SMR Technologies 1H12 net profit up 82% YoY

Trading Buy RM0.330

INVESTMENT MERIT

• So far so good. The share price of SMARTECH has appreciated over 11.4% since our last coverage report on 16 August 2012. 
• Undemanding valuations. However, even so, SMRTECH is currently trading at just FY12 PER of 2.8x as compared to the local software industry’s average FY12 PER of 9.8x. It is also in a net cash position with a net asset per share of 27.0 sen as of 2Q12. Its FV of RM0.330 implies an undemanding FY12 PER of just 3.8x. 
• Expecting strong double-digit growth in FY12. SMRTECH is targeting to achieve strong double-digit turnover and net profit growth rates in FY12, underpinned by its current strong order book and potential more contracts wins from Gulf Co-operation Countries (“GCC”). 
• Aiming to transfer to Main Market. The group recorded an aggregate RM8.6m net profit in the past two financial years and will qualify for a transfer to the main board should it manage to achieve at least a RM11m NP in FY12. Based on its current order and tender books, management believes this corporate exercise is highly achievable. 

RESULTS UPDATES

• YoY, the 1H12 revenue surged by 66% to RM32.2m, driven by higher contribution from projects in outsourcing & consulting, talent search and learning & development. In tandem with the increase in revenue, net profit increased by 82% to RM5.6m (vs RM3.1m previously). Besides, the group’s 1H12 NP margin also improved to 17.5% vs 16.0% a year ago. 
• QoQ, the 2Q12 revenue soared 70% to RM20.3m due mainly to higher contributions from special projects, e.g. Pembangunan Sumber Manusia Bhd, Ministry of Human Resources in Malaysia and Petro Rabigh in Saudi. Net profit was nearly triple at RM4.2m (vs RM1.5m prviously) due to lower staff cost and other operating expenses (-31%). 
• No dividend was declared during 2Q12. 
• Its outlook remains bright with positive demand from GCC and Malaysia. The group is confident of sustaining its profitability and continual growth in FY12. 

SWOT ANALYSIS 

• Strength: Specialised in a niche segment - integrated HR products/services. Strong clientale in the O&G sector. 
• Weaknesses: Low market cap. Risk in succession planning. 
• Opportunities: Penetration into other high competency level sectors e.g. Healthcare, Aviation. 
• Threats: Contract and macro-economic risks. 

TECHNICALS 

• Resistance: RM0.26 (R1), RM0.325 (R2) 
• Support: RM0.24 (S1), RM0.215 (S2) 
• Comments: After tested the long-term uptrend line, SMRTECH’s short term technical picture appears to have improved alongside the indicators. The share price is poised to re-test the former RM0.26 bearish “Double top” trigger line. If successful, further upside may be expected towards the RM0.325-high.

Source: Kenaga