CENSOF Holdings Bhd is pushing hard to diversify its earnings base. Once one of the hot stocks in the ICT sector, institutional investors liked it because of its prospects of securing lucrative government contracts.

Censof’s shares were trading at above 50 sen from 2013 to 2015. But the counter closed at 25 sen last Thursday — less than half its peak of 66.5 sen per share in September 2014, based on adjusted prices from Bloomberg.

The ICT stock lost its shine partly due to the challenges it faced in securing government contracts. Now, instead of relying on public contracts, Censof sees small and medium enterprises (SMEs) as the new frontier in the diversification of its earnings base.

Group managing director Ameer Shaik Mydin says the group’s 51%-owned subsidiary, Asian Business Software Solutions Pte Ltd (ABSS), which it bought into last December for RM29.98 million, will be the key driver.

“Right now, we are touching about 30% of our revenue [from the non-public sector] and we intend to push it to 50% in one or two years,” Ameer says, adding that there are “many areas we can monetise within our existing SME base which has not been done yet”.

To recap, Censof and ABSS had formed a partnership in October 2014 to market the MYOB accounting software in Malaysia in anticipation of the Goods and Services Tax (GST) rollout on April 1, 2015.

ABSS is the developer and supplier of the MYOB accounting software for Asia, with a customer base of over 340,000 SMEs across Malaysia, Singapore and Hong Kong.

The GST play is still ongoing for both Censof and ABSS, according to Ameer, although the momentum is tapering. But GST is not the core driver of ABSS’ business.

ABSS CEO Paul Conway tells The Edge that the aspirational target is to hit a million SMEs in terms of customers within several years.

“[The one million SMEs target] could be too big but if we get things right, it is achievable,” Conway says, adding that “SMEs make up the largest proportion of each of the geographies that we are in”.

Conway says he sees much room for further growth in Malaysia and Singapore for ABSS, especially in terms of adding auxiliary services for existing customers such as payment solutions and fund transfers.

A potential new market for the company would be India, which is currently finalising its own GST rollout. “Looking at India, it would be a massive market for us, there are several million SMEs,” Conway tells The Edge. Any such entry would depend on the finalised GST regulations, he says.

However, the push into the SME market does not mean Censof is taking it easy with its existing businesses. Ameer says other businesses within the group will continue to grow organically, adding that the group is currently sitting on an order book of RM68 million.

Censof is recovering from its first annual loss in the financial year ended March 31 (FY2016). The group posted RM165.5 million in revenue, up 8.8% year on year but recorded an annual net loss of RM7.9 million due to an impairment of RM13.1 million from its trade receivables.

According to Ameer, the impairment was from the maintenance portion of a contract which had seen some delays. While declining to discuss specific details, he stresses that the contract remains in effect and is confident the impaired figure will be recovered once the contract progresses to the maintenance stage.

There is another amount of RM6.7 million in trade receivables from a government agency that Censof’s auditors had intended to impair given that it had been outstanding for a long time, according to a July 29 statement. This formed the basis of the auditor’s qualified opinion on its accounts.

When asked about the sum, Ameer reiterates that it is a difference of opinion between the management and the auditor. He stresses that the amount is recoverable as the government agency in question had given a written commitment to continue working with Censof.

Meanwhile, at the group level, Censof is also focusing on reducing its gearing, according to Ameer. Based on unaudited figures as at June 30, Censof’s gearing was 58.4%.

“We are taking steps to ensure it is lowered...,” says Ameer. “A comfortable range would be around 0.2 to 0.3 [times].”

The degearing focus means Censof is not likely to announce dividends anytime soon, he says.

For the first quarter ended June 30 (1QFY2017), Censof recorded RM62.5 million revenue, up 83.6% from the previous corresponding period, with net profit surging to RM35.7 million compared with RM838,000 a year earlier.

However, this is largely due to a revenue contribution of RM47.42 million and pre-tax profit contribution of RM91.53 million from Dagang NeXchange Bhd (DNeX), in which Censof had a 39.23% stake as at March 31.

This has now been reduced to 17.94%, according to Bloomberg data, following two separate divestments in August and September as well as a DNeX rights issue that was completed in August. The divestments were partly done to repay borrowings undertaken to subscribe to the rights issue.

The smaller stake means DNeX will no longer contribute on the revenue side going forward. Taking out the DNeX contribution, core 1QFY2017 revenue comes to RM15.1 million and core pre-tax profit was RM1.67 million.

Of this amount, ABSS contributed RM5.1 million in revenue and RM800,000 in profit in 1QFY2017, says Ameer, and ABSS’ top and bottom lines are expected to see double-digit growth rates moving forward. 

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