Is Cuscapi an investment opportunity?

Value Investing Case Study 88-1: Cuscapi Berhad - A decade of transformation and a promising turnaround in the IT Solutions market.   

Over the past decade, Cuscapi Berhad’s (Cuscapi or the Group) journey has been one of transformation and resilience. Once a broad-based IT solutions provider, the company has reinvented itself as a niche-focused player in the rapidly evolving software sector. 

It has embraced cutting-edge digital technologies such as QR ordering, blockchain-based payment systems, and cloud-based solutions. Cuscapi has thus positioned itself to capitalize on the growing demand for automation and data-driven operations.

The company’s strategic pivot post-2021 has been pivotal in reversing years of financial challenges. This was achieved by improving operational efficiencies, streamlining business models, and focusing on high-margin products. 

Cuscapi has demonstrated its ability to adapt and thrive in a competitive landscape. With a growing footprint in Southeast Asia and beyond, the Group now stands poised for sustained recovery and long-term growth. 

This article delves into Cuscapi’s transformation. I examine its evolving business profile, market potential, operating performance, and challenges. 

My findings suggest that its turnaround seemed sustainable. However, I am unsure whether there is any margin of safety at its current market price. 

Should you go and buy it? Well, read my Disclaimer. 

Contents

• Background

• Operating performance

• Financial position

• Valuation

• Conclusion

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Background

Over the past decade, Cuscapi has evolved from a traditional IT solutions provider to a niche-focused Group leveraging innovative digital technologies to drive growth and value creation in targeted industries.

Its transformation includes diversifying its offerings and expanding its geographic reach. Its operations now span Southeast Asia, China, and beyond. This strategic shift has been pivotal in positioning the company within the rapidly growing IT solutions industry.

Key milestones over the past decade include:

• Expansion into emerging markets like Vietnam, Indonesia, and the Philippines.

• Introduction of the REV self-ordering system, which addresses the demand for operational efficiency in F&B.

• Embracing blockchain technology for payment solutions.

Chart 1 summarises the changes. Malaysia made a much bigger contribution in 2024 than in the other years. The company did not provide data on its product revenue, so I could not analyse the contribution of the various products or technologies. 

Note that in 2024, Cuscapi changed its financial year end from June to December. To provide an “apple-to-apple” comparison, I estimated the 12 months' results ended June 2024 to provide the nominal 2024 performance. Unless stated otherwise, the 2024 performance in this article refers to this nominal performance. 

Chart 1: Changes in business profile over the past decade

Note: The 2024 performance was based on the Sept YTD 2024 performance scaled to the 12-month nominal performance ended Jun 2024.

Market characteristics

Cuscapi operates within the broader IT solutions market, focusing on high-growth niches such as:

• Restaurant and retail management systems.

• Artificial intelligence-driven customer analytics.

• Blockchain-based payment and loyalty systems.

This market's growth is driven by increasing demand for automation, data-driven decision-making, and seamless payment solutions in F&B and retail. This is a growth sector as exemplified by the following: 

“South East Asia software market size reached USD 10.9 Million in 2024…exhibiting a growth rate (CAGR) of 15.7% during 2025-2033. The rapid advancements in technology, such as artificial intelligence, machine learning, blockchain, and cloud computing, which increase the demand for new and innovative software solutions, is driving the market.” IMARC

“The Malaysia ICT market size is estimated at USD 26.61 billion in 2025…at CAGR of 8.31 % during the forecast period (2025 – 2030).” Mordor Intelligence

Operating performance

You can see from the left part of Chart 2 that there was a general decline in revenue from 2015. But this trend seemed to have reached the bottom around 2021/23 with a turnaround in 2024.

The positive sign is that profits are improving. They went from losses for most of the past decade to profits in 2024. We see similar improving trends for the various return metrics, as shown in the right part of Chart 2.

Chart 2: Performance Index and Returns

Cuscapi attributed its turnaround to several key factors:

• Shift in revenue sources. This reflects a stronger emphasis on high-margin technology solutions such as QR ordering.

• Operational efficiency improvements. A consistent focus on cost optimization and operational efficiency contributed to improved margins and profitability.

• Streamlining of business operations. Efforts to reduce unnecessary expenditures, coupled with a streamlined operation, helped curb costs.

• Resolution of legacy issues. The company addressed significant legal and financial challenges, such as settling longstanding liabilities.

Looking at Chart 3, this turnaround in the operating efficiencies seems to have started in 2021. You can see the improving gross profit margin and SGA margin. From an operating profit perspective, there was an uptrend in the contribution margin and a reduction in the fixed cost.

Chart 3: Margins and Operating Profit

Note to Op Model. I broke down the operating profits into fixed costs and variable costs.

• Fixed cost = SGA, Depreciation & Amortization and Others.
• Variable cost = Cost of Sales that excluded Depreciation & Amortization.
• Contribution = Revenue – Variable Cost.
• Contribution margin = Contribution/Revenue.

It would seem that Cuscapi’s turnaround post-2021 was due to its focus on advanced technology, improved operational efficiencies, and alignment with long-term market trends. 

• The Group aligned itself with global technological advancements, emphasizing digital payment systems, cloud-based solutions, and QR ordering platforms. These innovations cater to long-term industry trends like digital transformation and automation.

• The significant improvements in gross profit margins and operating cost reductions indicate better operational efficiencies. The introduction of subscription-based revenue models, ensuring recurring income streams, further supports financial stability.

Are these sustainable? To be realistic, the above comments were from the 2023 Annual Report. However, I think that the trends from 2021 for various metrics such as revenue, contribution margin, and fixed costs support the argument for sustained recovery. 

Peer comparison

I compared Cuscapi's performance with several Bursa-listed companies that operate in the software or IT services sector based on their focus on technology and software solutions.

• GHL Systems (GHLSYS) offers payment solutions, including e-wallets, point-of-sale systems, and online payment gateways.

• Microlink Solutions (MICROLN) provides software development and IT solutions for banking, retail, and other industries.

• Mesiniaga (MSNIAGA) is a systems integrator offering IT solutions and managed services, including cloud services, enterprise security, and digital transformation.

• Willowglen MSC (WILLOW) develops industrial monitoring and control systems, focusing on SCADA (Supervisory Control and Data Acquisition) software.

You can see from Table 1 that Cuscapi's 2023 revenue is the lowest among its peers. It was also the only one with a negative revenue growth rate. 

Table 1: Peer revenue

I looked at the trends of 4 metrics to get a sense of how well Iris performed compared to its peers. Refer to Charts 4 and 5. 

Cuscapi’s performance is the worst among the peers on all the metrics. While there were improving trends post-2021, Cuscapi’s performances were still worse than their peers. 

Chart 4: Bursa Peer Return on Capital and EBIT Margin

Chart 5: Bursa Peer Levered Free Cash Flow Margin and EPS

Case Notes Cuscapi illustrates the challenges in assessing whether a turnaround is sustainable. To do this, focus on long-term trends, and operational and financial fundamentals.  A combination of analysis, peer benchmarking, and regular monitoring can help reduce uncertainty about whether the turnaround can be sustained.  Some of the steps to evaluate and support a turnaround include: Analysing key metrics over time. Validating the business model.  Focusing on execution milestones. Conducting peer comparisons. Stress-testing the business. Evaluating governance and risk management. As you can see, there are many issues to consider when looking at turnarounds. You need to carry out a fundamental analysis to flesh out the nuances. This requires expertise and time.  Visualizing a company’s business performance and investment risk (by comparing market price with intrinsic value) is one way to shortcut the process. The Fundamental Mapper helps investors make informed decisions as it provides such insights in an easy-to-see format. You can see the position of Cuscapi as of 27 Jan 2025 in the Fundamental Mapper chart below. Download the Fundamental Mapper app now on Xifu to get investment insights into Bursa Malaysia companies   PS: The Fundamental Mapper gives you a first-cut picture. For a company in the Quicksand quadrant, it is not an obvious investment choice. In my detailed valuation of the company, I have shown that its future will be better than the past. This will ensure that it will be able to turn around and move into the Gem or Goldmine quadrants.

Case Notes

Cuscapi illustrates the challenges in assessing whether a turnaround is sustainable. To do this, focus on long-term trends, and operational and financial fundamentals.  A combination of analysis, peer benchmarking, and regular monitoring can help reduce uncertainty about whether the turnaround can be sustained. 

Some of the steps to evaluate and support a turnaround include:

• Analysing key metrics over time.

• Validating the business model. 

• Focusing on execution milestones.

• Conducting peer comparisons.

• Stress-testing the business.

• Evaluating governance and risk management.

As you can see, there are many issues to consider when looking at turnarounds. You need to carry out a fundamental analysis to flesh out the nuances. This requires expertise and time. 

Visualizing a company’s business performance and investment risk (by comparing market price with intrinsic value) is one way to shortcut the process. The Fundamental Mapper helps investors make informed decisions as it provides such insights in an easy-to-see format.

You can see the position of Cuscapi as of 27 Jan 2025 in the Fundamental Mapper chart below.

Download the Fundamental Mapper app now on Xifu to get investment insights into Bursa Malaysia companies

 

PS: The Fundamental Mapper gives you a first-cut picture. For a company in the Quicksand quadrant, it is not an obvious investment choice. In my detailed valuation of the company, I have shown that its future will be better than the past. This will ensure that it will be able to turn around and move into the Gem or Goldmine quadrants. 

Case Notes

Cuscapi illustrates the challenges in assessing whether a turnaround is sustainable. To do this, focus on long-term trends, and operational and financial fundamentals.  A combination of analysis, peer benchmarking, and regular monitoring can help reduce uncertainty about whether the turnaround can be sustained. 

Some of the steps to evaluate and support a turnaround include:

• Analysing key metrics over time.

• Validating the business model. 

• Focusing on execution milestones.

• Conducting peer comparisons.

• Stress-testing the business.

• Evaluating governance and risk management.

As you can see, there are many issues to consider when looking at turnarounds. You need to carry out a fundamental analysis to flesh out the nuances. This requires expertise and time. 

Visualizing a company’s business performance and investment risk (by comparing market price with intrinsic value) is one way to shortcut the process. The Fundamental Mapper helps investors make informed decisions as it provides such insights in an easy-to-see format.

You can see the position of Cuscapi as of 27 Jan 2025 in the Fundamental Mapper chart below.

Download the Fundamental Mapper app now on Xifu to get investment insights into Bursa Malaysia companies

 

PS: The Fundamental Mapper gives you a first-cut picture. For a company in the Quicksand quadrant, it is not an obvious investment choice. In my detailed valuation of the company, I have shown that its future will be better than the past. This will ensure that it will be able to turn around and move into the Gem or Goldmine quadrants. 

Case Notes

Cuscapi illustrates the challenges in assessing whether a turnaround is sustainable. To do this, focus on long-term trends, and operational and financial fundamentals.  A combination of analysis, peer benchmarking, and regular monitoring can help reduce uncertainty about whether the turnaround can be sustained. 

Some of the steps to evaluate and support a turnaround include:

• Analysing key metrics over time.

• Validating the business model. 

• Focusing on execution milestones.

• Conducting peer comparisons.

• Stress-testing the business.

• Evaluating governance and risk management.

As you can see, there are many issues to consider when looking at turnarounds. You need to carry out a fundamental analysis to flesh out the nuances. This requires expertise and time. 

Visualizing a company’s business performance and investment risk (by comparing market price with intrinsic value) is one way to shortcut the process. The Fundamental Mapper helps investors make informed decisions as it provides such insights in an easy-to-see format.

You can see the position of Cuscapi as of 27 Jan 2025 in the Fundamental Mapper chart below.

Download the Fundamental Mapper app now on Xifu to get investment insights into Bursa Malaysia companies

 

PS: The Fundamental Mapper gives you a first-cut picture. For a company in the Quicksand quadrant, it is not an obvious investment choice. In my detailed valuation of the company, I have shown that its future will be better than the past. This will ensure that it will be able to turn around and move into the Gem or Goldmine quadrants. 

Financial position

I have concerns about Cuscapi’s financial position. While it has some positive points, they were offset by the negative points. The positive points were:

• As of Sep 2024, it had a 3.4 % debt-equity ratio. This has come down from its 2021 high of 21.1 %. 

• Over the past decade it had an average Reinvestment of RM 2 million per annum. This is about 11% of the 2024 NOPAT.  Reinvestment = CAPEX & Acquisitions – Depreciation & Amortization + increase in Net Working Capital. A low Reinvestment rate meant that a big part of NOPAT could be distributed to shareholders.

The negative points included the following.

• As of Sep 2024, it had RM 3.6 million cash. This is equal to 4 % of its total assets. 

• It did not generate enough cash flow from operations over the past decade. It had to resort to issuing new equity to fund its CAPEX. Refer to Table 2. The only positive point is that the company was sensible not to pay any dividends or buy back its shares. 

• In addition to having a cumulative loss over the past decade, it generated a cumulative negative cash flow from operations as shown in Table 2.

Table 2: Sources and Uses of Funds 2014 to 2025

Valuation

The value of Cuscapi would depend on the assumptions made about how it can sustain its growth. Rather than take this route, I reverse-engineered its market price to see what it represented.

The market price of Cuscapi as of 24 Jan 2025 was RM 0.23 per share. My valuation model showed that this price could be represented by the following assumptions.

• A base revenue of RM 39 million as per the LTM Sep 2024 revenue.

• A revenue growth rate of 12% in Year 1 that reduces proportionately to 4% in the terminal year (Year 6).

• Continuing improvement in the operating efficiency. The base contribution margin would be the 2021 to 2024 average margin that would improve by 20 % in the terminal year.

• The Group stated that it had RM 25 million in tax assets as of FYE 2023. I assumed that these would result in zero taxes for Year 1. Thereafter the tax rate would be 24%. 

I would consider the reverse-engineering assumptions a bit on the optimistic side based on the picture shown in Chart 6. You can see that the projected Free Cash Flow is higher than the projected log-normal historical trend line. Furthermore, the terminal revenue is much higher than the 2024 revenue. 

As such I would consider that the market price reflects the business value. 

Chart 6: Projection

Note that the projected Free Cash Flow dipped in Year 2 because Year 1 was assumed to be tax-free due to the accumulated losses. 

Valuation model

I valued Cuscapi based on a multi-stage valuation model as shown in Table 3. 

The basic equations used in the model are:

FCFF = EBIT(1 – t) – Reinvestment.

EBIT = Revenue X Contribution margin – Fixed cost. The earning was based on the business model shown in the right part of Chart 2.

Reinvestment was derived from the Reinvestment margin.

Table 3: Sample calculation

Notes

a. Straight-line reduction

b. Pegged to growth rate

c. Assumed proportionate improvement

d. Assumed growth at the terminal rate

e. Revenue X Margin and after accounting for Fixed costs. Zero tax for Year 1.

f. Assumed no improvement

g. b X f

h. FCFF for each year = e - g

j. Assumed constant D/E ratio. Refer to the WACC table

k. NPV for each year = (h X j)

l. Terminal for the year discounted at terminal growth rate

m. 5 years NPV + terminal value

n. Inclusive of any excess TCE. Non-operating assets, MI, and Debt 

o. Based on the number of shares

The cost of funds was based on the first page results of a Google search for “Cuscapi WACC”. Refer to Table 4.

Table 4: Estimating the cost of funds

Risks and limitations

There are two aspects to the analysis that you have to consider:

• Valuation.

• General business issues.

Let me cover the valuation issues first. Looking at the right part of Chart 3, you can see that to grow its earnings, Cuscapi has several options:

• Grow revenue.

• Margin expansion through improving operating efficiency.

• Reduce fixed costs.

• Various combinations of the above.

There are limits to improving operating efficiency and cost reduction. The reverse-engineering model resulted in the following:

• Past decade contribution margin ranging from 58 % to 70 % compared to the 2024 margin of 67 %.

• 20 % fixed cost margin in the terminal year compared to the 2024 margin of 21 %.

You can see that these were close to the respective 2024 margins But I only assumed a 10% revenue growth whereas in the past decade, the Group had achieved an annual revenue growth rate of as high as 20%.

Looking at the peer performance, you could argue that the Group could achieve a higher revenue growth rate than my 10%. While this is possible, there is not enough track record post-2021 to support this. You can understand why I prefer to wait for better revenue growth before investing in this company. 

Apart from the above valuation risks, there are other business issues that you have to consider. These can be summarized as:

• Market competition. The IT solutions industry is highly competitive. Numerous players are offering similar services. Competing against larger, more established firms could limit Cuscapi's growth.

• Financial health and profitability. Despite recent improvements, Cuscapi's historical financial performance has shown periods of significant losses. 

• Dependence on technology trends. Cuscapi's success depends on the adoption and longevity of its technologies. Rapid changes in tech trends could render some solutions obsolete.

• Geographical revenue risks. While Cuscapi has diversified its geographical presence, a significant portion of its revenue is concentrated in Malaysia. 

Conclusion

Cuscapi’s transformation over the past decade reflects its resilience and adaptability in a rapidly evolving IT solutions market. 

The turnaround post-2021 was driven by improved operational efficiency, alignment with global technology trends, and a focus on high-margin products.  However, sustainability remains a question. While the company has demonstrated improved performance, including profitability in 2024, challenges persist:

• Revenue growth. Although revenues have rebounded, Cuscapi still lags behind its peers in scale and growth rates.

• Operating margins. Improvements in gross profit margins and reduced fixed costs provide optimism, but there are limits to these.  

• Financial position. I have concerns about its financial strengths. With limited cash reserves and reliance on equity funding, this will depend on consistent operational performance and revenue growth.

• Peer comparison. Cuscapi trails its competitors across key metrics.

While Cuscapi's turnaround is encouraging, the company must continue to scale its revenue and enhance margins. My reverse engineering showed that the market price reflects assumptions on steady growth and operational efficiency improvements.

For potential investors, Cuscapi remains a turnaround story with risks. The company has shown potential for sustained recovery, but its track record post-2021 is still developing. A wait-and-see approach, focusing on future revenue growth and market performance, may be prudent before committing to this investment.

Investment thesis

Cuscapi is positioned as a high-risk, high-reward turnaround story:

• Upside potential. Innovations, improved efficiencies, and a focus on high-growth markets provide a foundation for sustainable growth.

• Catalysts. Strong execution, scaling recurring revenues, and further penetration into key markets could accelerate recovery and valuation growth.

• Risks. Execution challenges, financial constraints, and competitive pressures require close monitoring.

For investors seeking exposure to Southeast Asia’s growing IT solutions market, Cuscapi could be an opportunity. The company’s turnaround shows promise. But caution is warranted given its relatively recent profitability recovery and financial position.

Case Notes An investment thesis is a vital tool for any investor because it provides clarity, focus, and direction in decision-making. Learning how to draft an investment thesis is crucial for investors, especially those who want to make well-informed, rational, and successful investment decisions.  It defines your reasoning. A clear thesis encourages disciplined decision-making. It helps assess risks. It provides a benchmark to evaluate whether the investment is performing as expected. An investment thesis is not set in stone - it is a living document. If the facts change, you can update your thesis or adjust your investment accordingly. This approach keeps you grounded and aligned with your investment principles.

Case Notes

An investment thesis is a vital tool for any investor because it provides clarity, focus, and direction in decision-making. Learning how to draft an investment thesis is crucial for investors, especially those who want to make well-informed, rational, and successful investment decisions. 

• It defines your reasoning.

• A clear thesis encourages disciplined decision-making.

• It helps assess risks.

• It provides a benchmark to evaluate whether the investment is performing as expected.

An investment thesis is not set in stone - it is a living document. If the facts change, you can update your thesis or adjust your investment accordingly. This approach keeps you grounded and aligned with your investment principles.

Case Notes

An investment thesis is a vital tool for any investor because it provides clarity, focus, and direction in decision-making. Learning how to draft an investment thesis is crucial for investors, especially those who want to make well-informed, rational, and successful investment decisions. 

• It defines your reasoning.

• A clear thesis encourages disciplined decision-making.

• It helps assess risks.

• It provides a benchmark to evaluate whether the investment is performing as expected.

An investment thesis is not set in stone - it is a living document. If the facts change, you can update your thesis or adjust your investment accordingly. This approach keeps you grounded and aligned with your investment principles.

Case Notes

An investment thesis is a vital tool for any investor because it provides clarity, focus, and direction in decision-making. Learning how to draft an investment thesis is crucial for investors, especially those who want to make well-informed, rational, and successful investment decisions. 

• It defines your reasoning.

• A clear thesis encourages disciplined decision-making.

• It helps assess risks.

• It provides a benchmark to evaluate whether the investment is performing as expected.

An investment thesis is not set in stone - it is a living document. If the facts change, you can update your thesis or adjust your investment accordingly. This approach keeps you grounded and aligned with your investment principles.

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If the above article was useful, you can find more insights on how to make money in my e-book. The e-book is now available from Amazon, Kobo and Google Play.

PS: If you are in Malaysia or Singapore, the e-book can only be download from Kobo and Google Play. 

Disclaimer & Disclosure

I am not an investment adviser, security analyst, or stockbroker.  The contents are meant for educational purposes and should not be taken as any recommendation to purchase or dispose of shares in the featured companies.   Investments or strategies mentioned on this website may not be suitable for you and you should have your own independent decision regarding them. 

The opinions expressed here are based on information I consider reliable but I do not warrant its completeness or accuracy and should not be relied on as such. 

I may have equity interests in some of the companies featured.

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