Warrants Update: IFCA-WA may need new catalyst

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IFCA MSC Bhd (fundamental score: 3; valuation score: 1.5) has seen keen interest since mid-2014 when the company emerged as a good proxy for the impending implementation of the Goods and Services Tax (GST) in April.

IFCA is a business software solutions provider and has secured more than RM50 million worth of GST jobs as companies hurry to upgrade their systems for compliance with the tax.

It was among the best performing stock of 2014, climbing from a low of 7.5 sen in February to 75 sen on Dec 31. IFCA was featured by The Edge Research as a stock with momentum in October last year.

It closed at 99.5 sen last Thursday, up 43.17% over 10 weeks, putting it only 5% shy of CIMB Research’s RM1.05 target price for the stock.

Unless there is reason to re-rate IFCA, there may be limited upside for IFCA-WA, which was trading at only a 1% discount to the underlying share at its 88.5 sen close last Thursday.

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IFCA-WA has a 10 sen, one-for-one conversion ratio and expires on Feb 15, 2016.

It remains to be seen if a re-rating comes from expectations of the stock’s transfer to the Main Market.

“We were looking for the company to move to the Main Market in 2016 but based on the expected strong 2014 net profit, IFCA could be looking to move to the Main Market [in 2015] instead of 2016,” says CIMB Research in a November 2014 note.

IFCA’s earnings fared well in the nine months ended Sept 30, 2014. Its net profit increased nearly 10 times to RM11.95 million from RM1.64 million in the previous corresponding period. Revenue grew to RM58.05 million from RM37.95 million in 2013.

So far, the company has completed 14% of its nationwide GST upgrading jobs, amounting to RM8.4 million in revenue. “This indicates that the GST job upgrades have only just started, with the remaining RM50.1 million jobs to be undertaken over the next few quarters,” CIMB Research says.

IFCA management has said it is looking at putting in place a 20% dividend policy.

The company has a clean balance sheet with minimum borrowings. As at Sept 30, 2014, it showed a cash balance of RM34.66 million with nearly zero borrowings.

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. Visit www.theedgemarkets.com for more details on a company’s financial dashboard.

This article first appeared in The Edge Malaysia Weekly, on January 19-25, 2015.