Stocks With Momentum: NOVA MSC

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OVER the last month, Nova’s share price has almost doubled to a 3-year high of 19 sen, with the stock gaining 8.6% yesterday. However, it is unclear if the rally is sustainable, or whether Nova is just another stock riding high on GST-themed investing that has raised interest in IT companies.

Nova provides software services for the government and healthcare sectors, such as ‘OCTANS’ — which supports government organisations in controlling and managing land planning and development.

The company’s financial performance appears unexciting, with annual turnover hovering between RM22 million and RM33 million since FY March10.

Nova fell into the red in FY2012 with net loss of RM4.4 million, which widened slightly to RM4.6 million before returning to black in FY2014 with a net profit of RM726,491. Nevertheless, investors should note that stripping out a writeback of impairment loss for intangibles of RM0.9 million would tip the company back to being loss-making for FY2014.

1QFY2015 saw turnover increasing 5% to RM8.7 million, which increased net profit by 23% to RM449,000. Its order book as at 30 June 2014 was almost double that of the immediate preceding quarter at RM46.8 million — enough to sustain the company for around 1½ years.

Recently, Nova announced a private placement of up to 20% of its shares at 13.8 sen per share, with proceeds to fund the company’s working capital requirements. The company has identified Raden Corp, a company related to Tunku Dato’ Seri Nadzaruddin – a director and substantial shareholder of Nova, as a placee of up to a 10% stake.

Despite its lacklustre financials, Nova’s stock trades at a premium at three times book with a trailing 12-month P/E ratio of 88.1 times. Net debt was RM0.6 million as at 30 June 2014, with a low 2.8% net gearing ratio.



This article first appeared in The Edge Financial Daily, on November 26, 2014.