· Leading software solution provider for the property industry. IFCA MSC Bhd (IFCA) is a leading business software solutions provider with 28 years of experience catering to the property industry. Being a pioneer in the field, it provides consultation/support, cloud services and training/education to a variety of property-related players ranging from property development, management, construction, to hotels and clubs management. The company currently has c.1,700 customers spread over seven countries, with c.600 manpower located in 27 offices. In terms of revenue segmentation, the lion’s share revenue contributor is the Software licenses (c.46% to date), followed by Professional services (c.26%) with the remaining 28% split almost equally between Hardware and Maintenance services.

· Impressive YoY but weaker QoQ results reported. Recall that the group has recently reported its 2Q15 NP of RM5.7m (-41% QoQ; +90% YoY), bringing its 1H15 NP to RM15.4m which saw a robust growth of 349% YoY (driven by GST software upgrades). While the YoY performances for the 2Q15 and 1H15 were impressive, 2Q15 results on QoQ basis was weaker with revenue and NP declining by 25% and 41%, respectively. We gather that this was due to slowing sales in both China and Malaysia markets as well as the normalisation from the high base in 1Q15 (which was previously boosted by high demand of software upgrades for GST implementation).

· Mixed bags of marbles. In the recent result’s briefing, management noted that the Malaysian and Chinese property markets are currently seeing headwinds amidst the economic slowdown. In mitigating the potential slowdown in the software sales in Malaysia market, the group is targeting to launch a new property e-commerce platform, called Property365 with soft launching in Sept 2015. Note that this being the first transactional developer portal in Malaysia will engage both property developers/agents as well as house buyers. For the property developers/agents, this platform will help to sell, serve and collect e-payment from its respective customers. Meanwhile for the house buyers, this platform allows them to do real-time booking, payment and tracking of their respective purchased units. In return, IFCA will receive transaction fees on any property unit sold through its platform. Note that we have yet to factor in any earnings from this platform, which is still at the infancy stage.

· Acquisition of PICI to expand its foothold in Indonesia. The group had recently signed a business sale agreement with PT IFCA Consulting Indonesia (PICI) to acquire the latter’s business for RM32m. To note, PICI is principally engaged in the distribution of IFCA’s computer software to the property sector in Indonesia. The acquisition will be equally financed with new IFCA shares (of which will be satisfied through the issuance of 16m new ordinary shares at an issue price of RM1.00/IFCA share) and cash of RM16m; and expected to be completed by 4Q15. On the purchase consideration of RM32m, this represents a forward PER of 8x based on the three years’ (FY16-FY18) profit guarantee of RM4m per annum, which we deemed is fair. We laud the move as this allows IFCA to tap on PICI’s clientele and distribution network in Indonesia and serve as a platform for IFCA to introduce other business software solutions. In terms of impact to the group’s balance sheet, after accounting for the RM32m acquisition which will be equally financed with new IFCA shares and cash, the group’s net cash position is still healthy at RM44m (or net gearing of -0.4x).

· Not rated with a Fair Value of RM0.82. All in, we are projecting the group to register NP of RM26.8m in FY15E, followed by a robust NP of RM35.6m in FY16E, with key earnings assumptions being: (i) a conservative 2-year revenue CAGR of 16% across all segments (note that the group recorded 3-year CAGR of 33%), (ii) EBIT margins of 31- 33% in FY15/16E (which is the mid-range EBIT margins of the past four quarters’ EBIT margin of 27% to 42%), and (iii) additional earnings contribution from PICI with FY16-18E NP assumptions of RM4m. We value IFCA at RM0.82/share based on 14.0x FY16E PER, which is the group’s 3-year average forward PER. 

Source: Kenanga Research - 8 Sep 2015