News  According to Budget 2014 (Note 87), the government is targeting three ministries to undergo performance evaluation based on the Outcome-Based Budgeting (OBB) system in order to improve budget management. The three ministries are: (i) Ministry of Health, (ii) Ministry of International Trade and Industry, and, (iii) Ministry of Finance.

The implementation of OBB is to ensure (i) budget allocation is based on outcomes, (ii) improvement in the efficiency of implementation; (iii) reduction in redundancies as well as to systematically evaluate performance of all Government programmes and projects.

According to Budget 2014 (Note 108), the Goods and Services Tax (GST) at 6% will be effective from 1 April 2015.

Comments  We believe the items highlighted above in the Budget 2014 bode well for CENSOF as the government emphasises on the importance of OBB to improve budget management in the ministries. Note that CENSOF had previously secured OBB project from the Ministry of Finance worth RM25.47m (including the extension contract) to install and implement the online budget system for the outcome based budgeting in Jun-11 and Apr-12. The project is also its second largest contract in terms of value after PERKESO. As the government is targeting to expand the OBB system to another two ministries (Ministry of Health and Ministry of International Trade and Industry), we are positive for CENSOF based on its previous track record in securing government projects.

Meanwhile, as the government announced that GST will be implemented in Apr-15 (which is approximately 17 months from now), CENSOF’s GST-ready accounting software and training services are already ready which CENSOF can offer to their existing 80 plus government agencies in the country while creating new income streams. Based on our understanding, the GST-software upgrade service is charged at an average of RM200k-RM2m for GST-compliance accounting system upgrade and training services, depending on the client's corporate size, terminal stations, system integration and etc. Notably, the GST-upgrade service excludes annual service maintenance fee, which normally accounted for about 2%-5% of the software purchasing price.

Outlook   We are positive on CENSOF’s long-term outlook underpinned by: (i) the potential influx of GST-compliance accounting system upgrade and training services demand from its existing 80 plus government agencies before the official implementation of GST in Apr-15, (ii) continued projects/contracts flow from various government agencies for its FMSS project, and (iii) potential massive synergistic benefits that could be created for CENSOF and Time Engineering Bhd (TEB) post acquisition.

Forecast  Our FY13E-14E earnings remain unchanged

Rating Maintain OUTPERFORM

Valuation  We maintain our TP of RM0.610 based on unchanged targeted FY14 PER level of 15.5x.

Risks to Our Call  Delay in projects revenue recognition. 

Source: Kenanga