Thursday 28 Mar 2024
By
main news image

Century Software Holdings Bhd
(June 6, RM0.75)
Maintain buy at 75.5 sen with revised target price of 98 sen (from 80 sen): Century Software (CSHB) announced that its wholly-owned subsidiary, Century Software (M) Sdn Bhd, had received a letter of award for a project named “Project pembangunan sistem budget online bagi pelaksanaan outcome based budgeting” (OBB) for a contract sum of RM22.5 million from the Ministry of Finance (MoF). The contract tenure is for 10 months commencing from June 2011.

The contract is a pioneering, first of its kind project in Malaysia to be implemented by 24 government ministries. The OBB process strategically covers a complete budget cycle, that includes key functions such as planning, budgeting, monitor and control, and analysis and review, will be installed on Internet-equipped PC platforms for submission to MoF.

The growing need for better coordination involving policy matters, budgeting processes and project implementation has driven the implementation of a more dynamic budgeting mechanism to optimise the allocation of often scarce and costly economic resources.

In contrast to the previous output-based budgeting system, the OBB process is more results-oriented and ensures maximum benefits by effectively monitoring spending patterns. Hence, we expect the system to be implemented at more federal and state agencies in the long run. As such, CSHB should enjoy first-mover advantage, having founded the new solution and being the first to implement it on a commercial basis.

Assuming a typical net margin of 30%, the contract would translate into core earnings of RM6.8 million, to be recognised over the next 10 months. We have accordingly upgraded our core earnings forecasts by 15.5% to RM22.4 million for FY11 and 23.2% to RM27.7 million for FY12. Although the contract is one-off in nature, we note that maintenance services typically start 12 months after systems implementation, hence, this could drive earnings growth going into FY13.

We are becoming increasingly upbeat on CSHB’s prospects given its diversification of earnings away from its conventional stronghold in accounting solutions and e-payment gateway services.

The new OBB system would perk up its organic growth and open up an untapped market in the government’s budgeting system, which in turn ensures its long-term organic growth. Pegging a higher FY11 price-earnings ratio of 15 times to our revised estimates, our fair value now stands at RM0.98. Maintain “buy”. — OSK Research, June 6

 

 

This article appeared in The Edge Financial Daily, June 7, 2011.

      Print
      Text Size
      Share