PP 7767/09/2010(025354)

Malaysia RHB Research

Institute Sdn Bhd
A member of the
RHB Banking Group
New Listing Company No: 233327 -M

13 July 2010
EA Holdings Berhad
MARKET DATELINE

Offer Price : RM0.25

Public Issue Of 40m New Shares And Offer For Sale Of 18m Fair Value : RM0.27

Table 1: Investment Statistics Bloomberg: EAHB MK

Net EPS
FYE Turnover Profit EPS Growth PER P/NTA P/CF ROE Gearing GDY
Dec (RMm) (RMm) (sen) (%) (x) (x) (x) (%) (x) (%)
2009 13.9 3.6 3.2 87.5 8.4 1.7 8.2 23.1 Net Cash -
2010f 21.7 4.7 3.0 -4.1 9.0 1.7 8.8 20.5 Net Cash -
2011f 26.6 6.0 3.9 27.1 6.9 1.4 7.0 20.7 Net Cash 2.0
2012f 29.7 6.8 4.4 13.6 6.1 1.2 6.1 19.2 Net Cash 2.0
Valuations based on estimated fair value of RM0.27/share

Issued capital (m shares) 155 (RM0.10 par) Market capitalisation (RMm) 41.9

♦ Background. EA Holdings (EAH) is involved in providing software solutions, LISTING DETAILS

sales and distribution of RFID (Radio Frequency Identification) and ICT
Listing Sought : Ace Market
services. The company was established in 2006, as an ICT solutions provider
and thereafter provided automated invoices processing solutions. The
company’s subsidiaries, EA MSC and CSS MSC have MSC Malaysia status Listing Date : 20th July 2010

which gives them tax-free incentives for a period of 5 years.

♦ ICT to register stronger growth in 2010. According to National ICT Public Issue : 40.0 shares
including:
Association of Malaysia (PIKOM), ICT spending is expected to grow 8% in
-2.0m to public
2010 driven by stronger corporate and consumer spending and higher IT -7.0m to eligible
infrastructure spending by public sectors. parties
-31.0m for
♦ Risks. We believe EAH risks’ are: 1) the highly competitive market; 2) placement
dependence on projects from the public sector; and 3) project risks.

♦ Forecasts. We estimate FY09-12 revenue CAGR of 28.9% driven mainly by: MAJOR SHAREHOLDER
1) increasing demand for IT infrastructure services from the public sector; 2)
Mohammad Sobri………………53.1%
higher adoption in the private sector for its RFID and Access Control system
technology to improve efficiency; and 3) higher demand for software
solutions due to system upgrades and IT replacement cycles. Despite the
potential pressure on margins due to the highly competitive market, we
expect FY10-12 EBITDA margins to remain flat at around 23% p.a. due to
higher volume sales for higher-margin products i.e. Lattice Wireless and
Quatis Location System.

♦ Investment case. We estimate FY09-12 EPS CAGR of 23.1%. While we are

positive on the company’s ability to provide a diverse range of IT system
products and technological devices, we note the potential earnings risk due
to the highly competitive market especially for software solutions and ICT
consultancy. We have derived a target PER of 7x for EAH. This implies a
23.1% discount to peers’ weighted average FY11 PER of 9.1x to reflect its
small market capitalisation. Accordingly, we estimate a fair value of RM0.27,
based on 7x FY11 EPS. Yap Huey Chiang
(603) 92802166
Please read important disclosures at the end of this report. yap.huey.chiang@rhb.com.my

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 13 July 2010

♦ Background. EA Holdings Bhd (EAH) is involved in providing software solutions, sales and distribution of
RFID (Radio Frequency Identification) and ICT services. The company was established in 2006, as an ICT
solutions provider and thereafter provided automated invoices processing solutions. The company’s
subsidiaries, EA MSC and CSS MSC have MSC Malaysia status which gives them tax-free incentives for a
period of 5 years.

Table 2: Group Structure

Subsidiary and associates Shareholding Operations

EASS 100% E-business consultancy and system integration

CSS MSC 100% Business Intelligence software and development, IT service and management
consulting

EA MSC* 100% Research, design, development, sales and distribution of RFID tracking
systems

* A subsidiary of EASS
Source: IPO prospectus

♦ Products and services. EAH derives its income from three main segments:

1) Software solutions. The company provides solutions for various financial institutions for its Business
Intelligence and Data warehousing software as well as consultancy services. The company collaborates
with ReadSoft, a leading provider of automated document processing solutions that offers automated
invoices processing.

2) RFID and Access Control Systems. EAH provides devices using the RFID technology to track or
identify the tag-bearing object using radio frequency. Key products include Long Range Active Tag or
RAIN Tag, Lattice Wireless Access Control System (LWACS) and fingerprint recognition using biometric
technology.

3) ICT Consultancy Services. The company provides ICT system consulting services and engineering
turnkey business processes with technology automation. Four main key areas of expertise include ICT
infrastructure, IT systems management, and project management and mainframe services.

Chart 1: Business Segment Revenue Contribution

RFID and
A ccess Co ntro l So ftware
System So lutio ns
15% 17%

ICT Services
68%

Source: Company

EA HOLDINGS 2 BERHAD

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 13 July 2010

Sector Prospects

♦ ICT to register stronger growth in 2010. According to National ICT Association of Malaysia (PIKOM), ICT
spending is expected to grow 8% in 2010 driven by IT replacement cycles and equipment upgrades.
Furthermore, we highlight key drivers for the local industry:

1) Government incentives. We note that unutilised spending for ICT from the 9th Malaysia Plan is
expected to be fully utilised by end 2010. Also, various incentives are given such as tax benefits to new
broadband subscriptions as well as monetary support to government servants for PCs. We believe these
developments are likely to encourage further IT spending from both the private and public sectors.

2) Technology-driven implementations. We believe that the growing importance of ICT as well as the
roll-out of the High Speed Broadband (HSBB) would further fuel the demand for IT system integrators
and software solutions as the need for faster and more efficient equipment is needed. Furthermore, the
launch of new applications such as the GST and tax monitoring would further require corporations to
invest in IT.

♦ Business risks. Risk includes:

1) Highly competitive market – EAH operates in a fragmented industry with more than >100 players
locally and internationally offering similar applications and services. We believe competition will be intense
for its software and system integrators given low entry barriers. However, we understand the RFID and
Access Control Systems products reap higher-margins as it requires higher technological skill and hence
will face less competition.

2) Project risks – We note that the company’s customers are usually on a project basis where the
services are based on fixed contracts where the price is determined at bid time based on estimates. Risks
may occur if the company underestimates costs or incurs cost overruns that may affect earnings.

3) Dependence on the public sector – While the company is poised to ride on the public sector’s ICT
upgrades, we reckon this also poses a risk to the company as a large share of its revenue is derived from
the public and GLCs (see Chart 2). Lower-than-expected IT spending from the public sector may affect the
company’s turnover in the event it does not increase its customer base.

Chart 2: Revenue by Sectors

Others* Go vernment and

37% GLCs
46%

Financial
Services
17%

* consists of various customers i.e. construction and resellers

Source: Company

♦ Future roadmap. Management is planning to allocate RM5.0m of the IPO proceeds to be used for: 1)
Business expansion i.e. expanding the RFID product lines; 2) Enhancing software solutions with new
added features i.e. data mining; 3) Expanding its presence in the regional market.

EA HOLDINGS 3 BERHAD

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 13 July 2010
Table 3: Utilisation Of Proceeds

Proposed utilisation RMm Time Frame for utilisation from date of listing

Business expansion 3.0 <24 months

R&D 2.0 <24 months

Working capital 3.5 <12 months

Estimated listing expenses 1.5 Upon listing

Total 10

Source: Company

FORECASTS AND VALUATIONS

♦ Forecasts. We estimate FY09-12 revenue CAGR of 28.9% driven mainly by: 1) increasing demand for IT
infrastructure services from the public sector; 2) higher adoption in the private sector for its RFID and
Access Control system technology to improve efficiency; and 3) higher demand for software solutions due
to system upgrades and IT replacement cycles. Despite the potential pressure on margins due to the
highly competitive market, we expect FY10-12 EBITDA margins to remain flat at around 23% p.a. due to
higher sales for its higher-margin products i.e. Lattice Wireless and Quatis Location System.

♦ Valuations. We estimate FY09-12 EPS CAGR of 23.1%. While we are positive on the company’s ability to
provide a diverse range of IT system products and technological devices, we note the potential earnings
risk due to the highly competitive market especially for software solutions and ICT consultancy. We have
derived a target PER of 7x for EAH. This implies a 23.1% discount to peers’ weighted average FY11 PER of
9.1x to reflect its small market capitalisation. Accordingly, we estimate a fair value of RM0.27, based on
7x FY11 EPS.

Table 4: Peers Comparison

Market Cap FY11 PER
Company Bloomberg ticker (US$m) (x)

Maxima Holdings MXM LN 34.7 9.6

Sungho Electronics 043260 KS 34.7 4.2
Solutions 30 AL 530 FP 34.1 15.6
Orad Hi-Tech Systems Ltd OHT GR 33.9 7.1
Market cap-weighted average 9.1
Source: RHBRI, Bloomberg

Table 5. Earnings Forecasts

FYE Dec (RMm) 2009 2010f 2011f 2012f
Software solutions 2.4 3.1 3.7 4.1
ICT Services 9.4 12.2 14.7 16.1
RFID and Access Control Systems 2.1 6.4 8.3 9.5
Turnover 13.9 21.7 26.6 29.7
Turnover growth (%) 67.6 56.0 22.9 11.6
EBITDA 3.9 4.8 6.1 6.9
EBITDA margin (%) 27.9 22.2 22.9 23.3
Dep & Amort (0.2) (0.0) (0.0) (0.1)
EBIT 3.7 4.8 6.1 6.9
EBIT margin (%) 26.5 22.0 22.7 23.1
Pretax Profit 3.7 4.8 6.1 6.9
Tax (0.0) (0.0) (0.1) (0.1)
Net Profit 3.6 4.7 6.0 6.8
Source: Company data, RHBRI

EA HOLDINGS 4 BERHAD

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The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15%
or more over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing
to take on higher risks.

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Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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EA HOLDINGS 5 BERHAD

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 13 July 2010

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