CUSCAPI (0051) : Cuscapi - Bleeding further
Target RM0.21 (Target: HOLD)
With 9M14 seeing a loss of RM6.7m, Cuscapi’s 3Q14 results came in below our expectations (FY14 net profit forecast of RM3.3m) mainly due to weak China sales and higher overheads. We cut our FY14-16 EPS by 61-406% to reflect an overall weaker sales outlook and higher overheads. Unless its bottomline turns around, we are switching to a more conservative asset-based valuation, 1x CY15 P/BV (vs. 21x P/E previously). We downgrade the stock to Hold in view of continued losses and weak sales outlook. Switch to IFCA for exposure to small software solutions stocks.
What went wrong with Cuscapi?
Cuscapi’s performance deteriorated this quarter, posting a loss of RM3.9m compared to a loss of RM3.1m in 2Q14. Although 3Q14 operating expenses declined by 11%, 3Q revenue fell by a sharper 16%. The lower revenue was likely due to weaker sales from China while in ASEAN, it was not that badly affected. No interim dividend was declared, which is in line with our expectations. Most of Cuscapi’s problems started in 3Q13 when the company spent more to provide support and infrastructure for the launch of REV (see Figure 1). However, REV failed to bring in the topline growth over the past year and the slowdown in China sales only made matters worse.
Slow start for REV
Cuscapi made a major breakthrough in Singapore for REV when a F&B secured close to 400 REV tablet subscriptions. This is way below our forecast of 3,000 REV subscriptions in 2014, with 10,000 expected in 2015. Our REV forecasts have been revised to 500 this year and 2,000 in 2015. China has been a major disappointment for REV as customers there were not willing to pay monthly subscriptions for REV. Cuscapi is reviewing its REV business model in China.
Potential takeover target?
With a market cap of only US$27m, Cuscapi does look like an interesting potential takeover target. Its balance sheet is clean, RM7m net cash or 2sen cash/share. While its bread-and-butter operations remain in Malaysia, the company has many established major F&B customers in the region and Cuscapi is also well-known in the F&B software and service industry. Its shareholding is very fragmented with a total shareholder count of 3,400. The largest shareholder, Transight System S/B, owns 18.6% equity stake in the company.
Source: CIMB Daybreak - 28 November 2014
Target RM0.21 (Target: HOLD)
With 9M14 seeing a loss of RM6.7m, Cuscapi’s 3Q14 results came in below our expectations (FY14 net profit forecast of RM3.3m) mainly due to weak China sales and higher overheads. We cut our FY14-16 EPS by 61-406% to reflect an overall weaker sales outlook and higher overheads. Unless its bottomline turns around, we are switching to a more conservative asset-based valuation, 1x CY15 P/BV (vs. 21x P/E previously). We downgrade the stock to Hold in view of continued losses and weak sales outlook. Switch to IFCA for exposure to small software solutions stocks.
What went wrong with Cuscapi?
Cuscapi’s performance deteriorated this quarter, posting a loss of RM3.9m compared to a loss of RM3.1m in 2Q14. Although 3Q14 operating expenses declined by 11%, 3Q revenue fell by a sharper 16%. The lower revenue was likely due to weaker sales from China while in ASEAN, it was not that badly affected. No interim dividend was declared, which is in line with our expectations. Most of Cuscapi’s problems started in 3Q13 when the company spent more to provide support and infrastructure for the launch of REV (see Figure 1). However, REV failed to bring in the topline growth over the past year and the slowdown in China sales only made matters worse.
Slow start for REV
Cuscapi made a major breakthrough in Singapore for REV when a F&B secured close to 400 REV tablet subscriptions. This is way below our forecast of 3,000 REV subscriptions in 2014, with 10,000 expected in 2015. Our REV forecasts have been revised to 500 this year and 2,000 in 2015. China has been a major disappointment for REV as customers there were not willing to pay monthly subscriptions for REV. Cuscapi is reviewing its REV business model in China.
Potential takeover target?
With a market cap of only US$27m, Cuscapi does look like an interesting potential takeover target. Its balance sheet is clean, RM7m net cash or 2sen cash/share. While its bread-and-butter operations remain in Malaysia, the company has many established major F&B customers in the region and Cuscapi is also well-known in the F&B software and service industry. Its shareholding is very fragmented with a total shareholder count of 3,400. The largest shareholder, Transight System S/B, owns 18.6% equity stake in the company.
Source: CIMB Daybreak - 28 November 2014
