KUALA LUMPUR: Microlink Solutions Bhd is cautious on its performance for financial year ending March 31, 2016 (FY16), as its customers are reassessing their spending budget on software development due to the unconducive economic environment.

While declining to provide additional financial guidance for FY16, the group’s chief executive officer-cum-executive director Peter Yong Kar Seng said he hopes that Microlink’s performance will not incur more losses for FY16.

“We hope that we can secure a few major contracts for the remaining quarters of FY16, but we are still cautious on outlook as our customers may reassess their spending, because of the uncertainties in our economy now,” he told reporters after the group's annual general meeting yesterday.

“Theoretically, the weakening ringgit might do us some good because our major competitors are all overseas-based, and we could be seen as cheaper. But we cannot rule out the possibility of these competitors cutting their price further when they are desperate for customers,” he added.

Yong said the contracts that Microlink is negotiating now could be worth at least RM50 million, and his management wishes to finalise them within FY16.

Despite the group’s costs being denominated in ringgit, he noted that the weaker currency might eventually impact its hardware costs as products sourced from its suppliers would have exposure to foreign currency.

For the first financial quarter ended June 30, 2015 (1QFY16), Microlink posted a net loss of RM723,000, against a net profit of RM1.42 million a year ago; despite a more than fourfold increase in revenue to RM36.94 million from RM8.03 million.

Yong said this was because the group did not secure any major contract in 1QFY16. Although there was a significant increase in hardware distribution, the margin is thin.

“Our business performance was volatile in the past because the main source of revenue was project based. If we had a major contract, the earnings would go up substantially, otherwise it would move conversely,” Yong explained.

Therefore, he said the group is working towards securing more maintenance and services (M&S) business as it provides Microlink with a recurring income.

“Currently, this segment (M&S) is giving us about 30% of revenue. We are looking to push that up to 50% in the next five years,” Yong said.

Microlink (valuation: 0.2; fundamental: 1.7) shares closed down seven sen or 6.19% at RM1.06 yesterday, with a market capitalisation of RM161.28 million.

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This article first appeared in digitaledge Daily, on September 15, 2015.