Investment Highlights

• We maintain our HOLD recommendation on Infomina with an unchanged fair value of RM1.82/share, pegging the stock to FY24F PE of 25x, in line with its closest industry peers' average forward PE. Our FV also reflects an unchanged neutral ESG rating of 3-star.

• No changes to our FY24F-FY26F earnings as the group’s 1QFY24 earnings of RM7.3mil accounted for 17% of our full year estimate and 15% of consensus forecast. We deem the earnings to be within expectation as 2HFY24 earnings are anticipated to be sequentially stronger. This is due to our expectation of better earnings contribution from the technology infrastructure operations, maintenance and support services (TIOMSS) segment from new and renewed contracts.

• Infomina’s outstanding order book now stands at RM450mil, which translate to 1.3x of FY24F revenue. The TIOMSS segment account for 70% of total order book.

• YoY, the group’s 1QFY24 revenue rose by 34% to RM56mil due to stronger contributions from both the turnkey and TIOMSS segments. The turnkey project grew 37% YoY due to completion of contracts in Malaysia. The TIOMSS segment improved by 33% YoY, driven by an increase in provision of technology infrastructure solutions for financial services institution in Philippine and Thailand. In tandem with the higher contribution from the relatively higher margin TIOMSS segment, Infomina’s gross margin improved by 17%-point YoY to 28%.

• QoQ, 1QFY24 revenue slid by 2.3% to RM56mil, mainly due to a 7% decline in TIOMSS segment, largely offset by better contribution in turkey segment (+10%). We believe TIOMSS segment was likely impacted by slower revenue recognition as its book-to-bill ratio remain healthy at 1.3x FY24F TIOMSS revenue. Its net profit declined by 13% QoQ due to a drop in GPM by 6.4%-point to 22%. It is likely impacted by turnkey GPM deterioration by 25%-point to 3.4% due to higher operational costs.

• Moving forward, Infomina aims to continue expanding its footprint into North Asia, especially China, Hong Kong and Japan. We understand that Infomina will collaborate with local partners to penetrate China and Hong Kong markets, while setting up a subsidiary in Japan. We expect more renewal contracts to be secured in these countries as it is part of CA partner regions that the company currently does not have a strong presence.

• The stock currently trades at a fair FY24F PE of 24x, in line with the Bursa Technology Index’s 5-year forward average PE, while offering slight dividend yields of 1%.

Source: AmInvest Research - 18 Oct 2023