Today's 3Q14 results briefing offered a few positive surprises, including 1) more than 25% of its sales so far in 2014 came from new customers and GST revenue is only expected to kick in more aggressively from 4Q14 onwards. China remains the largest sales contributor to the group this year; 2) IFCA is planning to spend around RM14m to develop new products in 2014/15. The company is able to do this in view of its strong expected operational cashflow and net cash balance sheet. So far, IFCA has spent RM7m in development expenditure; 3) the company is looking at M&As to grow the business but IFCA remains focused on doing what it is good at; and 4) if all goes well, the company is looking to transfer to the Main Board in 2015, one year ahead of schedule. 

After years of struggling, IFCA has finally reached a major turning point in 2014, hitting its sweet spot. This was mainly due to topline growth support from both the domestic and China markets, which was more than sufficient to meet its overheads. Due to IFCA's current high operating leverage business, its revenue incremental growth should flow mostly to its bottomline. This was evident from its recent quarterly results (3Q14's net profit of RM8.5m vs. 2Q14's RM3.0m). 

Remain invested in the stock. The strong 3Q net profit should indicate the start of better times ahead for the company. Earnings growth over the past two quarters did not stem from GST job upgrades, as full-fledged GST job upgrades should kick in from 4Q14 onwards. The stock remains under-researched (no consensus) but we believe that it would only be a matter of time before other research houses start to initiate coverage. Its share price has gone up more than 50% over the past month, driven by expectations of strong 3Q14 net profit. The stock might see some profit-taking in the immediate term but any technical weakness should offer investors the opportunity to accumulate this stock.

Source: CIMB Daybreak - 07 November 2014, Full PDF Report