En-route to listing on the Ace Market, Sedania Innovator Berhad (SEDANIA) is looking to: (i) expand its presence regionally, as well as (ii) further enhancing its Airtime Sharing Solutions platform. With the strong business relationship and support from Celcom (c.80% contribution to its FY14’s turnover) as well as Robi Axiata, SEDANIA is believed to expand its regional presence riding on Axiata’s regional footprint. Moving forward, the group’s prospect mainly depends on the success of developing new products/services as well as venturing into new markets. We have a fair value of RM0.41 for SEDANIA, based on a targeted FY16E PER of 12x, in-line with the FBMSC’s PER of 11.9x.

Riding on Axiata’s regional footprint. SEDANIA has established a strong relationship with Celcom over the past 10 years. Leveraging on its success with Celcom, the Group has expanded its services to Maxis recently, as well as venturing into the Bangladesh market via Robi Axiata, which is 99% wholly-owned by the Axiata Group. Moving forward, we understand that SEDANIA has an intention to venture into Indonesia and the Indo-china region through strategic partnerships, which could provide the group exposure into a c.255m market population.

Innovative new services waiting to be unveiled. Apart from providing the traditional services (ATS transfer and ATS request), management also intends to introduce a few new innovative services/features over the next two years to gain more subscriptions. These include: (i) the GreenBilling mobile application (a centralized electronic billing depository), where it enables users to consolidate and make payments for multiple bills (utilities, banking and taxes etc.) from their mobile phone; (ii) enhanced ShareShare mobile application, which is a centralized platform that allows users to conduct voice, network and data sharing. Management is optimistic that these new products could further drive earnings growth moving forward.

Dependent on strategic partners’ prospect and products innovation. As SEDANIA’s turnover is mainly contributed by Axiata’s subsidiaries companies, its earnings outlook is very much dependent on the latter’s prospects & strategies. Meanwhile, the group being involved in a fast-pace and ever-changing technology-based industry, its prospect is also dependent on the ability in developing/enhancing/innovating new products/services to keep abreast with the latest technology trend.

NOT RATED, Fair value at RM0.41. We expect SEDANIA to register a core net profit of RM7.5m (+2.8%) and RM6.8m (-8.9%), in FY15 and FY16, respectively, underpinned by: (i) 10%-12% revenue growth in revenue for FY15-FY16, (ii) effective tax rate of 2% in FY15, and (iii) statutory corporate tax rate of 25% post May-FY16 (assuming no extension in its MSC Status, which is set to expire on 9 May 2016). Our fair value of RM0.41 is based on 12x FY16E core EPS of 3.4 sen, which is in line with FBMSC’s PER of 11.9x. We view this valuation to be justified in view of its profitability as compared to industry peers which are mostly in the red. However, the fair valuation could enhance to RM0.48 (based on an unchanged PER of 12x against FY16 EPS of 4.0 sen) if and when SEDANIA prove able to extend its MSC Status, which could lower its effective tax rate to ~2%, judging from its historical track records. 

Source: Kenanga Research - 29 Jun 2015