“Efficient's revenue growth will be driven by the widening of its customer base as well as new business solutions being adopted by its existing customers in the immediate future,” the stockbroking house said in a research report.
Efficient provides outsourced data and document processing (DDP) and electronic bill presentment (EBP) services to a large corporate clientele in the country, predominantly in the banking, insurance and stockbroking industries.
According to a recent industry survey by Ernst & Young, the DDP market in Malaysia is expected to grow from about RM335mil now to RM680mil by 2008.
ECM Libra expects the DDP market to expand strongly in the next few years as more companies, in particular those in the general insurance and stockbroking industries, outsource their documentation, demand rises from existing customers for electronic billing, presentment and payment services, and new technologies are developed.
It said Efficient had a good range of quality customers such as Prudential Assurance Malaysia Bhd, Astro All Asia Network plc, TIME Dotcom Bhd, Public Bank Bhd, Great Eastern Life Assurance Bhd and Affin Bank Bhd, which had signed long-term contracts of between three and five years.
“Furthermore, these customers tend to be 'sticky' as once a company has outsourced its operations, it is costly and time consuming to change a service provider,” ECM Libra said.
Customers with long-term contracts accounted for more than 81% of Efficient's revenue for the year ended Dec 31, 2003. The company recorded a net profit of RM3mil on revenue of RM18.2mil for the year.
ECM Libra anticipates Efficient's growth in the medium to longer term to be further driven by the growth in the scale of its customers' operations, especially when large multinational banks and insurance companies locate their regional shared service centres in Malaysia.
“Efficient is in an enviable position to tap this new source of growth for the Malaysian economy,” it said.
Efficient's revenue has seen a compounded annual growth rate (CAGR) of 166% from 1998 to 2003 while its net profit has shot up at a CAGR of 626%.
“Given its expected CAGR of 35% over the next couple of years, which is above the overall market's 11% to 14% growth, we think a premium over the market price/earnings ratio is justified,” said ECM Libra, which has a “buy” call on the company's stock.