IRIS CORPORATION BERHAD (0010)

Fundamental value minimum 60sen. Target ABOVE 80sen.

Surprise, surprise. The long awaited NIIS project worth RM1.16b has finally been awarded to IRIS. What was not surprising was its share performance last Friday before the project award announcement - rising 10%, amidst a falling KLCI, with share traded volume nearly double the previous day.

This rise has resulted in a breakout of its cup and handle pattern, with the next target (using cup depth) at around 60 sen. Resistance 1: 45sen, Resistance 2: 55sen. Of course, I would not be surprised if Tuesday opens with a huge gap up bypassing both the short term resistances and the target.

What about fundamentals? Let's do a simple back-of-the-envelope calculations with the following assumptions:
1) Without NIIS, IRIS' net profit for existing non-NIIS related businesses is the same in 2020 and 2021 (due to Covid19 restrictions) at RM10.0m
2) We use a conservative 20% profit margin from NIIS, spread out evenly in 4.5 yrs. Resulting in additional annual net profit of RM 51.5m.
3) 3.04 billion shares outstanding unchanged

This approximates a conservative 2021 EPS of around 2.02sen.

Assuming IRIS PER for 2021 is 30 (since MYEG PER is around 26-32), this results in share price of 61 sen. Very close to the target breakout from the cup and handle pattern.

But wait.. Didn't I put a target of AT LEAST 80c? Tech companies have VERY VERY large profit margins. Even MYEG has a profit margin of around 50%. My assumptions for the NIIS project is VERY CONSERVATIVE. Likely profit margins would be much higher. Secondly, IRIS' other businesses have been growing steadily in the past year. We did not take into account existing business growth.

This is not a buy call. This is my opinion on IRIS and you are entitled to have your own opinions.