Wednesday, September 5, 2018
As we can see, Ringgit had hit its recent low where it 4.1455 this morning. We saw some export counter started to move yesterday.
BCF notice that a lot of exporting counters started to move, but the stock that move the most is actually Particle board counters. In the previous article, we mentioned that the particle board are facing lower average selling price which affect their previous quarter result, so what makes them move again?
Well, Big Canon believe the reason behind the move was due to the Typhoon Jebi. The typhoon had hit Japan quite badly where there are some houses and roof top got blew away by the strong wind. There are also reported injuries as well as death.
This had made me recall the situation when Japan had their worst hit from Tsunami, the rebuild had created a lot of demand towards the wood and particle boards. This had directly and indirectly causes the whole segment to rally.
This time round BCF believe the damage is not as bad as Tsunami, however, it does create demand as well. As a result, it is quite justifiable for the share price to move, but how much will it impact? That will remain mystery. So those who trade these counters, you may have to follow your trading plan and manage the risk. Let’s hope all is well.
Sunday, September 2, 2018
After the change of new government in GE-14, there have been lots of hoo-haa in the government sector as well as the business sector which brought lots of volatility to the market. We saw lots of project being called off and some were postpone. This had causes lots of contract being called off and taken back. We believe this could be a good news for those company that are capable but are not being given a chance by open tender. BCF believe if the new government were to deliver what they promised in their manifesto, then there are a bright chance of open tender being apply. This will allow a lot of capable company to perform and shine.
However, which industry offer the highest growth? Looking at the past we believe IT business will offer the highest growth rate where we have example such as MYEG and IFCAMSC.
I believe most of the readers might know about MYEG but let us recap a bit regarding IFCAMsc.
IFACMSC @ 0023 a very well-known counter back in 2014 where the stock price move from below RM0.10 and spend a year plus to hit its highest of RM1.78 before coming back down to the current level.
It was 1 of the hottest stock in Bursa Malaysia and even Bloomberg wrote about them.
I believe lots of the investors had always wondering when will there be another stock which can replicate the same legendary story like IFCAMsc and MYEG. After so many years, finally we found a stock that come from similar industry which might be potential.
Yes, it is NOVAMSC
Yes, it is NOVAMSC
Why do we think so?
This counter had caught a lot of attention lately and announced their QR on 28th August, but what caught Big Canon’s attention?
The 1st time BCF downloaded Novamsc’s annual report was in 2014 that was the time when we look for counters that are involve in GST, that also the 1st time we study about Ifcamsc. However, it is not involve in GST hence, we didn’t follow up after that.
The 2nd time BCF start to see this counter when it was selected as the Top 100 Jewels by RHB, however it didn’t spark much interest to us.
The 3rd time BCF look at this counter again is when there is an analyst from CXMB made an unrated research report of this company. It’s a bit unusual for a big firm analyst to issue unrated research report and what surprise us is, this analyst has got 3 calls which is doing very well. BCF will avoid mentioning any name here, but we can share the 3 companies here.
As u can see, most of the stock cover by this analyst usually perform quite well and have more than 100% return. This explain well why BCF will monitor his research report.
After seeing the research report, we are aware that this company is involve in business that develop and supplying smart e-solutions. They are involve in smart healthcare solution, government digitalisation (like MYEG, DNEX and Datasonic) and building automation & control.
According to the latest annual report, we can see that Novamsc not only focus on market like Malaysia but also to other Asian regions such as Indonesia, Brunei, Hong Kong, Singapore, Maldives, Brunei and Saudi Arabia which shows that they have huge market in the region.
They had also manage to expand their presence to HK by providing services to Hong Kong Integrated Oncology Centre (HKIOC), and they had also formed partnership with MIMS a leading provider of digital knowledge solutions for healthcare professionals in Asia Pacific which integrate well with Novamsc’s product such as Vesalius Hospital information system and Avicenna Specialist Management system to reduce medication errors and enhance patient outcomes.
The website for MIMS is: http://corporate.mims.com/
About: Established in 1963, MIMS is a multi-channel provider of drug information, medical education and services connecting healthcare communities. Our work empowers healthcare professionals to improve patient outcomes by facilitating knowledge exchange and better decision-making. Today, MIMS is present in 13 countries across Asia Pacific with approximately two million healthcare professional subscribers to its drug & resource portal, digital and print publications.
The strategic partnership with MIMS could possibly help Novamsc expand their business around the Asean region. On the other hand, the new Malaysian health minister did mentioning about digitalising those patients data in hospital, could this be a chance for Novamsc?
Strong track record and recognition
On the Digital Government side, we saw that Novamsc always clinch major contract from the SG government. As we can see in the annual report, Novamsc was awarded by the Urban Redevelopment Authority (URA) for a contract valued at RM14.8m (S$4.72m) which required the company to revamp and maintain URA’s development application Exchange System for 3 years until 2020.
They were also awarded a 6 year contract by Sg’s Building and Construction Authority to develop and maintain the construction and Real Estate Network System, 2.0 until 2023 which valued at RM83.06m ($26.84m).
As we know, it is always not easy to get project in SG especially the government side as they have very high requirement and not something that can be done through relationship. Hence, I would assume Novamsc is a company that is able to handle the SG government by delivering great service with good track record, or else, they won’t get repeat order from the SG government.
On the other hand, if the new Malaysia government are going to do open tender for their contract, then I believe Novamsc could possibly penetrate into the market which is control by MYEG, DNEX and Dsonic. If this really happen, then we could see the share price rocket. However, this is still yet to materialise and we will have to monitor closely for the latest development.
According to the announcement on 12 July 2018, the company had sold their 51% subsidiary Primustech for SGD 3m which equivalent to RM8.9m and it is completed in 25th July.
This disposal will allow the company to focus their resources on e-Government and healthcare application segment which the management believe will have a good prospect and higher growth potential for Novamsc. They had also secured approximately RM117m order book for this segment.
According to the information given by the company, this industry is highly competitive. On the other hand, Primustech revenue came down by 50.41% from RM72.9m in 2017 to RM37.48m in 2018 while the company had turned into losses by 2018 which had also contributed to Novamsc’s losses. Hence, selling Primustech will be a crucial step to cut off the non-performing asset which will drag the mother company.
What's the impact of selling Primustech?
This is a positive news for BCF as the Primustech will not causes Novamsc to lose money again in future and this is crucial for Novamsc’s turnaround plan.
However, there is something that we should not omit is that the sales of Primustech will bring a one-off losses to the company. This is because they spent RM 6.09m + RM5m a total of RM11.09 to purchase the 31,875 shares in Primustech and they are now selling at RM8.9m. As a result, Novamsc will lose RM2.19m for selling the subsidiary.
However, if BCF is not wrong, he believe this losses won’t be appearing in next quarter, why? This is because BCF found that the management had already recognised the losses in their current quarter result on 30th June.
If u were to look at the P&L statement, we can see that there is a losses of RM2.289m in it which contributed by discontinued operation and this amount is quite close to the amount of RM2.19m we shown above. How do we know it is from Primustech? Well, we can see the total losses for non-controlling interest is RM1.122m.
If we take RM1.122m divided by RM2.289m then we will get a percentage of 49.02.
So how to prove that this discontinuation is from Primustech?
According to page 70 of the Annual report, we can see that there is only 1 subsidiary that Novamsc is holding 51% and it is Primustech. As a result, it would be quite safe to say that the losses of discontinued operation is from Primustech where the company had already reflected in 30th June’s quarter result.
This is be crucial as it will avoid further losses in the next QR and this help to ensure Primustech will not deter the plan of the management to turnaround the company.
According Novamsc’s CEO interview on The Edge, Mr Chan mentioned that they hope to turnaround in the current financial year given its backlog of orders.
He said that the company is looking to secure more digital government service contract particularly in Malaysia, he is confident as they have good track record for the past 20 years in Sg and other global government agencies.
Noting that the Malaysian government is still behind times in terms of digitalisation, Chan believe Novamsc stand a good chance to participate in government’s “catch up game”. He also anticipating “a substantial revenue contribution” from its digital government services, banking on Malaysia government’s aspiration to digitalise and revamp public areas.
On the other hand, some of our friends that join the AGM on 28th August asked the management if they are expecting projects from the local government as Mr Chan mentioned that “he is anticipating” in the interview. He didn’t say no but ask our members to read the announcement in Bursa Malaysia. We believe this there must be a reason for Mr Chan to not saying "no".
Benefit on strong SGD vs RM
I believe most of our readers are quite aware that Ringgit and the emerging country’s currency are depreciating lately. Today we found that the RM had also depreciated against the SGD where 1SGD now is worth around RM3.
As mentioned by Mr Chan in the interview, 98% of Novamsc revenue in Singapore, hence, we believe the depreciation of RM will potentially help to increase the gross margin of Novamsc. This could potentially help Novamsc to make more money in next quarter.
In 30th June’s quarter result which is the 1st Q of financial year 2019, we saw Novamsc had started to turn green, where they had made a net profit of RM543k.
However, if we were to look clearly into the P&L statement, we can see that the company is actually making more money than RM543k.
As per mentioned in streamlining biz part, we believe the management had brought forward the losses of purchasing Primustech forward and this will ensure the company to be in green for next quarter. As a result, we speculate that the company will remain green and will show growth by next quarter.
In the prospect column, the company had also hinted the investment community that their order book is now RM12million higher compare to last quarter. So, what do u think?
After so much of analysis, let us recap the Catalyst for the counter
1. Manage to take part in digitalising the local government.
2. Manage to get more contract for their smart healthcare system.
3. Turnaround story
4. Stronger SGD
5. Rerating by the analyst?
We believe all above could be the catalyst to drive the future of Novamsc, however, we will have to monitor closely whether if all these are achievable.
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Please always bear in mind that Big canon is not giving any buy or sell call, always bear in mind, Big Canon don’t give buy or sell call. Our articles only serve for education & sharing purposes.
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