Period  4Q14/15M14

Actual vs. Expectations FY14 net profit of RM1.19m was way below our expectations and only accounted for merely 14.6% of our full-year estimates of RM8.2m. The culprits were mainly due to (i) higher than expected administrative expenses, (ii) RM7.14m acquisition cost that related to TEB acquisition and (ii) higher depreciation and amortisation cost consolidated from DNEX (Dagang Nexchange Bhd).

Dividends  No dividend was announced during the quarter.

Key Results Highlights YoY, 15MFY14 revenue rose 43.5% to RM80.1m (15MFY13: RM55.8m, for comparison purpose) due to the revenue contribution from the consolidation of DNEX. However, the Group’s net profit dipped by 89.6% to RM1.2m YoY due to higher administrative expenses, depreciation and amortization cost from the consolidation of DNEX. Besides, CENSOF also incurred an acquisition cost of RM7.14m as well as lower projects margins during the financial year.

 QoQ, 1QCY14 revenue improved by 168.3% to RM30.3m due to RM18.6m revenue contribution from the National Single Window project from DNEX. Nevertheless, despite the higher top line recorded, its reported net profit plunged to RM1.3m from RM2.2m in 1QCY13, mainly affected by higher administration expenses and financing cost, due to the additional RM1.83m acquisition cost incurred and increased in overhead cost.

Outlook  We are cautious on CENSOF’s earnings prospect as the Group’s has delivered uninspiring set of results for the straight three quarters.

 Although the group’s long-term prospects appear interesting due to: (i) the potential influx of GST compliance accounting system upgrade and (ii) potential massive synergistic benefits which could be realised between CENSOF and DNEX. There is still no solid progress on GST roadmap at this juncture as the market is still taking a ‘wait and see’ attitude.

 Meanwhile, we understand that management is targeting to achieve revenue of RM170.0m-RM190.0m for FY15E underpinned mainly by: (i) expected revenue contribution from DNEX of about RM70.0m-RM85.0m and (ii) recognition of RM34.8m outstanding order book from FMSS segment. We, however, taking a cautious stand and maintained our FY15 numbers in view on its inconsistence earnings guidance.

Change to Forecasts We are maintaining our FY15E net profit forecast of RM15.3m.

Rating  We have decided to remove this stock from our core coverage to retail coverage under the On Our Radar series, given the lack of institutional interest in the stock. Hence, it is now a NOT RATED stock (from UNDERPERFORM previously).

Valuation  We are maintaining our target price of RM0.53, based on an unchanged targeted FY15 PER of 15.5x.

Risks to Our Call Securing more projects.

 Faster GST pick-up from industry.

Source: Kenanga