as the U.S. and Japan, recently completing registration of one Japanese patent.

Emro develops various AI software directly using its proprietary AI development tool and service platform called 'Smart AI Studio,' rather than relying on external AI platforms. AI Studio supports easy and fast development of the entire process from diverse data sources, data collection and preprocessing, model training and prediction, to database (DB) storage. It can apply various requirements tailored to each company's purchasing work characteristics.

Through AI natural language processing algorithms, Emro supports maintaining quality by identifying similar items in large datasets to prevent duplicate data. This is particularly useful for large corporations with many purchasing items. Demand forecasting is one of the critical elements in supply chain management. Emro has developed AI models specialized for daily, weekly, and monthly demand forecasting. Its demand forecasting solutions have been continuously provided, recognized by clients for excellent predictive performance and stability.

Even before Samsung SDS’s acquisition, Emro continued its growth. In the first quarter of this year, it recorded KRW 14.3 billion in sales and KRW 1.1 billion in operating profit. Compared to the same period last year, sales increased by 6.7% and operating profit by 78.2%. Profitability improved as technology-based revenues such as software licenses, royalties, and cloud service fees increased.

An Emro representative said, "Despite the economic downturn and reduced IT investments by companies, demand for purchase supply chain management software is steadily increasing," adding, "We have secured new clients across various industries this year."

Dream Team Formed for Overseas Market Entry... Results Expected from Next Year

Having grown independently, Emro has laid the foundation for full-scale overseas market entry by partnering with Samsung SDS. By combining Samsung SDS’s logistics platform with Emro’s purchase supply chain solutions, a linkage for overseas expansion in the supply chain field was completed. The importance of purchase supply chain management has increased due to experiences such as the COVID-19 pandemic and the Russia-Ukraine war, which also acted as opportunity factors.

Emro is jointly developing a SaaS-based integrated supply chain management platform with Samsung SDS and On9 Solutions. On9 Solutions, a U.S.-based supply chain platform company, is the global number one in supply chain planning (SCP). It has secured global companies such as Google, Walmart, Starbucks, and Nestl? as clients.

Samsung SDS expects significant synergy effects through cooperation with Emro and On9 Solutions. Samsung SDS CEO Hwang Sung-woo said, "Through strategic cooperation among the three companies, we will overcome geopolitical risks faced by global companies," adding, "This is a perfect strategic combination that combines the strengths of the three companies."

The anticipation of Emro’s growth has also influenced its stock price. After news of Samsung SDS’s acquisition was announced, Emro’s stock price rose about 117%. Considering that the KOSDAQ index rose 17.5% during the same period, the market-relative return exceeded 100 percentage points. Yeouido stock market experts also expect Emro to achieve results in overseas markets.

Yoon Cheol-hwan, a researcher at Korea Investment & Securities, said, "Attention should be paid to the strategic partnership with Samsung SDS and On9 Solutions," analyzing, "Emro is the number one in purchase supply chain management (SRM) in Korea, Samsung SDS is number one in domestic supply chain logistics execution (SCE), and On9 Solutions is number one in SCP." He added, "They are developing the world’s first integrated supply chain management (SCM) SaaS platform through partnerships among leading companies in each detailed supply chain management sector," and "They will target overseas markets that are 60 times larger than the domestic market."

The global supply chain management software market is expected to grow to KRW 30.5 trillion by 2027. Since enterprise software prices are higher overseas than domestically, Emro’s profit growth rate is expected to accelerate once it achieves success abroad.

Korea Investment & Securities estimates Emro will achieve KRW 67.6 billion in sales and KRW 9.2 billion in operating profit this year, increases of 15.3% and 41.3% respectively compared to last year. Researcher Yoon emphasized, "It is time to focus on Emro, which is expected to benefit from the strategic partnership with On9 Solutions starting next year while continuing its core business growth."

Kim Se-hee, a researcher at Eugene Investment & Securities, also expressed expectations for Emro, saying, "We expect profit improvement due to rising SaaS conversion rates," and "As it evolves from a software supplier to a SaaS company, its corporate value will increase."

However, it is necessary to consider that entering overseas markets means competing with global companies. Competition to capture the rapidly growing SCM market is fierce. Attempts to strengthen competitiveness through M&A among global companies are ongoing. Existing competitors are aggressively expanding their businesses, which may intensify competition among companies. The fiercer the competition, the higher the research and development (R&D) costs and the greater the pressure to lower solution prices. Rapid decision-making is essential to survive in the fast-changing business environment. After Samsung SDS’s acquisition, unnecessary decision-making processes may arise, or management decisions may be made more Samsung SDS-centric during collaboration than Emro-centric.