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 IRIS's share price may rebound higher after bottoming at 14sen last Friday.

As we know that IRIS has been divesting non-core assets to realign its business focus on Trusted ID, which involved kitchen-sinking impairments and write-offs of RM316mil over FY17 and FY18. The company’s realignment of business is focus on Trusted ID now.

The almost concluded exercise has helped stem the bleeding from non-core assets and brought the group back into profitability in the past three quarters.

Recall that the existing RM260mil contract carried out by a competitor company is expiring end-2019. Although MyKads have not been fully delivered under the existing contract, we understand that there are no ramifications upon the expiry.

IRIS’ technical knowhow and capabilities in digital ID render it a strong candidate for the contract. With Berjaya Corp Bhd (BCorp) CEO Datuk Seri Robin Tan Yeong Ching is a substantial shareholder, probably a proxy to PH-led government, in IRIS, the possibilitity to win the contract is higher than its other competitor.

Kenanga Research estimated that the contract could generate a profit after tax of RM15mil (30% of the FY20 core net profit) annually from FY21 onwards for IRIS, based on back-of-envelope calculation and assuming 15% lower contract value.

Kenanga Research rated IRIS as “trading buy” with a fair value of RM0.20, based on the FY20E price earnings ratio (PER) of 12 times.

It added that the company’s earnings are expected to bounce back with a vengeance in FY20 (+98%).

The stock only trades at FY20E PER of 8.5 times, which limits its share price downside, while providing investors with opportunities to buy into its potential to win the MyKad contract.

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