(Oct 28, 57.5 sen)
Maintain outperform with a target price of 61 sen: As outlined in Budget 2014, the government is targeting three ministries to undergo performance evaluation based on the outcome-based budgeting (OBB) system in order to improve budget management. The three are the ministry of health, ministry of international trade and industry and the ministry of finance.
The implementation of OBB is to ensure: (i) budget allocation is based on outcomes; (ii) improvement in the efficiency of implementation; and (iii) reduction in redundancies as well as to systematically evaluate the performance of all government programmes and projects.
Budget 2014 also provides for the introduction of a 6% goods and services tax (GST) at 6%, effective April 1 2015.
Both the OBB system and GST bode well for Censof. Note that the company had previously secured the ministry of finance’s OBB project worth RM25.47 million (including the extension contract) to install and implement the online budget system.
As the government is targeting to expand the OBB system to another two ministries, we are positive on Censof securing the contract based on its previous track record.
Censof is ready to offer its GST-ready accounting software and training services to the over 80 government agencies in the country, which will create new income streams for the company. Based on our understanding, it charges an average of RM200,000 to RM2 million for its GST software upgrade service and training services, depending on the client’s corporate size, terminal stations and system integration.
It should be noted that the GST-upgrade service excludes the annual maintenance service fee, which normally comes to about 2% to 5% of the software’s purchasing price.
We are positive on Censof’s long-term outlook, underpinned by:
(i) the potential influx of demand for GST-compliance accounting system upgrades and training services before the official implementation of GST in April 2015;
(ii) continued flow of projects/contracts from various government agencies for its financial management software solution (FMSS); and
(iii) potential massive synergistic benefits that could be created for Censof and Time Engineering Bhd (TEB), following Censof’s acquisition of a stake in TEB. — Kenanga Research, Oct 28
This article first appeared in The Edge Financial Daily, on October 29, 2013.
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