Investment Highlights

• We maintain HOLD on Infomina with a lower fair value of RM1.70/share (from RM1.82/share previously). This is after trimming our earnings forecast and rolling forward our valuation to FY25F, pegging the stock to a P/E of 22x, in line with its closest industry peers' average. Our FV also reflects an unchanged neutral ESG rating of 3 stars.

• We lower FY24F-FY25F earnings by 5-8%, after factoring in a more conservative sales estimates for the renewal segment as the group’s 1HFY24 results fell short of our and market expectations. 1HFY24 net profit of RM16mil accounted for only 37% of both our and consensus FY24F projection. The negative variance was due to a slower recognition of orderbook for the renewal segment.

• Infomina’s outstanding order book now stands at RM430mil, which translates to 1.5x FY24F revenue. The technology infrastructure operations, maintenance and support services (renewal) segment account for 70% of total order book. We expect stronger earnings recognition from the renewal segment in 3QFY24. This will be similar in trend to 3QFY23 on the back of upward revision in rates for existing customers coupled with the recognition of revenue from renewed contracts.

• YoY, the group’s 1HFY24 revenue rose 38% to RM116mil due to stronger contributions from both the turnkey and renewal segments. Revenue from turnkey projects grew 46% YoY from completion of new contracts in Malaysia. Meanwhile, the renewal segment’s revenue improved by 34% YoY, driven by an increase in provision of technology infrastructure solutions for financial services institutions in Philippine and Thailand. In tandem with the higher contribution from the renewal segment which provided higher margin, Infomina’s net profit soared 85% YoY to RM16mil.

• QoQ, 2QFY24 revenue improved by 6% to RM60mil, mainly due to new turnkey project recognition (+34%) in Malaysia. We believe that revenue from additional turnkey projects will be recognised as the group wins more projects from serving government agencies. Its net profit increased by 23% QoQ due to better GPM by 13%-point to 16.3% for the turnkey segment.

• Moving forward, Infomina aims to continue expanding its footprint into North Asia, especially China, Hong Kong and Japan. We understand that Infomina has set up a subsidiary in Japan. Revenue contribution from this subsidiary will kick start in FY25F. We expect more renewal contracts will be secured locally as government agencies’ demand are increasing for such services. This should benefit Infomina, which provides services and enhancements to systems for government agencies.

• The stock currently trades at a fair FY25F P/E of 21x, in line with Bursa Technology Index’s 5-year forward average.

Source: AmInvest Research - 18 Jan 2024