KUALA LUMPUR (Feb 13): AmInvestment Bank Research has cut its earnings forecasts and target price (TP) for Infomina Bhd, due to a more conservative sales estimate, anticipated slower turnkey project recognition, and no strong positive surprises in overage fees.

In a company update on Tuesday, AmInvestment adjusted its earnings forecasts downwards by 4%, after engaging with the technology solution provider's management, for the financial year ending May 31, 2024 (FY2024) and FY2025.

This adjustment is attributed to the more conservative sales estimate, considering the slower recognition of turnkey projects from a tender book of RM600 million, which decreased by 12% quarter-on-quarter in the second quarter ended Nov 30, 2023 (2QFY2024).

"We also do not expect any strong positive surprise in overage fees from customers over-utilising the group’s services as of 3QFY2023, as the management guided that these charges normalised from 1QFY2024 onwards," the research house said.

AmInvestment maintained its "hold" recommendation on the stock, and lowered its TP to RM1.60 from RM1.70 previously.

According to AmInvestment, Infomina’s outstanding order book as of the end of November 2023 stood at RM431 million, which was 1.6 times the projected revenue for FY2024, with progressive recognition spread out from FY2024 to FY2026.

"We understand the mix of the order book is skewed towards the renewal segment comprising technology infrastructural operations and maintenance/support services. This led to a book-to-bill ratio of 0.4 times FY2024 forecast renewal segment revenue.

The stock also trades at a price-earnings ratio of 24 times the earnings projected for FY2024, aligning with the Bursa Malaysia Technology Index’s five-year forward average, and offers a modest dividend yield of 1%.

Meanwhile, AmInvestment added that Infomina plans to focus on key markets like Thailand and the Philippines, offering value-added application programming interface software in the renewal segment, expected to contribute to higher gross profit margins.

It also noted that Infomina is actively expanding into the Japanese market by establishing a subsidiary, leveraging its partnership with CA Singapore, a subsidiary of Broadcom Inc, to penetrate and capitalise on potential opportunities in the region.

"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 existing customers of CA Singapore to switch to Infomina once the previous renewal contract ends with another vendor," it said.

Shares in Infomina closed unchanged at RM1.50 on Tuesday, valuing the group at RM901.88 million.