ELSOFT - Diversifying into automotive and medical with technology

​Exchange: KLSE

Current Price: RM 1.870

Diluted Shares Outstanding: 181,132,000

Market Capitalization: RM 338.7 million

Public Float: 18%

Industry: Technology Equipments

QUANTITATIVE ANALYSIS

	Previous FY	TTM	MRQ	Criteria (Annualised)
Valuation
Historical P(EBITDA)R	11.23	13.09		<10
Trailing PTBV		4.21
Dividend Yield	2.1%	-
Capital Structure
Long Term Debt/Total Asset	0.8%	0.6%		<30%
Total Debt/Total Asset	6.7%	5.1%		<60%
Management Effectiveness
ROE (use EBITDA)	29.2%	41.9%	6.5%	>15%
ROA (use EBITDA)	26.4%	38.7%	6.2%	>6%
ROIC (use EBITDA)	27.2%	39.7%	6.4%	>4%
Liquidity
Cash Ratio	1.84	3.80
Quick Ratio	6.39	13.24		>0.8
Profitability
EBITDA Margin	47.5%	49.1%	49.3%	>5%
EBITDA (cents)	11.85	13.89	2.80
Cash Flow
Operating Cash Flow/Net Profit	0.69	0.77	0.61	>0.5
Free Cash Flow/Net Profit	0.66	0.75	0.59	>0.2

		YoY	QoQ	Criteria
Growth
Revenue		79.0%	144.6%	>10%
EBITDA		82.6%	265.1%	>5%
EBITDA/Equity		50.7%	188.9%	>0%

Comment: Valuation ratios failed slightly whereas all other criterias pass with flying colours. This is fine for a technology stock.

QUALITATIVE ANALYSIS

Advantages: Large cash holdings in USD to further boost company performance. ELSOFT also has a pioneer status for 100% tax exemption on its earnings. Business is also well diversified to prevent dependence on growth of smart devices only. ELSOFT provides for other segments such as the automotive and medical industry.

Risks: ELSOFT may see increased competition from other companies such as MMSV, FRONTKN and INARI.

RESULTS

Target Price: RM 2.930

Potential Upside: 57% (based on current price)

Margin of Safety: 36% (based on current price)

Maximum Entry Price (Fundamental): RM 2.050

Recommended Entry Price (Technical): RM 1.780

Cut Loss: RM 1.600

Holding Period: Until end of August 2016 (After QR)