Investment Highlights

• We maintain HOLD recommendation on Infomina with an unchanged fair value of RM1.82/share, pegged 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.

• We maintain FY24F-FY26F earnings following an analyst briefing yesterday.

• To recap, 1QFY24 turnkey gross profit margin declined by 182 bps to 3.4% compare to FY23, mainly dragged by the higher cost incurred to provide value added services to a customer. In return, management targets to secure a new contract from the customer to retain a recurring usage of its services. Management expects the turnkey segment’s gross profit margin to normalise to between mid-to-high teens in subsequent quarters.

• Infomina’s outstanding order book as at end-Aug 2023 stands at RM451mil (1.3x FY24F revenue), in which progressive recognition will be equally spread out in FY24FFY26F. We understand the mix of the order book is skewed towards technology infrastructural operations, maintenance and support services (renewal) segment. This leads to a book-to-bill ratio of 0.4x against FY24F revenue for the renewal segment.

• 76% of the order book stems from overseas markets with the remaining 24% from local contracts. More than 50% of existing overseas orders secured are from Thailand and Philippines.

• Moving forward, Infomina will focus on key markets such as Thailand and Philippine to provide value-added application programming interface (API) softwares to existing customers in the renewal segment. The software will streamline data transfer processes between different applications. It will provide a higher gross profit margin to the group in view that it is customised to customer needs.

• Thus, we expect 2HFY24 earnings to be sequentially stronger especially with the contribution from the renewal segment, which yields a higher gross profit margin than the turnkey division.

• Its tender book as at end-Aug 2023 has increased by 36% QoQ to RM680mil, of which 60% are turnkey projects based in Malaysia mostly serving government agencies. We believe that once turnkey projects have been awarded, the company is likely to partially recognise revenue within 3 months. Turnkey projects create a long-term relationship with customers and potentially translate into renewal contracts as recurring income for Informina. Management is confident of securing some contracts for turnkey projects by the end of FY24 given that Infomina is being shortlisted with a proven strong success rate in the past.

• 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 a slight dividend yield of 1%.

Source: AmInvest Research - 19 Oct 2023