This article first appeared in The Edge Financial Daily, on November 23, 2015.

IFCA MSC Bhd
(Nov 20, 94 sen)
Maintain add with a higher target price (TP) of RM1.80: The nine months ended Sept 30, 2015 (9MFY15) revenue was up 35% year-on-year, but net profit rose 77% higher. The higher profit growth was mainly due to the high operating leverage nature of its business.No interim dividend per share was declared, in line with our expectations. IFCA’s 9MFY15 net profit growth would have been higher if not for the expiry of its MSC status early this year. 

IFCA MSC’s China division experienced some hiccups in the first half of 2015. In the third quarter ended Sept 30, 2015, revenue was up 88% quarter-on-quarter, an indication that its China operation has recovered. However, Malaysia’s business post-goods and services tax remains disappointing. 

IFCA has just completed the acquisition of its Indonesia distributor, PT IFCA Consulting Indonesia (Pica). Pica has a lot of potential. Most of its customers are still on the old Windows platform and there is potential to upgrade to the mobile platform. In addition, software as a service should grow faster in Indonesia than in Malaysia. Pica currently makes around RM4 million net profit annually and could be a major winner in 2016. 

We are bullish about IFCA’s new online platform property365.my, slated to be launched in early December. This platform, the first of its kind in Malaysia, will enable all its developer clients to sell/launch their products online, thus changing the way developers sell their product launches.  We gather that IFCA has already signed some deals with developers to launch their products on property365.my, and we believe that it will be signing more customers before the launch. We maintain our “add” call on the stock and our TP rises as we roll it forward to the end of 2016, with the valuation basis unchanged in  2017 at 21 times price-earnings ratio, in line with its peers.  — CIMB Research, Nov 20