KUALA LUMPUR: IFCA MSC Bhd expects China, Indonesia and the domestic market to help the enterprise software solutions provider deliver “remarkable” better earnings for the financial year ending Dec 31, 2015 (FY15), with sales contracts amounting to RM130 million from the three markets.
IFCA chief executive officer Ken Yong said the group sees business growth from China leading the way this year, as it plans to open 10 new sales offices there and double the market’s contribution to the group’s revenue in FY15 to RM60 million.
IFCA currently has eight sales offices in China, which serve major companies like the Wanda and R&F groups, and contributed RM30 million in revenue for the nine-month period ended Sept 30, 2014 (9MFY14).
For 9MFY14, IFCA (fundamental: 3; valuation: 1.5) posted a net profit of RM11.95 million on revenue of RM58.05 million. Malaysia is currently its largest market, contributing 72% of its revenue for 9MFY14, while its overseas business accounted for the remaining 28% (RM16.4 million).
The group is due to release its financial results for the fourth quarter ended Dec 31, 2014, next month, and is expecting to post record earnings and revenue.
“Averaging RM4 million in sales per office in China, that number (RM60 million) is not unachievable or ambitious. To us, it is a conservative number and we are expecting very high growth from China,” Yong told The Edge Financial Daily in an interview.
He said it is IFCA’s “dream” to open over 70 offices in China in five years, but this is subject to the speed of recruiting the necessary manpower for the expansion.
He added that the “highly scalable” nature and the low capital expenditure requirement for software companies like IFCA allow its rapid expansion in China.
Yong said IFCA is also eyeing a share of the Indonesian market in the near term through acquisition of a local firm.
He said IFCA is in talks with several Indonesian parties, but remained tight-lipped as to how advance negotiations are.
If the acquisition comes through, Indonesia will present IFCA with a new earnings growth catalyst. Most of the country’s property developers are using outdated versions of Windows-based software and a need for web-based solutions will bode well for IFCA.
In a report dated Oct 10, 2014, CIMB Research analyst Nigel Foo said IFCA’s balance sheet is cash rich, with RM29.7 million net cash or 6.5 sen net cash per share as at end-June 2014.
Foo noted that the group has 143 million outstanding warrants, which expire in 2016. If fully converted, this will raise an additional RM14.3 million cash or 7.5 sen net cash per share (fully-diluted basis) for IFCA.
Back home in Malaysia, much of IFCA’s success has also been attributed to the fact that it benefited from the goods and services tax (GST) software upgrades and training.
GST upgrades and projects accounted for 20% of the group’s revenue in 9MFY14.
“Moving beyond 2016, the GST element will probably not be there anymore, but we are not dependent on that,” said Yong, adding that the group is banking on its new suite of web/mobile-based solutions for property developers.
Till then, Yong said IFCA looks to secure around RM20 million in sales from GST software upgrades and training for FY15.
Meanwhile, IFCA’s strong earnings potential has not gone unnoticed by institutional investors, which represent some 10% of its shareholdings, said Yong.
“I looked at my shareholders list recently and was surprised to see JPMorgan Chase & Co and Merrill Lynch in it. I think we have about 20 institutional investors now. We are being recognised as a solid technology company with a clean balance sheet,” he added.
The stock has had the attention of the regulator too. Bursa Malaysia has reacted to IFCA’s growth by issuing two unusual market activity (UMA) queries — once in August 2014 and another in January 2015 after recent rises in price and volume of IFCA shares.
In reply, IFCA said it was unaware of any corporate development or report that could have account for the UMA.
IFCA’s share price has experienced a strong rally since January last year, growing more than nine-fold from eight sen on Jan 2, 2014 to end the year at 75 sen. It was one of the best performing stocks on Bursa Malaysia in 2014.
The stock rose to an intraday high of RM1.01 before easing to close down 4.52% at 95 sen last Friday, with 42.05 million shares traded, bringing a market capitalisation of RM460.5 million.
Yong also said the group is looking at establishing a dividend policy with payout ratio of 20% to 30% of its net profit this year to reward shareholders.
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. Go to www.theedgemarkets.com for more details on a company’s financial dashboard.
This article first appeared in The Edge Financial Daily, on January 19, 2015.