Infoline Tec Group Berhad - Boosted by sizeable and high margin one off projects
Thu, 07-Nov-2024 01:54 pm
by Jayden Tan • Apex Research

Counter

INFOTEC (0253)

Target Price (RM)

1.19

Recommendation

Hold

Summary

  • 3QFY24 core net profit at RM8.0m (+54.6% yoy and +469.7% qoq), bringing 9MFY24 core net profit at RM11.4m came above expectation due to higher profit from IT infrastructure and Managed & Other IT services segment.

  • Looking ahead, we will closely monitor the Group's ability to secure customers that provide a stable recurring revenue stream in the Cybersecurity and Managed IT segments.

  • Upgrade to BUY recommendation with higher target price of RM1.19 by pegging PE multiple of 17.0x to FY26f EPS of 7 sen.

 

Results Review

  • Results review. In 3QFY24, core net profit surged by 54.6% yoy and 496.7% qoq to a record high of RM8.0m, primarily driven by robust performance in the IT infrastructure and Managed & Other IT services segments. However, PBT margin declined by 9.8 percentage points yoy due to increased expenses related to transfer listing costs and staff expansion. Quarterly revenue grew by 86.8% yoy and 55.2% qoq. Additionally, the Group announced a dividend of 0.79 sen per share, payable on 28 Nov 2024.

  • Beat expectation. 9MFY24 net profit at RM11.4m exceeded our expectations at 99% of our full-year forecast. This variance was primarily driven by stronger-than-anticipated sales in the IT infrastructure and Managed & Other IT services segments.

  • Operation Highlights. The Group's IT infrastructure segment posted impressive results, with PBT jumping 403% qoq, but declining by 26% yoy to RM12.0m. Similarly, the Managed IT segment saw a PBT increase of 453% qoq and 98% yoy to RM3.4m. However, we believe growth may not be unsustainable, premised to the recognition of one-off high-margin projects secured and delivered during the quarter. Conversely, we are encouraged by the steady growth in the cybersecurity segment, which has emerged as a more sustainable earnings stream, evidenced by a PBT increase of 60% qoq and 254% yoy to RM0.4m.

  • Industry Highlights. Rising adoption of cloud computing and advancements in AI globally are expected to drive demand for IT infrastructure, particularly in connectivity and cybersecurity. This trend contributes to a positive outlook for Infoline.

  • Outlook. While the surprise bottomline reported in 3QFY24 is noteworthy, we remain cautious, as it was largely driven recognition from one-off projects with unsustainable revenue streams. However, we note that there is possibility to convert these customers into recurring clients by offering subscription-based Managed IT services. Over the longer-term prospects, we will closely monitor the Group's ability to secure customers that provide a stable recurring revenue stream in the Cybersecurity and Managed IT segments.

  • Valuation. Revised our earnings forecast for FY24F upward by 38% to RM13.4m following stronger-than-expected revenue and margins in the Managed IT segment reported in 3QFY24. However, we maintain our FY25F/FY26F core net profit forecast at RM19.3m/RM25.4m respectively. Consequently, we upgrade our recommendation to BUY with a higher target price of RM1.19, as we rollover our valuation metrics to FY26F, in reflection towards the longer-term prospects driven by developments in cloud computing and AI. Additionally, the recent proposed transfer to the Main Market of bursa Malaysia may attract institutional investors' interest.

  • Risk. Near-term margin uncertainties with aggressive pricing strategies. Revenue growth lags behind escalating costs due to expansion.
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