Q2 FY7/26 results update
Prioritizing investment in human capital – Q1-2 FY7/26 results were mixed, with sustained high double-digit sales growth and stable high gross margins, with sustained improvement at the parent company level. However, this was offset by an accelerated recruitment profile, which resulted in negative YoY OP growth. Management appears to be prioritizing capacity expansion, which should position the company to pursue larger projects and potentially improve the sales mix further over time. However, near-term earnings visibility may remain limited, as utilization rates could remain temporarily subdued and further investment activities may continue into H2 FY7/26.
Outlook maintained
FY guidance unchanged – The company has maintained FY7/26 guidance, implying that new hires will become engaged quickly and utilization rates will recover. M&A has also been highlighted as a means to generate growth. We believe the demand environment remains favorable, as reflected in the company’s ongoing capacity expansion. The focus on winning high-margin projects should remain the key driver of earnings, alongside balancing investment costs.
Valuations – Based on our unchanged earnings estimates, the shares are trading at a PER FY7/27 of 5.2x (on +52.5% EPS growth YoY) and an FCF yield of 14.4%. Valuation, therefore, appears undemanding relative to the expected medium-term earnings growth and margin trajectory.
Full report available here
Description: INTLOOP is an upstream consulting services firm that utilizes both freelance and in-house consultants serving as subcontractors and directly contracting to market-leading consultancy firms and system integrators.
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