Just last week on 21 November 2014, Systech was queried by Bursa Malaysia for unusual market activity, following a rise in its share price and trading volume. Since then, the stock has consolidated until our algorithm picked it up again yesterday on a renewed build-up in trading momentum.
The stock rose 7% from 28.5sen to 31sen over the last two days on the back of a 90% spike in volume. The stock hit an intra-high of 33.5sen before closing at 31sen on Wednesday, with over 41.7 million shares changing hands.
It is unclear what sparked the sudden interest although there has been a recent rally in IT software stocks on the back of GST-themed investing. The company released its second quarter results last week, which saw a sharp improvement, but the stock’s valuations are still expensive.
Systech has two main subsidiaries: Syscatech Sdn Bhd develops, customizes and implements proprietary software solutions, while Mobsys does franchise software systems for retail and franchises’ operational and management needs.
Its recent 1H FY March 2015 results saw revenue increasing 66.3% to RM4.78 million from RM2.88 million a year ago. Net profit also more than doubled to RM1.84 million from RM667,000. In FY2014, the company posted revenue of RM6.77 million with net profit of RM1.8 million.
Systech is in a net cash position of RM1 million, which declined from RM7million as of FY2012, as it has undertaken expansion plans to provide cyber security solutions. Historically, the company also does not pay out dividends.
Valuations appear high, with Systech trading at a 2.68 book and a trailing 12-month P/E ratio of 33.28 times. The company has a market capitalisation of RM98 million for a company that earned revenue of just under RM7 million in FY2014.
This article first appeared in The Edge Financial Daily, on November 28, 2014.