ATIC: At blazing speed
Strong 32% average 2015-16F EPS growth on high IT requirements
On the back of a strong 2015-16F average EPS growth of 32%, Anabatic Technologies (ATIC), a leading fully-integrated IT company, is expanding at high speed, and is one of the fastest growing stocks in our coverage universe. Apart from IT infrastructure development projects related to branchless banking, top line growth support also comes from large banks, which are on the verge of upgrading their core banking systems, particularly as some banks are still relying on 20-year-old legacy banking IT system.
Beneficiary of new ruling on branchless banking
ATIC currently enjoys the benefits of the new branchless banking regulation, specifically aimed at serving customers in remote areas. Note that Indonesia’s bank account penetration rate is just 20%, one of the regions’ lowest (East Asia & Pacific: 42%) (exhibit 51). In 1Q15, four banks: BBRI, BMRI, BBCA and BTPN had launched their branchless banking initiatives. With government proactive in extending formal financial access to the unbanked and under-banked sections of the country, ATIC’s business segments: Mission Critical System Integration (MCSI) (23% 2014’s sales), Business Process Outsourcing (BPO) (10%), Information Technology Outsourcing (ITSO) (0.3%) and Value-Added Distribution (VAD) (67%) are set to benefit from banks’ additional IT-related capex. Note that bank-related incomes accounted for some 42% of ATIC’s 2014 earnings (exhibit 14), which should rise to 48% by 2016F.
Rising margins on improved business mix
ATIC will use 60% of its IPO proceeds for business development, including OSL (70% GPM), which generated 14.6% of total 2014 license revenues (rest: 3rd party software licenses (8-20% GPM). Going forward, rising OSL contribution should provide sustainable margins and growth support for ATIC. Additionally, we expect rising contribution from BPO with high GPM of 20.8% to raise ATIC’s overall average GPM from 15.4% in 2014 to 18.3% by 2016F.
Competitive advantages: Experience, reliability and affordability
Since its inception in 2002, ATIC has established long-term relationships with notable clients such as BMRI (2002), BBRI (2002), BBCA (2003) and Avrist (2004). Today, the management, with plenty of industry experience (exhibit 6), continues to attract more clients including non-banking corporates, thanks to competitive pricing. With locally sourced HR, ATIC can charge up to two thirds less for similar standard operations versus its foreign competitors. In addition, given the banking sector is heavily regulated, ATIC’s local knowledge on BI regulations provides a competitive advantage over foreign competitors.
High growth IT company with 52% upside potential
Given recent strategic alliance with TIS Japan, also a 20% shareholder in ATIC through IPO, the company plans to tap into Japan’s banking IT solutions together with Temenos. This should help market outperformance in the past month (exhibit 5) to persist. Based on simple average DCF and PER valuations (exhibits 33-34), we derive a TP of IDR800, reflecting 52% upside potential. Thus, we initiate coverage on ATIC with a BUY. Risks: implementation delays. $ATIC