Roadmap for M3Tech’s turnaround plan is hinging on the offering and positive take-up rate for its extensive suite of business solution services, which is collectively known as “i3 Series”. We opine that its i3 products fit right into the enormous market of mushrooming LED displays, booming big data analytics and on-going fourth industrial revolution. We believe the company will be back in the black in 2HFY18, after going through years of internal revamp and consolidation. It may still be loss-making in the coming quarter as it continues to incur higher marketing cost for its new products. All in, M3Tech is expected to post improved earnings in 2HFY18 on higher contribution from its Pakistan operations and reduced losses or breakeven for its new businesses, charting a new growth path thereafter. While staying cautiously optimistic towards the company's prospects, we value the stock at RM0.17 based on 30x FY18F EPS, suggesting an upside potential of 30%.

• Last SMS related company still standing. M3Tech was the first of its kind mobile value-added services provider that listed on Bursa Malaysia, developing mobile content and enabling mobile messaging solution. As the market dynamic shifts and its peers succumb to tremendous pressure from change in technological advancement, M3Tech persists in addressing the business needs through introduction of solution services at affordable rate. It is also focusing on generating recurring income. The offering includes: i) i3Display that provides interactive digital displays, ii) i3TeamWorks that provides business solution management software, iii) i3Tracker that enables mobile tracking, and iv) i3Apps that allows creation of mobile application.

• A turnaround could be just around the corner. Aiming to cease further decline in bottomline after slipping into the red for five consecutive financial years, internal restructuring and optimization exercises have been put in place and a breakeven scenario is anticipated for its operations in South East Asia and China in FY18. In fact, owing to favourable result from Pakistan, M3Tech would have made a slight loss of RM0.3m in 4QFY17 if it weren’t due to provision and write-down, among others (4QFY17 net loss: RM4.7m). Nevertheless, it is now sitting on cash pile of RM29.0m, post rights issue exercise last year. Its cash is expected to be deployed to expand the markets for its new products. For FY18F, we project a net profit of RM5m.

• In time to ride on global trend of LED display, big data analytics and fourth industrial revolution. Outdoor LED displays installed market is anticipated to expand at a CAGR of 15.9% from 2015 to 2021 while big data technology and services market is expected to grow at a CAGR of 23.1% from 2014 to 2019 (source: Persistence Market Research & International Data Corporation). Together with the trending fourth industrial revolution, the innovations of “i3 Series” is ready to take a slice of the market as it fits into the need of evolved workplace, optimizing business processes and enhancing customer experience.

Source: PublicInvest Research - 23 Nov 2017