Century Software (CSHB)’s FY11 earnings of RM9.5m were below
our and street estimates. However, newly acquired PT Praisindo Teknologi fared well during the quarter and we see
margins at the group level improving moving forward. During yesterday’s analyst briefing, management said it is evaluating more M&As and bidding for several projects
which may boost its profits. We are revising upwards our FV to RM0.47 by ascribing a 9x FY12 PER. We maintain our NEUTRAL recommendation on the
stock.
Below estimates.
CSHB’s FY11 earnings missed our estimates, making up only 63% and 65% of our and consensus’
full-year forecasts respectively. This could be attributed to the 98% y-o-y
surge in depreciation and amortization charges to RM2.7m. On top of that, the
lower earnings were partly due to the acceleration of certain major projects involving
higher opex. However, the company’s top-line swelled by a robust 36.1% y-o-y to
RM43.3m, as its Financial Management Software Solutions
division (FMSS)’s revenue was boosted by the RM22.5m Outcome Based Budgeting
(OBB) project from the Ministry of
Finance it secured in the middle of last year. We understand that a major portion
of the contract was invoiced in FY11.
High margins at IMS
division. Newly acquired Indonesian Investment Management Solution (IMS)
arm, PT Praisindo Teknologi, which started to contribute in 4Q, registered stellar
numbers as it achieved highly lucrative PBT margins of 72%. We are upbeat the the
contribution from this division will somewhat help to cushion the margin
compression at the group level.
Potential M&As. During the analyst briefing, management also
indicated that it is eyeing further
expansion after successfully acquiring its Indonesian unit. We gather that the
company is in preliminary talks with
several local and international companies
in relation to M&As to take launch the company’s into its next leg
of growth. Management also said it
is bidding for some domestic and foreign
projects which may potentially enhance
its profits.
Maintain NEUTRAL,
revising FV to
RM0.47. We are retaining our FY12 financial forecasts for now as we
had earlier factored in the full-year growth in the IMS segment, as well
as introduce our FY13 forecasts. We are
revising higher our 8x FY12 PER multiple to 9x to reflect the
potential upside from M&As sought by management, which may help improve trading sentiment. We maintain our
NEUTRAL recommendation on the stock, with an adjusted FV of RM0.47.
Source: OSK188
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