Excel Force MSC Berhad

(Defensive yet Attractive)

§  Excel Force MSC Berhad (EFORCE) is currently the market leader in Malaysia for the provision of financial services business solutions. With more than a decade of experience in offering information systems and services to the Banks and Stock-Broking Companies in Malaysia, EFORCE is the first IT Company in Malaysia to provide a total, comprehensive and market-proven business solution for the stock broking industry from Front Office to Back Office. Over the years, EFORCE have built up a considerable number of well-established Stock Broking customers as well as renowned Financial Institutions and have attained approximately 90% of stock broking Public Gallery Display System and 70% of Electronic Client Ordering System market share in Malaysia.

§  Eforce reported a full year FY14 Net Profit of RM8.6 million (-11.24% QOQ, +23.2% YOY). The decrease in net profit QOQ, mainly caused by the disposal of office amounting RM1.6 million (net expenses for bonus issue and warrants).

§  From previous year, Revenue rose to RM21.6 million (+5.8% YOY), mainly attributed by the increase in Application Service Provider (ASP) by RM1.61 million and Application Solution (AS) with a slight boost of RM424 K. On the other hand, Maintenance Segment revenue decreases by RM787 K.

§  Eforce revenue and profit have been growing steadily over the past 5 years in despite of the market volatility.

§  Eforce has been lying on a comfortable growth of average 10.33% CAGR over the past 5 years, and estimated to continue on a modest growth over the coming years.

§  With an improving operational efficiency over years, EFORCE registered a 39.4% profit margin and 19.86% ROE closing FY14 with a tremendous improvement.

§  With the Current Payout Ratio of 60%, and DPS of 2.5 cent for FY14 the estimated Dividend Yield (DY %), is 4.1% based on current price of (RM0.605).

(EFORCE Balance Sheet, figures extracted from Annual Report)

Key Statistic (Millions)	2012	2013	2014
Cash and Equivalent	26.33	24.04	20.55
NCAV	33.1	28.8	26.9
Total Asset	47.4	43.5	54.5
Borrowings	1.8	1.3	7.2
Shareholders Fund	40.4	39.1	43
Book Value Per share	0.20	0.19	0.21
Net Cash	24.53	22.74	13.35
Total share outstanding	206.77	206.77	206.77

§ 

Eforce is sitting on a healthy balance sheet with Zero-Gearing, 10 cents cash per-share and currently trading at 2.88 times P/BV

§  Potential for Bonus issue based on the Paid Up Capital and the Retained earnings

Outlook

§  Existing EFORCE customer (Alliance Investment, Bimb Securities, Hong Leong Investment, Jupiter Securities, Kenanga Investment, Maybank Investment, Malacca Securities, Public Investment, RHB Investment, UOB Kay Hian) already captured 70% market shares of the Electronic Client Ordering System in Malaysia.

§  After a successful penetration in Thailand and Vietnam, next EFORCE will be focusing on the penetration of other Asian region (Hong Kong, Taiwan, Indonesia & China)

§  A bright prospect, as company in focus on enhancement, development, and implementation of their product to existing and new clients.

§  Eforce is sitting on a comfortable economic moat, a sustainable competitive advantage against its competitor N2N Connect.

§  Defensive business model, as changes in economic settings will not have a significant impact on company earnings.

Valuation

§  Target Price based on Dividend Discount Model Valuation

Current Price: RM0.605

Target Price 1: RM0.69

Target Price 2: RM0.79

Target Price 3: RM0.92

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