THE BUZZ  

Yesterday, Censof announced that it has entered into a Sale and Purchase Agreement to  acquire  an  80%  stake  in  Knowledgecom  SB  for  RM4m  from  Zaghlul  Merican  bin Sultan  Merican,  Mohd  Noor  Zaimi  Bin Zainol and  Rubaneswaran  A/L  Thevasenabathy.
The company is involved in the provision of  IT business solution services, corporate IT training and management courses.

OUR TAKE  
 
No  surprise.  The  move  did  not  come  as  a  surprise  as  management  had  indicated earlier  that it  was  eyeing expansion  via  M&As  to  take  Censof  to its  next  leg  of  growth. We  expect  to  this  acquisition  to  give  rise  to  synergistic  benefits,  especially  in  the downstream  areas  of  IT  e-training  and  management  courses  relating  to  its  existing Financial Management Software Solutions (FMSS) business.

A  bargain.  We  understand  that  the  purchase  consideration  will  be  satisfied  largely  by internally  generated  funds.  The  acquisition  is  pegged  to  a  4x  forward  PE  based  on  a profit  guarantee  of  RM1m  for  FY12. We  think  this  is  a  bargain  given  that  the  acquiree company is valued at a  huge discount to Censof's 12x FY12 PE. Nonetheless, this will give rise to goodwill of approximately RM3.5m  since Knowledgecom's net assets stood at only RM534k in FY11. The acquisition is targeted for completion by 10 Jan 2013.

Upgrade  to  NEUTRAL,  lifting  FV  to  RM0.34.  We  are  nudging  upward  our  FY13 earnings forecast by 16.8% to factor in the potential contribution by Knowledgecom SB. This leads us to a higher  FV of RM0.34, based on unchanged 9x FY13 PE (previously RM0.29).  Following the  upgrade,  our  FV  for  Censof is now  close  to current stock price (albeit  a  little  lower).  Hence,  we  are  upgrading  our  recommendation  from  SELL  to NEUTRAL.

 Source: OSK