Censof Holding - Acquiring an IT training company

News    Censof has proposed to acquire an 80%-equity interest in Knowledgecom for a purchase consideration of RM4.0m, which would be satisfied by internally generated funds and a short term bridging loan. 

 Knowledgecom is mainly involved in IT business solution services, corporate IT training and management courses. 

 The proposed acquisition comes with a profit guarantee of RM1.0m net profit for CY12.

 The rationale for the proposed acquisition is to create synergistic benefits within the group, especially on downstream activities in the area of IT e-training and management courses. It will also allow Knowledgecom to expand its services to the regional markets via Censof’s existing regional offices. 

Comments   The acquisition price of RM4.0m (for an 80%-stake), implying a business valuation of RM5.0m which will translate into a price-to-earnings ratio (PER) of 5.0x based on the RM1.0m profit guarantee, which seems fair in our view. 

 We understand that Knowledgecom is also an Authorized Class A Training License trainer for Pembangunan Sumber Manusia Berhad (PSMB) under the Ministry of Human Resource and has also been awarded a licence by the Ministry of Finance (MOF) to provide training for all IT-related services.

 Thus, upon the acquisition, we believe that Censof will have a higher potential to secure more government projects in the area of IT training, where it is now serving over 27 ministries and 80 government agencies in the country.

Outlook   Remains bright, underpinned by continuing projects/contracts flow from the various government agencies.

Forecast   Maintaining FY12E-FY13E earnings pending further details from the management on the above deal. 

Rating  MAINTAIN OUTPERFORM

Valuation    Maintaining TP at RM0.61 based on an unchanged targeted FY13 PER of 12.2x.

Risks   Failure to secure more projects

Source: Kenanga