Investment Highlights

• We initiate coverage on Infomina with a HOLD recommendation at a fair value of RM1.51/share, based on FY24F PE of 25x, in line with its closest industry peers’ average forward PE. We ascribe a 3-star ESG rating to Infomina.

• Infomina is a technology solution provider with principal activities mainly involved in designing and implementing turnkey application and infrastructure solutions to support its clients’ business operations. While mainframe technologies are the company's specialty, it also provides customised operations, maintenance and support services for renewal solutions.

• We view Infomina as an attractive proxy to rising demand for mainframe technology in Asia as it is the sole listed proxy in Malaysia with exposure to this market segment. Its status as the sole tier-1 value added distributor (VAD) for Broadcom Software allows Infomina to tap into Broadcom’s global outsourcing strategy and open up opportunities within the mainframe space.

• Besides the potential of new turnkey projects, Infomina also has a large funnel of recurring sales for maintenance and support services from its existing customer base. Typically, turnkey customers will sign service level agreements to support its mainframe system. Customers also tend to upgrade their capacities and capabilities at a regular pace, which support client retention.

• Infomina's substantive orderbook of RM528mil as at end-FY22 translates to a comfortable 2.6x of FY22 revenue, underpinned by a healthy tenderbook of RM334mil. We expect the orderbook replenishment rate to remain healthy as the company continues to receive inquiries from existing and potential customers from various regions for both turnkey and renewal segments.

• We forecast a strong FY22-FY25F earnings CAGR of 41%, supported by: (i) higher sales from both turnkey and renewal segments; (ii) regional expansion into new markets; and (iii) improvement in operating leverage.

• We like Infomina for its long-term outlook underpinned by: (i) the capability to offer customised solutions, ii) established partnership with international technology companies to meet ever-changing customers’ needs, and iii) its position to ride on broad-based increase in demand for mainframe technology services. However, we are cautious on the limited upside for the share price as it has already priced in many of the positive developments and future growth prospects.

• The stock currently trades at a premium FY24F PE of 24.5x, near to Bursa Technology Index’s levels. Its closest regional peer is SGX-listed Silverlake Axis, which trades at a 5-year PE median of 15x due to its lower 3-year CAGR of 8%.

Source: AmInvest Research - 30 Mar 2023