Although 1Q14 revenue rose 12.7% yoy, 1Q net profit contracted by 16.7% to RM0.5m. We are relieved that the company managed to record a small profit, after two quarters of disappointing losses. No interim DPS was declared, in line with our expectations. We believe that the company has recently secured some major contracts from two local F&B players and contribution to its bottomline should filter through from 2Q14 onwards. In the region, it has also secured a major job from one of the fast food giants in the Philippines. Negotiations are ongoing with a few major F&B players in China. 

In addition, Cuscapi has indicated in the past that it is looking at an M&A exercise to expand its business in China later this year. This market is expected to be the company's largest revenue contributor from 2015 onwards. In 2014, China is expected to contribute 30% of Cuscapi's FY14 revenue and this percentage should rise post-M&A. Funding for M&As is not an issue as its balance sheet is strong, with RM17.2m net cash as at end-Mar. 

Progress for the REV, Cuscapi's interactive tablet, has been slow as the company has yet to secure any major customer in the region. After gathering feedback from its customers, Cuscapi might tweak its REV subscription-based business model to a hybrid subscription and straight purchase transaction. Negotiations are still ongoing with its customers. We have conservatively assumed that Cuscapi will secure 3,000 REV subscriptions this year. If it is able to secure REV subscriptions from one of its major China F&B customers, Cuscapi could still meet our REV target for FY14.

Source: CIMB Daybreak -30 May 2014, Full PDF report