Target RM1.48 (Stock Rating: ADD)
At the 4Q14 briefing, the company said it remained bullish about its prospects in 2015 and was looking to launch its software as a service (SaaS) in the next 1-2 months. SaaS allows smaller property companies to ‘rent’ IFCA’s software and this will help grow the company’s recurring income. We maintain our EPS forecasts and target price, based on an unchanged 21x 2016 P/E (in line with domestic peers). The stock remains an Add. Potential catalysts include transfer to the Main Board in 2015 and strong take-up rates for SaaS.
What Happened
There were two positive surprises from the 4Q14 briefing today: i) IFCA is looking to launch its software as a service (SaaS) business in the next 1-2 months, starting with the domestic market. Smaller property companies can now ‘rent’, instead of buy, IFCA’s software. These companies will pay a monthly subscription fee to IFCA and this will contribute to the company’s recurring income. We believe it will take some time for customers to become familiar with SaaS but this should be a long-term positive towards building its recurring income. We do not assume any potential earnings from SaaS. ii) The company is offering customers an ‘insurance’ programme. For a small monthly fee, IFCA will update the software for any changes in GST regulations and the company believes it can collect in total around RM20m revenue from the ‘insurance’ premium this year. We already assume in total RM35m revenue from GST-related work for 2015 but this could surprise on the upside.
What We Think
2015 should be another record year for IFCA, with growth coming from the China market and GST software upgrade jobs. We are particularly excited about SaaS. In the next few years, SaaS could boost the company’s recurring income so that the company will be less dependent on revenue from just selling software. Interestingly, the impending implementation of GST in Apr 2015 is forcing smaller companies to computerise and this should be positive for IFCA’s SaaS. However, while SaaS is popular in the USA, we believe it might take some time for domestic and regional customers to get used to it.
What You Should Do
Remain invested in the stock. The stock is gaining interest among institutional investors, which we believe currently hold a combined 15% stake. This percentage should rise this year as both retail and institutional shareholders better understand IFCA’s long-term potential and growth prospects.
Source: CIMB Daybreak - 06 March 2015
