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
The 3
rd 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.
Source: https://www.thestar.com.my/business/business-news/2018/07/10/worst-over-for-nova-msc-to-return-to-black-in-fy19/
1.
Oceancash
2. CCK
3. LeeSK
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.
Business wise
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.
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.
‘Serving healthcare professionals
in Asia Pacific for over 50 years, MIMS is committed to providing tools to meet
physicians' needs in their daily practice and supporting their lifelong
learning’
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.
Streamlining Business
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.
Turnaround story
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.
Quarter result
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.
If you were to look closely into the company,
Novamsc is actually making have a higher PBT which is RM2.832, however the profit is lesser as the company had discontinue 1 of its business. This business discontinuation had brought a cost of RM2.289 to the company, as a result, the company is only making RM543k for this 1st quarter.
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.
Prospect
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?
Summary:
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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