Investment Highlights

• Stock Idea. Microlink Solutions (Microlink) is a leading enterprise software developer and implementer as well as hardware distributor serving multiple industries. Based in Bukit Jalil, Kuala Lumpur, the company was listed on the ACE Market of Bursa Malaysia in 2006.

• Presently, Microlink operates in 4 business segments. These are enterprise solutions, financial services, distribution services and solution delivery.

• Having a track record of more than 20 years, the group’s technical expertise is acknowledged by Huawei, which recognises Microlink’s parent Omesti as among its 5 authorised system integrators globally. This means the group is capable of implementing Huawei’s complicated suite of products. Microlink plans to ride on its expertise and expand operations into the telecommunications sector.

• The company had in January 2022 entered into a heads of agreement (HOA) with Omesti and its sister company Man You Holdings (MYH). With the completion of the deal, the group will take over of a RM195mil Telekom contract under Omesti, enabling it to focus on its telecommunications sector expansion.

• The group offers a unique OPEX-As-A-Service solution, where revenue generated will be based on the number of users within a system, while incurring a fixed maintenance capex in its principals. The recurring nature of this subscription-based model supplements Microlink’s other project-based income, thereby reducing its bottom-line volatility.

• For the group 9MFY22 results, Microlink’s core profit rose by a stellar 76% YoY while EBIT accelerated even faster by 85% YoY. This is largely contributed by higher progress billings from enterprise solutions, which boosted its revenue by 3.2x YoY. Historically, this segment carries a higher margin within the group.

• We opine that Microlink’s stronger FY22–24F earnings growth of 54% vs. regional peers’ 20%–30% while trading at a similar CY23F PE of 16x as unjustified. Furthermore, with the rarity of Huawei’s authorised system integrator status, the stock should be trading at higher multiples, similar to Huawei’s other authorised system integrators.

Source: AmInvest Research - 19 May 2022