IFCA’s Earnings To Stabilise

IFCA’s Earnings To Stabilise

Mon, 25 August 2014

Kuala Lumpur (25 Aug, The Edge): While there was euphoria among IFCA MSC Bhd’s investors after the accounting software developer announced a 420% growth in the net profit in its second quarter ended June 30, 2014 (2QFY14), last Tuesday, sceptics pointed out to the company’s history of volatile earnings, where its quarterly earnings have swung from one extreme to another.

However, founder and chief executive officer Ken Yong assured that this volatile trend is indeed history.

“People wonder what’s next for IFCA after the goods and services tax (GST) [is implemented, but after more than 26 years in this business [of producing software for property developers, hotels and club managers]. I can say that we are indeed the best in the game and we have clients that have been with us for decades,’ he told The Edge Financial Daily in an interview.

“When our customers use our software, they will have to renew the licenses annually, and that’s where the bulk of our income comes from.

“All for our China business, we’re seeing at least 80% year-on-year revenue growth, and we’ve only scratched the surface of the market there.”

As at June 30, 2014, IFCA’s contract sales stood at RM63.21 million, which was 14% higher than the while of last year’s order book of RM55.44 million. In 2012, IFCA ‘s contract sales came to RM47.96 million.

Yong expects about 30% of IFCA’s full-year contract sales to be spilled over to next year. Clients make their payments progressively, he added.

Out of the RM63.21 million contract sales for the first six month of the year, Malaysia accounted for a total RM42,1milion. Even then, he pointed out, only 10% of IFCA’s 1000 local clients had upgraded to new software as at June. Executives in the information and communications technology industry said many companies were lagging behind in registering for the GST. Companies with annual sales of at least RM500,000 must register by Dec 31, 2014. Hence many accounting software companies are anticipating a deluge in orders from companies as the deadline draws closer.

But Yong anticipates that there will be some companies which will not change their accounting software even after the GST replaces the existing sales and service tax next April 1. But companies which do not comply with the GST will face harsh penalties. Yong feels that the GST compliance deadline could be extended, thus opening the door for IFCA to secure new clients, given that its software is certified by the Royal Malaysian Customs Department.

Yong said IFCA’s software comes with a premium compared to that f its competitors.

IFCA owns over 50,000 software licenses fro the use of property developers, hotels and clubs.

“We had worked on our software for the past two years to ensure it meets the standards,” said Yong.

For 2QFY14, IFCA recorded a net profit of RM3,002 million on revenue of RM18.25 million, compared to 2QFY13′s net profit of RM578,000 on revenue of RM12.93 million.

Its cumulative net profit for the first half to June 30 (1HFY14) stood at RM3.42 million, compared with 2QFY13′s net profit of RM71,000 or 0.02 sen per share. Revenue came to RM31.94 million against last year’s RM22.71 million.

Whilst Yong could not reveal any profit forecasts, he pointed out that IFCA’s sales contract value had spiked this year in comparison to previous years’ value.

He also explained that the software business mostly incurs sunk cost, with major portion of the expenditure going to employees’ salaries.

“After we reach a certain level of revenue, most of the sales will be translated to profit. You can even say that higher the revenue we get, the wider our margin will be,” he said.

Yong is banking on IFCA’s China operations to be the next growth driver as currently it only has about 5% market share there. Already, the sales contract value from its Chinese clients has been growing by more than 80% every year.

“We currently have big property developers there as our clients, like Wanda Group (controlled by China’s richest man Wan Jianlin), R&F Properties Co Ltd and more. Even then, the market is just so huge that we’ve only covered a small part of China,” he said.

IFCA also has businesses from Singapore, Indonesia, the Philippines and Vietnam, where it partners with local distributors.

Darren Chong