GST-compliant software market potentially worth RM1.7bil

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KUALA LUMPUR: The goods and services tax (GST) compliant software market is potentially worth about RM1.7 billion, and Censof Holdings Bhd and IFCA MSC Bhd are among the few public-listed companies to potentially benefit from it, said analysts.

MIDF Research approximated the value of the lucrative market by assuming an average software cost of RM6,000 and multiplying it by the number of yet-to-be-registered GST-compliant companies — 285,000 — which gives it RM1.7 billion.

In its research note last Friday, it said software vendors who provide GST-compliant software can expect a bump in sales come the fourth quarter of 2014 (4QCY14) or 1QCY15 as the slow take-up rate now would result in a pent-up demand since the government is not budging on its registration deadline.

Reiterating that it is positive on the sector, it identified three other public listed companies (PLCs) that could benefit from this, namely Asdion Bhd, DGB Asia Bhd and YGL Convergence Bhd.

Together with Censof and IFCA MSC, they are the only PLCs among the 100 or so authorised GST-compliant software vendors listed on the Royal Customs Department website that small to medium enterprises (SMEs) can choose from.

“However, the PLCs would still need to compete with private entities who are also providing GST-compliant software to secure contracts and a piece of this potential RM1.7 billion [in sales],” said MIDF analyst Martin Foo.

The research house added that as the Dec 31 deadline for companies with annual sales of over RM500,000 to register for GST draws nearer, software vendors are expected to enjoy brisk sales from last-minute demand for the software.

This could translate into better share price performance and short-term trading opportunities for vendors listed on the local bourse, said MIDF.

Censof, an information technology (IT) software solutions provider for both back-end and front-end products and services, is seen to be a front runner in this as it is a major accounting solutions provider for government agencies, with a clientele consisting of over 100 key government-related agencies and ministries, MIDF had noted in its April 29 analysis on the company.

Meanwhile, CIMB Research, in its research report dated Aug 27, said IFCA’s revenue in 2014 and 2015 is expected to be driven by the company’s GST software upgrade in Malaysia for its customers, as it is deemed to be the dominant software solutions provider for the property sector, with a market share exceeding 70%.

“As at end of June this year, we understand that only 10% of its customers have upgraded their software, an indication of the immense amount of business in the pipeline for the company over the next few quarters,” said CIMB.

The research house added that IFCA’s Malaysia sales contracts were already at RM42.1 million as of June, compared with RM39.8 million for the whole of 2013.

This article first appeared in The Edge Financial Daily, on September 15, 2014.