ACE-listed IFCA MSC Bhd was propelled into the spotlight in recent months as its market capitalisation continued on its phenomenal uphill climb. Shares of the maker of cloud-based software for property companies have jumped 14-fold in the past 12 months, the most among software companies worldwide with a market value of at least US$150mil (RM550mil), according to data compiled by Bloomberg. That compares with an average gain of 46% for global peers.
Bloomberg’s review was glowing: “Forget Silicon Valley, Tel Aviv and Bangalore. To find the world’s top-performing software company, you have just to go to Kuala Lumpur.”
Chris Eng, Etiqa Insurance & Takaful’s head of research/ head of products & alternative investments, reckons IFCA’s exceptional outperformance was a combination of it being an undiscovered gem, a good business story and an aggressive promoter. “I believe there should be more companies like this although they would not be easy to find. Also they may not rally that much.”
Indeed, it is not just stock market hype as IFCA’s earnings are surging just as fast, and its growth phase is just beginning. After years of struggling, the company’s fortune kicked into high rev after capturing 80% market share among Malaysian developers and growth in the China market following a major breakthrough clinching a contract from Wanda Group, China’s largest mall owner.
IFCA CEO Ken Yong Keang Cheun was quoted saying that the company’s software sales in the country surged 76% in 2014 as a new goods and services tax (GST) prompted companies to upgrade their software to comply with the change. Profit jumped 12-fold last year to RM21.1mil.
2014 had been a sweet year for IFCA and the company declared its maiden dividend of 1 sen per share or 23% dividend payout ratio.
Yong is confident earnings would climb to another record in 2015. IFCA is looking to expand rapidly in China over the next few years and expects China sales growth of at least 80-100% this year. It has eight offices in China and plans to add 10 new offices by end-2015. IFCA is still a small player in China, with its current market share miniscule at around 0.3%, given that China is a huge market with some 46,000 property companies and it only has over 100 customers. IFCA only expects its growth in China to mature when the company hits 4-5% market share.
CIMB Research believes IFCA is just starting on its growth path, with growth coming from the China market, GST software upgrade jobs, and its software as a service (SaaS) offering which will be launched very soon.
CIMB research said: “We are particularly excited about SaaS. In the next few years, SaaS could boost IFCA’s recurring income so that the company will be less dependent on revenue from just selling software. The beauty of SaaS is its scalability… Our discussions with industry sources reveal that small construction players are not ready for GST. In current market conditions, there is a great need for small property and construction players to automate GST-related finances. Hence, SaaS is ideal for the small players….As such, we believe it should not be too difficult for IFCA to reach total average 500 yearly SaaS subscriptions by 2017.”
The house noted that there are currently 2,600 property companies in Malaysia and most of the major property developers are IFCA’s customers and SaaS allows the smaller developers to utilise IFCA’s software modules.
IFCA has plans to launch three software modules on SaaS – project cost management, project marketing, and standard operating procedures (SOP) for the construction sector. It is also targeting to launch its e-commerce portal in the later part of this year. Its management said that this portal would provide value-added services to its existing customers.
IFCA is an under-researched gem, says Maybank Research, which issued a Not Rated report on the company in 25 Aug last year when the stock was only 27 sen.
CIMB Research is the only research house actively covering IFCA; unsurprising given that the company’s earnings only started to show a turnaround in its 2Q14 results. CIMB initiated coverage on the stock on 10 Oct 2014 when the stock was trading at 49 sen, with a target price of 78 sen. The house has since raised its target price three times to the current RM1.92.
IFCA shares closed at RM1.61 on 23 April.
IFCA is expected transfer to the Main Board in the second half of this year. In view of its record net profit in its 2014 financial year, IFCA’s three-year cumulative net profit has exceeded RM20mil, one of the conditions for a transfer to the Main Board.
Note: The above article is not a recommendation to buy or sell stocks. Please consult your stockbroker/financial consultant before making any investment decision.