FOMINA: Strategic Expansion and Robust Renewals Drive Strong Outlook

AmInvestment Bank has upgraded its recommendation on a technology company to BUY, setting a target price of RM1.70 per share. This represents a 25.0% upside from its last traded price of RM1.36, reflecting the investment bank’s confidence in the company’s underlying stability and promising growth trajectory, despite recent modest headline figures.

Performance Review and Core Strengths

While recent financial headlines may appear understated, AmInvestment Bank emphasizes the robust and recurring nature of the company’s core renewal business. This segment is characterized by significantly higher gross margins, reaching 32% compared to 17% for turnkey projects. The inherent stickiness of these long-term contracts, often featuring built-in annual price escalations of approximately 5%, ensures a stable and predictable revenue stream. The investment bank underscores that the story beneath the headline numbers is far steadier, positioning the company as a key proxy for regional mainframe spending.

Future Outlook: Breakout Year and Strategic Expansion

AmInvestment Bank anticipates a “breakout year” in FY27F, projecting a substantial 32% year-on-year surge in earnings to RM43 million. This impressive growth is underpinned by two primary strategic drivers:

• Major Contract Renewals: Two key contracts, collectively constituting about 35% of the company’s renewal business, are scheduled for renewal. These agreements are expected to contribute significantly to earnings stability and growth through their established annual price escalations.
• Japan Expansion: The company’s strategic entry and rapid expansion into the Japanese market are showing strong momentum. With 10 customers already onboarded from a pool of over 40 potential clients, Japan is projected to contribute 8% of FY26F and 14% of FY27F revenues, cementing its role as a crucial near-term growth engine. The company is actively accelerating customer conversion in this region, supported by operational efficiencies and cost savings.

Upside Potential from New AI Ventures

Beyond its established mainframe core, the company’s venture into artificial intelligence (AI) and data analytics presents compelling upside optionality. This strategic push aims to unlock new avenues for higher-value recurring revenues. Initiatives include the development of AI-powered portals designed to provide predictive insights for critical areas such as credit risk, fraud detection, and cybersecurity. A notable joint venture, ValuationXchange, in partnership with Geolytik, is digitising the property valuation process for banks. This platform has the potential to become a high-volume, recurring business, helping financial institutions reduce credit risk, expedite loan approvals, and enhance compliance. While the earnings contribution from these AI ventures is not yet factored into AmInvestment Bank’s current estimates, they are seen as a significant long-term growth catalyst.

Recommendation and Valuation

The upgraded BUY rating and RM1.70 target price are based on a 24.0x target price-to-earnings (PE) ratio applied to the estimated FY27F earnings per share (EPS) of 7.1 sen. This target PE is consistent with the group’s five-year average. AmInvestment Bank expects the stock’s valuation to re-rate upwards towards its historical mean, driven by the anticipated record FY27F earnings and the substantial upside potential offered by its innovative AI initiatives.