The flying machine - IFCA MSC (Q3 results update)
3
weeks ago, I mentioned that, I strongly believe IFCA could hit my TP if
the market did not crash. Now I am 100% confident that it would hit my
previous TP after today’s results! With so much profits coming in, the
main market upgrade should be happening within a year time!
(i) Financial results
From latest results, you can see that, compared to last quarter, the company has managed to grow the revenue by 39%, but its PAT grew 280%, a superb margin 33% compared to Q2 2014 (16%). Why
is this so? I think the company explains very clearly, imagine you are
operating a software business. You would need to spend a lot on R&D
to perfect your software before you actually market to your clients, of
course you still spend by upgrading your software from time to time, but
the initial spending will be much more in order to have the best
version of your software at current state. This was experienced by IFCA 2
years ago, and that explains why they are not making profits previously
(let say 100 clients to breakeven). And now after a certain threshold
(lets say 150 clients), you are basically duplicating CDs and install
and maintain. Software is a very high gross margin business, basically
more than 90% gross profit margin I would say.
GST market
Ok, back to the main point, CEO Mr Ken Yong has mentioned that potential market size of GST for IFCA is RM50m and
as at Q3 2014, only RM8.4m were contracted and there are still RM41.6m
out there yet to be locked in. This makes sense as, IFCA has 1000
Malaysia clients, and each of them would probably spend RM50k to upgrade
their existing software, thus making RM50m the perfect market size
number.
Cash holdings
As
expected, cash increase again compared to last quarter. Operating cash
flow for the quarter is RM7m, not as high as profit because some of the
clients are still on receivables though revenue has surged. This
explains why the increase of receivables, and it makes sense because, as
more and more new clients opting for IFCA’s software, normally the
payment cycle would be within 6 months, as payment are broken down into
(i) booking fees; (ii) implementation; (iii) testing and commissioning,
in few phases. (Someone from BJCORP forum claims the company actually cooked up their books, speechless...)
(ii) Valuation
First
of all, the Malaysia market has actually grew 20% if you net out the
GST’s portion totally as the company had explained GST only contributes
14% of their revenue year-to-date! But do take note on something here,
the company also mentioned some notable wins from human resource
solutions for a local bank. Today, the company also announced
acquisition of a human resource software solution related company. Is
this a new venture? We will ignore that for the moment.
Ok, for sake of simplicity, I will use the P/E way,
Q1: RM500k
Q2: RM3m
Q3: RM8.5m
Q4: RM?? (My expectation now is higher as more and more GST jobs are coming in, therefore RM11m)
Total of RM23m for FY2014 (CIMB has a new profit forecast of RM19.8m, come on you mean Q4 will be less than RM8.5m? haha)
Do
check out companies like MYEG/GHLSYS, and there are trading at 32x
FY2015 P/E. To be conservative, I will use 18x FY2015 P/E to value IFCA
because as they are still in Ace Market. So what is the projected FY2015
earnings then? Very conservative again, using Q3 2014’s results
(RM8.5m), assuming NO GROWTH, the full year impact could be RM34m for
next year (remember, no growth at all! Possible? Or maybe you may argue,
aiya, GST come in sure got growth, but after GST will drop? Yes, it may
experience slower growth, but still I expect some growth after GST!
Remember GST’s market is only RM41.6m leftover! And oversea market has
been growing more than 60% since last year, and remember Mr Yong said,
they are going to set up 10 new offices in China, and in total will be
18 offices, how can be no growth?!)
RM34m x 18 = RM612m
That would value the company at RM612m+ cash from warrants (RM13.6m) + RM35m / 593m shares (including warrants) = RM1.11 vs CIMB (RM1.05)
P/E 20x – RM1.23
P/E 22x – RM1.34??
(iii) Technical analysis
S1: RM0.65, S2: RM0.575
R1: RM0.725, R2: RM0.80, R3: RM0.94 (based on my drawings)
There might be some "sell on news buyer" that will sell out tomorrow, then there might be a continual run from IFCA to test the RM0.80, but looking at the chart, RM0.94 is very much possible within a few weeks. Then there might be another stage of consolidation until January (before Chinese New year, where Q4 2014 will be announcing, and then RM1.11 is not a dream. From the chart, if it consolidates for another 2-3 months, I expect the support line to be above RM0.70
First
of all, I would like to congratulate those who are still holders of
IFCA, you will be rewarded again! There were also a few doubters or
people who do not understand technology stocks at all bashing the
company and doubting my calls because they might think that I have
syndicates that work with me due to the after effect surge of most of my
calls. (Excuse me, hot air balloon?) Sorry to say that I
don’t, and not even a single person offer me cash to write a report, but
if you do want to donate to my blog, my maybank account is: xxx. Haha
I do welcome constructive feedbacks!
GEMs in KLSE
