In a briefing, management sees an exciting prospect in 2025 as the group is in the position to seize the immense opportunities in Malaysia's Data Centre (DC) industry. It is also looking into a technology partner to penetrate the Customer Relationship Management (CSM) space, which uses AI-driven solutions to deliver personalised solutions and deeper insights into customer behaviour. The key re-rating catalysts are i) winning more data centre projects under Unique Central, ii) penetration into more non-FSI (Financial Services Industry) sectors under the partnership with ServiceNow and iii) M&A opportunities within the digital application and AI space. All in all, we expect a strong performance in the final quarter, led by the accelerate of FSI projects. Reiterate our Outperform call with an unchanged TP of RM1.09 based on 26x FY25 EPS.

• 9MFY24 results round-up. 9MFY24 revenue fell 12% YoY to RM28.8m, with FSI contributing 93% of total revenue while the top 5 banking customers accounted for slightly more than 70%. The cybersecurity segment was the largest sales contributor at 44%, led by strong performance in 1HFY24, as key clients ramped up cybersecurity activities and renewal licenses. Digital Application and Cloud was the top growth performer as revenue surged nearly 7x to RM3.8m. Enterprise & DC was slow in the 1H 2024, but momentum has picked up since 3Q 2024. Meanwhile, 9MFY24 gross profit fell from 28% to 25% due to product mix as it has higher sales contribution from the cybersecurity segment, which fetches lower margins and lower sales contribution from IT segment, which fetches higher margins as well as lower than initially guided GP margin from digital App & cloud services segment as it redeployed and mobilised resources to support new project tenders and potential deals. Meanwhile, management attributed to the weaker 3QFY24 revenue on a QoQ basis due to seasonality of the business as most FSI tend to accelerate project completion closer to their own financial year-end, typically June and Dec. We note that 4Q typically made up almost 33% of the full-year sales.
• Order book breakdown. As of 30th Sept 2024, Cloudpoint order book stood at RM60m while tender book was at a record high level of RM140m, inclusive of a Service Now project with a local bank worth RM30m- one of the biggest IT projects in Malaysia. Out of the RM60m order book, IT services commanded 50%, while Enterprise & DC Networking and Cybersecurity accounted for 25%, each with Digital App & Cloud making up the remaining 5%. The RM60m orderbook would be recognised over the 2024-2026 period at a ratio of 40: 40: 20. Following the completion of the Unique Central deal, it is expected to bring in another RM40m orderbook, bringing the cumulative orderbook to RM100m (vs 2QFY24: RM81m). It is worth noting that the existing tender book did not include a recently submitted tender worth RM100m in relation to the cabling works for a DC project in Elmina, Selangor, which could potentially bump up our FY25-26F earnings forecast by more than 20%.
• Other highlights:- Enterprise & DC Networking: It has completed several projects, including storage, network infrastructure, and data centre for its banking customers and expects additional networking contracts from FSIs by year-end. This segment is projected to contribute 33-38% of group revenue in FY24. Meanwhile, its main vendor, Cisco has recently launched a new AI-based application called Integrated AI Infrastructure Pods, which would help the group to expand its product offering to AI solutions. Cybersecurity: During the third quarter, it completed Network Detection and Response (NDR) deployment of vulnerability scanning software and secured browser projects and implementation. It also recently onboarded a new digital bank covering security software deployment, licensing, support, and maintenance for two years. It currently focuses on AI-based detection and AI threat hunting solutions, which enhance the real-time identification of sophisticated cyber threats and enhance compliance and risk management. This segment is also expected to contribute 33-38% of group revenue. Digital Application and Cloud Services: It is tipped to be the rising star after making its debut last year. The partnership with the US cloud-based platform provider, ServiceNow, has started bearing fruit with four clients onboarded currently, and it stands a good chance to win one of the largest IT contracts in Malaysia worth RM30m, which is a digital transformation project for a local bank. The strong partnership also helps Cloudpoint to diversify into non-FSI sectors, as it had recently completed a cloud migration project for the largest toll operator in Malaysia with potential projects to modernise applications for cloud deployment. In addition, it is continuing a cloud migration project for a leading Malaysian travel insurer with a focus on critical missions. It is now looking into potential partnerships with leading enterprise application vendors and also M&A opportunities within this segment. IT services: More than 90% of its clients continue to enter into service and maintenance contracts ranging from 1-3 years following project completion. This segment is expected to contribute around 20-25% of group revenue in FY24.

Source: PublicInvest Research - 3 Dec 2024