This article first appeared in The Edge Financial Daily on February 9, 2018

Scicom (MSC) Bhd
(Feb 8, RM1.63)
Maintain buy with an unchanged target price of RM2.36: Scicom (MSC) Bhd’s earnings for its first half of financial year 2018 (1HFY18) ended Dec 31, 2017 came in within expectations, making up 50% of our and 46% of consensus estimates. Scicom’s earnings for the period came up to RM20.4 million. An interim dividend of two sen per share was declared, bringing year-to-date dividend per share to four sen.

Net profit for 1HFY18 fell 15.6% to RM20.4 million as revenue declined by 14.3% to RM88.9 million. Revenue from Malaysia slid by 10.9% to RM24.1 million while revenue from the Philippines dropped by 25% to RM11.3 million in the second quarter of FY18 (2QFY18) ended Dec 31, 2017. The lower revenue was attributed to change in requirements and strategies by its business processes outsourcing (BPO) customers. On top of that, it is estimated to have processed a lower number of visa applications for foreign students looking to study in Malaysia.

Scicom’s 2QFY18 net profit declined 22.3% year-on-year (y-o-y) and 14.3% quarter-on-quarter. The lower quarterly profit was attributed to 2QFY18 revenue which slipped by 16.6% y-o-y to RM43 million. The lower revenue was because of a lower income from the Education Malaysia Global Services and a change in strategies from its BPO customers.

Scicom announced that it had been awarded a project to develop, implement, operate, and maintain a fully integrated Cambodia Tourism Management System by the country’s government. The project will take five years with an extension option of two years. We are positive about this announcement as we expect this project to contribute positively to the company from FY19 onwards. The income from this project will be tied to the number of air travellers to and from Cambodia.

We make no changes to our earnings estimates pending an upcoming briefing today. Our TP of RM2.36 is derived from 18.3 times price-earnings ratio of FY19 earnings per share forecast of 12.91 sen. — MIDF Research, Feb 8