Microlink cautious for FY16 as clients may reassess spending on software

by **Cals** Mon 14 Sep 2015, 15:30

Microlink cautious for FY16 as clients may reassess spending on software

By Chester Tay / theedgemarkets.com | September 14, 2015 : 12:34 PM MY

KUALA LUMPUR (Sept 14): [size=16]Microlink Solutions Bhd ([You must be registered and logged in to see this image.] Valuation: 0.20, Fundamental: 1.70) is cautious of its performance for financial year ending Mar 31, 2016 (FY16), as its customers are reassessing their spending budget on software development due to unconducive economic environment.

While declining to provide additional financial guidance for FY16, the group’s chief executive officer cum executive director Yong Kar Seng Peter said he hoped Microlink’s performance would not incur more losses for the whole financial year.

“We hope that we can secure a few major contracts for the remaining quarters of FY16, but we are still cautious of our outlook as our customers may reassess their spending, because of the uncertainties in our economic now,” told reporters after the annual general meeting today.

“Theoretically, the weakening ringgit might do us some good, because our major competitors are all oversea-based, we could be seen as cheaper. But we cannot rule out the possibility of these competitors cutting their price further, when they are desperate for customers,” he added.

Yong further elaborated that the contract that is in discussion now could be worth at least RM50 million, and his management wishes to finalised them within FY16.

Moreover, despite the group’s costs being denominated in ringgit, he noted the weaker currency might eventually impact its hardware costs, as products sources from supplier would have exposure to foreign currency.

Microlink’s first quarter ended June 30, 2015 (1QFY16) posted a net loss of RM723,000, against a net profit of RM1.42 million in previous corresponding quarter; despite a four times increase in revenue to RM36.94 million, from RM8.03 million.

Yong said this is because the group did not secure any major contract in 1QFY16. Despite there having been a significant increase in hardware distribution, the margin for this business is thin.

“Our business performance is volatile in the past, because the main source of revenue is project based, if we got a major contract, the earnings would go up substantially, otherwise it will move conversely,” Yong explained.

Therefore, he said the group is working to involve more in the maintenance and services (M&S) segment, the business that feeds Microlink recurring income.

“Currently, this segment (M&S) is giving us about 30% of revenue, we are looking to push that up to 50% in the next five years,” Yong said.
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