KUALA LUMPUR: Technology stocks were all the rage again last week, with many counters dominating the top active ranking. Now, their share prices are valued at premiums that even most oil and gas (O&G) giants could not rival during the industry’s heydays.
Case in point, Systech Bhd (fundamental: 1.65; valuation: 1.5), which was consistently in the top five most active ranking, jumped 26.09% between Jan 9 and yesterday to close at 29 sen and had a trailing 12-month price-earnings multiple of 31.13 times, according to The Edge Research.
In the same period, Nova MSC Bhd (fundamental: 1.4) gained 18.52% to 16 sen and has a price-earnings ratio (PER) of 66.59 times, while Privasia Technology Bhd (fundamental: 1.4; valuation: 0.6) rose 11.11% to 15 sen, which was 17 times its past 12-month earnings per share.
Meanwhile, Censof Holdings Bhd (fundamental: 1.45; valuation: 0.6) gained 10% from Jan 9 to close at 44 sen yesterday.
IFCA MSC Bhd, which was last year’s best-performing stock, breached the RM1 mark last week from its high of 8.5 sen a year ago. Closing at 96.5 sen yesterday, IFCA (fundamental: 3; valuation: 1.5) has a PER of 38.3 times.
My EG Services Bhd (MyEG) (fundamental: 2.6; valuation: 1.5) instead fell 8.75% from its closing high of RM2.70 to RM2.48 yesterday, after a rally when it was reported that it had struck a deal with the government to provide online renewal permit to foreign workers. Its 12-month trailing price-earnings multiples were 56.05 times.
However, analysts and fund managers are of the view that the current trend is just a trend. The flavour will run out eventually for many of the technology stocks, especially those with small share bases and lack of earnings growth story.
Inter-Pacific Securities head of research Pong Teng Siew noted that many of these technology counters constitute software makers, which may have been part of the goods and services tax (GST) play since last year.
With the exception of Censof and MyEG, all the stocks mentioned have been featured as The Edge Research’s Stock with Momentum. These stocks do not necessarily have to be fundamentally solid or undervalued, as a mathematical algorithm will detect the counters with ascending momentum in share prices and volumes.
“GST is a theme play. It’s a good trading idea that spilled over to makers of other forms of software. However, the question remains: what will happen to these stocks once the GST is implemented [on April 1]?” Pong asked.
He told The Edge Financial Daily that technology stocks are mainly favoured by retail investors.
Pong said he generally avoids these stocks as they lack institutional presence and have small issued share capitals and expensive valuations.
“Their share prices can also be volatile because of little-to-no institutional funds supporting the stocks,” Pong said.
The Edge Research data also showed that all the aforementioned technology stocks, save for MyEG and Censof, have a volatility score of 5 out of 5, which measures the volatility of a stock based on its share price movement relative to the whole market over a period.
Apart from IFCA, Systech has also charted its growth plans post-GST.
Its chief executive officer and largest shareholder Raymond Tan told The Edge Financial Daily in an interview last November that Systech was creating a third revenue stream by providing new security solutions and intelligence big data analytics — which serve to prevent computer hacking. This is expected to be Systech’s catalyst.
Currently, Systech designs, develops, customises and implements proprietary software solutions to mostly multilevel marketing companies under its subsidiary Syscatech Sdn Bhd. It also develops franchise software system for retail and franchises’ operational and management needs under Mobysys Sdn Bhd.
As for technology stocks in general, Tan believes that Alibaba Group Holding Ltd’s recent initial public offering — which was the largest ever at US$25 billion (RM89 billion) — had rejuvenated investor interest in technology stocks worldwide, particularly in the software and services segment.
“We do believe that there will be a further shift in interest towards technology stocks following the decline in [crude] oil prices affecting the O&G players as well as various government initiatives in moving towards e-government and services.
“These factors will generate demand for technology companies involved in software and services segment, potentially further increasing their valuations in the near future,” he added.
Tan confirmed that no institutional fund currently has any holding in Systech, or has yet to approach the company to subscribe to a stake.
The Edge Research’s fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.
This article first appeared in The Edge Financial Daily, on January 20, 2015.