• MYR0.79 FV implies 19x FY24F P/E. We like Cloudpoint Technology for its strong client profile, wide range of solutions and vendors, and asset-light business model. It is well-positioned to benefit from its principals’ innovations, higher-level sophistication in threats, regulatory compliance and robust financial institutions’ (FI) investments in digitalisation. It is trading at a compelling 12x FY24F P/E – on top of an above-industry ROE of 28%, 3-year earnings CAGR of 29.4%, a strong orderbook (0.94x cover ratio), new customer acquisitions, and the expansion of its business and product range.

• Growing orderbook. According to its prospectus, Cloudpoint’s orderbook target for FY23 was c.MYR39m. We understand that this has surged by over 50%, to bring its total FY23F orderbook to c.MYR60m – a result of strong order replenishments from its top five customers over the last two months. We expect the strong orderbook growth to continue, as it is looking to secure more projects from new and existing customers across all segments from its robust tenderbook.

• Expecting three FI technology refresh contracts. Cloudpoint is set to further build its growth on three technology refresh contracts from its top customers – and these are to be implemented in FY23-24. According to management, these projects are typically two to five times bigger than its usual contract values of MYR2-5m. According to Verint Systems, the optimal timeline for a technology refresh for FIs is 3-5 years. It is also evident that local banks are mostly increasing or maintaining their IT expenses over the past few years (Figure 2). 83.2% of banks in the Asia-Pacific will increase their technology budgets in 2023, with 14.8% signalling that they will raise their budgets by 20% or more (according to International Data Corporation). We believe the growth outlook is buoyant – especially in the FI space over the medium term, as banks will continue to invest heavily in digitalisation and technology.

• Growing ramping up in new cloud services segment. With Sunline (for the integration of banking systems) and ServiceNow (global market share of 40.1% in IT service management in 2021, and with a 28.8% market share in IT asset management currently) as its principals, we expect its cloud services and software applications business – a new division – to start contributing c.5% of total FY23 revenue. Moreover, this contribution is anticipated to grow at least double YoY up to FY25. According to management, it clinched a ServiceNow project with an insurance company within its orderbook prior to its listing. Recently, Cloudpoint also secured a Sunline contract with a local investment bank, marking a positive development that highlights the growing momentum in this segment.

• Earnings forecast and valuation. We project a 3-year earnings CAGR of 29.4% and ascribe a P/E of 19x (on par with the industry mean) to FY24F earnings, to derive our FV of MYR0.79. Key risks: Dependence on major customers, unexpected delays in implementation and order replenishment.

Source: RHB Securities Research - 20 Jun 2023