SMR Tech eyes Main Market transfer and double digit growth in FY13
Posted on August 17, 2012, Friday
KUCHING: SMR Technologies Bhd (SMR Tech), engaged in the provision of integrated human resources (HR) solutions for small and medium enterprises (SMEs) and government agencies, has been regarded as an undervalued stock.
With a local presence as well as in Asean and Gulf Cooperation (GCC) countries, SMR Tech’s clientele were mainly involved in industries that required higher competency levels such as oil and gas (O&G), aviation and healthcare, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) stated in a research note yesterday.
“SMR Tech is targeting to achieve a strong double digit turnover and net profit growth in the financial year 2013 (FY13), underpinned by its current strong order book and potential contracts wins from Middle East.
“SMR Tech is currently trading at FY12 price earnings ratio (PER) of 2.5 times as opposed to the local software industry’s average FY12 PER of 9.8 times.
“Net gearing ratio stood at 0.1 times with net asset per share of 24.4 sen as of the first quarter of 2012 (1Q12).
The group, with a market capitalisation of RM37.9 million, recorded a net profit of RM1.5 million in 1Q12, typically the slowest quarter in the financial year, with the earnings expected to gradually increase through the year before reaching its highest in the 4Q.
The group recorded an aggregate RM8.6 million net profit in the past two financial years and would qualify for a transfer to the Main Board of Bursa Malaysia should it manage to achieve at least RM11 million net profit in FY13.
The group earned RM8.3 million from a topline of RM44.4 million in FY11; Kenanga Research forecasted a bottom line of RM13.7 million from RM61.3 million for FY12.
“Based on the current order and tender book, management believes its transfer plan is achievable,” the research house opined, while noting that the order book currently stood at RM65 million while its tender book was at RM100 million.
With a success rate of between 20 per cent to 60 per cent, SMR Tech previously secured a sizeable contract of RM89.5 million from Ministry of Education, opening up possibilities of more similar government contracts.
Kenanga Research pointed out that the company’s strengths were that it was specialised in a niche segment (integrated HR products and services) and a strong clientele base in the O&G sector.
As such, it had opportunities to penetrate into other high competency level sectors such as healthcare and aviation.
Meanwhile, the potential weaknesses were a low market capitalisation and succession plan risk while possible threats were contract and macro-economic risks, the research house stated.
Premised on an ‘undemanding’ FY12 PER of 3.8 times, the research house derived a fair value of 33 sen, representing and upside of about 50 per cent from the last traded price.