Investment Highlights

• We maintain HOLD recommendation on Infomina with a lower fair value of RM1.60/share (from RM1.70/share previously), pegged to FY24F PE of 25x, in line with its closest industry peers' average. Our FV also reflects an unchanged neutral ESG rating of 3 stars.

• Following a recent engagement with management, we lowered FY24F-FY25F earnings by 4% to reflect a more conservative sales estimate of slower turnkey project recognition from a tender book of RM600mil, which has decreased by 12% QoQ on 30 Nov 2023.

• Also, we do not expect any strong positive surprise in overage fees from customers over-utilising the group’s services as in 3QFY23, as management guided that these charges normalised from 1QFY24 onwards.

• Infomina’s outstanding order book as at end-Nov 2023 stands at RM431mil (1.6x FY24F revenue), in which progressive recognition will be equally spread out in FY24F- FY26F. We understand the mix of the order book is skewed towards the renewal segment comprising technology infrastructural operations and maintenance/support services. This leads to a book-to-bill ratio of 0.4x FY24F renewal segment revenue.

• Moving forward, Infomina will focus on key markets such as Thailand and Philippines to provide value-added application programming interface (API) software to existing customers in the renewal segment. The software will streamline data transfer processes between different applications. Customised to customer needs, it will provide a higher gross profit margin to the group than the turnkey th division. .

• Thus, we expect 2HFY24 earnings to be sequentially .6 stronger, especially with contribution from the higher margin renewal segment.

• Infomina also targets the Japanese market with the incorporation of a subsidiary in Japan recently. Infomina believes it can penetrate the market because the company is a partner of CA Singapore, a subsidiary of Broadcom Inc. The company did not provide any guidance on potential contributions from the Japanese market.

• However, it is a ready market to tap into and the company waits for those existing customers of CA Singapore to switch to Infomina once the previous renewal contract ends with another vendor. For now, we have not incorporated any earnings contribution from winning contracts from the Japanese market into our forecasts.

• 70% of its current tender book of RM600mil are turnkey projects based in Malaysia, mostly serving government agencies while the remaining are renewal contracts. To recap, some of the turnkey contracts have been recognised in 2QFY24. We understand that once turnkey projects have been awarded, the company is likely to partially recognise revenue within 3 months. Turnkey projects create long-term relationships with customers and potentially translate into renewal contracts as recurring income for Informina. Management remains confident of securing some contracts for turnkey projects by the end of FY24F 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, while offering a slight dividend yield of 1%.

Source: AmInvest Research - 13 Feb 2024