IFCAMSC: Finding Its Bottom

Background

IFCA MSC Berhad (IFCAMSC) is a Malaysia-based company engaged in research and development of enterprise-wide integrated business solutions. IFCAMSC’s revenue peaked in FY2015- right after the implementation of GST started in Malaysia. Today, its operation is concentrated in the following areas:

Migration from the Windows platform to its new mobile app-based platform

It has around 1,400 customers in Malaysia; many of which are still operating on Windows platform. However, the migration is a fairly costly affair; average software cost for the mobile-based platform is around RM1 million. 

Grow its recurring income through software as a service (SaaS)

It is targeting the smaller property companies. Management is studying the possibility of “renting” its software online (using cloud) and subscription could be based on a monthly or annual basis.

Building up its overseas operation

Its China operation has not grown as fast as projected in past 2 years due to economic slowdown. Another market which it is developing is Indonesia. Last year, it completed the acquisition of its Indonesia distributor, PT IFCA Consulting Indonesia (PICA). PICA has a lot of potential as most of its customers are still on the old Windows platform and there is potential to upgrade to the mobile platform. In addition, service as a software (SaaS) could grow faster in Indonesia than in Malaysia.

Historical Financial Performance

IFCAMSC's revenue & profits shot up in FY2014 & FY2015. Then revenue eased back and profits came tumbling down.


Chart 1: IFCAMSC's last 13 years' P&L

Recent Financial Results

IFCAMSC made losses in the last 2 quarters.However losses dropped due to cost rationalization efforts undertaken by the Group in anticipation to the lower turnover during the current year. Meanwhile revenue increased q-o-q mainly due to billing raised by our newly set up division, Property365.


Table: IFCAMSC's last 8 quarters' P&L


Chart 2: IFCAMSC's last 15 quarters' P&L

Financial Position

As at 30/6/2016, IFCAMSC's financial position is deemed satisfactory with current ratio at 4.4x and gearing ratio at 0.3x. The company has a large cash balance which stood at RM63 million as at 30/6/2016.

Valuation

IFCAMSC (closed at RM0.48 last Friday) is now trading at a trailing PER of 240x (based on last 4 quarters' EPS of 0.002 sen). Based on NTA of RM0.18 as at 30/6/2016, IFCAMSC is now trading at a Price to Book ratio of 2.7x. On August 24, CIMB revised its target price for IFCAMSC from RM1.19 [based on 2017 21 times price-to-earnings (P/E) which is in line with the peers] to RM0.55 from [based on the average sector 2.5 times price-to-book value (P/BV)]. 

Technical Outlook

In June 2015, I recommended that investors with position in IFCAMSC to REDUCE their position in the stock (here). Since then, IFCAMSC had dropped from RM1.30 to less than RM0.50. The stock has good support at the horizontal line at RM0.45. If the immediate support failed, the next support is at the horizontal line at RM0.35.


Chart 3: IFCAMSC's weekly chart as at Sep 2, 2016 (Source: Shareinvestor.com)


Chart 4: IFCAMSC's monthly chart as at Sep 2, 2016 (Source: Shareinvestor.com)

Conclusion

Based on good financial position & deep discount to its fair value, IFCAMSC could be a good stock for long-term investment.

Note:

I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.