Bimb Research Highlights

Infomina Berhad - Robust Growth Leveraging on Broadcom’s VAD Status

Publish date: Mon, 13 May 2024, 05:10 PM
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Bimb Research Highlights
  • We recently met with Infomina Berhad (Infomina) management and returned back from the meeting feeling optimistic about the company's prospects.
  • We expect the company to grow its recurring income by expanding its client base in the operation and maintenance of mainframe (i.e. renewal segment). We think this is very attainable leveraging on (i) Broadcom’s existing clients base as primary target market, and (ii) its exclusivity as the sole value-added-distributor for Broadcom in eight countries.
  • We believe that the stickiness and high dependency on mainframe technology across various industries such as banking, insurance, airlines as well as state government agencies will significantly benefit Infomina given its specialization in this area.
  • Reiterate our BUY call on Infomina at TP of RM1.78, derived based on 23.4x PER (10% discount to weightage sector average of 26x) and FY25F EPS of 7.6sen.

Expanding Client Base by Tapping on Broadcom’s Clients

Infomina anticipates to secure more clients from Broadcom's existing client base particularly those renewing contracts for Broadcom mainframe software. Furthermore, Infomina is also expected to benefit from Broadcom’s new project as the new client will now be directed to Infomina due its position as the exclusive Premier Tier 1 Value-AddedDistributor (VAD) in eight countries since 2019. To recap, the appointment as Broadcom’s VAD was made by CA Singapore, the subsidiary of Broadcom. Prior to this, Infomina entered into a Regional Partner Agreement with CA Singapore through which they were appointed to resell and distribute Broadcom Software Technologies including Broadcom Enterprise Software and Broadcom Mainframe Software.

Riding on Renewal Segment for Growth

Management has expressed its optimism to achieve sustainable revenue growth particularly from the Renewal segment. As at 9MFY24, Renewal segment making up 65.8% of the total revenue. We understand that clients will typically sign maintenance contracts when Turnkey contract is about to end in order to fulfil the requirement for ongoing maintenance and support services. Hence, most of its existing clients tend to renew the contracts with Infomina due to its capabilities in mainframe technology and familiarity with the service provided. As of Feb’24, the group's order book stands at RM379.5mn that is primarily derived from the Renewal segment. Additionally, this segment provides a higher margin compared to Turnkey due to lower cost requirement since the infrastructure is already in place.

Strengthening Footprint in North Asia

As part of its growth strategy, Infomina plans to strengthen its market presence in North Asia, including countries such as Hong Kong, China, Taiwan, and Japan. We acknowledge that these markets are relatively new to Infomina with only a few small contracts signed so far. We gathered that the negotiation with local businesses there will take some time due to the need to understand and adapt to the local business culture. However, the group has successfully entered into Japanese market, to date. It anticipates this market to make a significant contribution to the group's revenue in FY24.

Strong Orderbook and Growing Tenderbook

As of Feb'24, current orderbook stands at RM379.5mn which is equivalent to 1.5x FY23 revenue. This order book is primarily comprised of the Renewal segment, accounting for 70.6%. Additionally, the company's tender book stands at RM600mn. We understand that the tender book composition includes both Turnkey and Renewal segments. In terms of geography, most of orderbook comes from overseas markets comprising 70% and covering until FY26 and beyond. We expect a robust order book and tender book for Infomina fuelled by new clients adopting mainframe technology, upgrades from existing mainframe users as well as new contracts following Turnkey projects.

Result Recap

As of 9MFY24, revenue and PBT declined by 14% YoY and 19.2% YoY respectively, no thanks to a lower contribution from the renewal segment. This was due to the higher overage fees that were charged as a result of over-utilization of the services by the clients under the existing contract in FY23. We have noted a decrease in overage as of 9MFY24.

Earnings Forecast

No adjustments were made to our FY24-25F earnings projections. We also take this opportunity to introduce FY26F earnings forecast of RM51.6mn which translate into 13.9% net profit margin.

Maintain BUY Call with Unchanged TP of RM1.78

Maintain a BUY call with unchanged TP of RM1.78. Our valuation is pegged at 23.4x PER (10% discount to weightage sector average of 26x) and FY25F EPS of 7.6sen. The discount is applied to account for potential downside risks associated with the drawdown of contracts from Renewal customers and lower-than-expected contracts from the Turnkey segment.

Source: BIMB Securities Research - 13 May 2024

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