Elsoft Research Bhd (+ve)

ELSOFT (Fundamental: 3/3, Valuation: 2.1/3) is a niche IT service provider, designing and developing automated test equipment for LED inspection. 

It has been doing very well. Revenue grew at a CAGR of over 30% between 2010 and 2013, to RM25.21 million. Net profit grew by an outsized 40% annually over the same period, to RM 10.8 million. 

In 9MFY14, revenue was up a hefty 67% y-y to RM35.38 million while net profit totaled RM15.5 million, surpassing that 

for the whole of 2013.

The company has no borrowings and is sitting on cash of RM28.7 million.

Elsoft has a minimum 40% dividend payout policy. But it has been rewarding shareholders with more, paying 50-73% of annual earnings in 2011-2013. Dividends totaled 3 sen per share last year, translating into net yield of 1.6%. 

The stock is trading at historical P/E of 18.2 times, still low relative to its strong double-digit growth.

This article first appeared in The Edge Financial Daily, on February 25, 2015.