SINGAPORE (Apr 5): CIMB likes IFS Capital, a financing institution catering mainly to small- and medium-sized enterprises (SMEs), given its opportunity to tap on a growing pool of SMEs with financing issues.
Citing a 2017 DP Information Group survey, analyst Colin Tan says: “Of the 35% that faced finance-related problems, around 81% experienced delays in payments from customers that increased cash flow risk and working capital problems. SMEs approach IFS for financing via factoring, whereby SMEs obtain immediate cash financing in exchange for giving up control over their accounts receivable, mainly to tide them over periods of tight cash flow related to working capital.”
In an unrated report on Thursday, Tan says this could benefit IFS Capital given how the Singapore market contributed to over half (57%) of the group’s FY17 operating revenue.
The analyst is also positive on the group’s plans to build digital platforms to support its Singapore operations, with expectations for these platforms to be up by end 2018.
According to the IFS’s management, this would reap savings in operational costs and boost efficiency, enabling the company to scale up domestic business expansion. The digital platforms would also facilitate centralised credit risk assessment in its operations.
In addition, Tan believes IFS could unlock significant value from its strata-owned Suntec office unit, which the company estimates could bring in a substantial gain of about $19 million or 5 cents per share when sold.
“Apart from the Suntec office unit on its book, IFS also owns two freehold properties – a residential apartment in Melaka, Malaysia and office units measuring a total of 11,492 sq ft in Bangkok, Thailand,” he notes.
To recap, IFS Capital recently returned to profitability in FY17 after four straight years of losses over FY13-16.
This was the result of internal restructuring to reduce its unsecured credit exposure and revert its focus the core business of factoring, after a change in CEO in Oct 2015.
See: IFS Capital swings back to the black in FY17 on higher sales, lower impairment
At the share price of 27 cents, the counter is trading at a historical 0.65 times FY17 price-to-book (P/BV) versus the local peer average of 0.68 times.
As at 10.13am, shares in IFS are trading flat at 26 cents.
