This article first appeared in The Edge Financial Daily on September 21, 2018
Scicom (MSC) Bhd
(Sept 20, RM1.83)
Maintain buy with an unchanged target price (TP) of RM2.29: Scicom (MSC) Bhd provides business process outsourcing (BPO) to various corporations as well as the back-end solution to the Malaysian government’s one-stop visa centre for foreign students known as Education Malaysia Global Services (EMGS). It has also received the Cambodian tourism management system contract earlier this year. That could open doors for other similar contracts. It serves end customers from 86 countries and derives 70% of its sales out of Malaysia.
Scicom was set up in 1997 as a call centre and has over the years evolved to become one of the largest BPO companies in Malaysia and Sri Lanka. It hires 2,800 workers to serve about 50 customers from different countries. Its diverse customer base includes companies from the gaming, aviation, telecommunication and consumer industries. On top of that it has the capability to provide security-related solutions to government agencies.
Scicom has been profitable every year since listing. Its financial year 2013 to 2017 (FY13-FY17) revenue compound annual growth rate (CAGR) was 10% and 32% for net profit. From FY14 onwards, the company included a new stream of income from the provision of back-end solution to EMGS, which is under a multi-year concession that it started since 2013. Based on the dividend per share (DPS) declared in the past five years, Scicom has been paying out between 60% and 89% of its net profits. Dividend yield is estimated at 5%.
Scicom has been in an undisrupted streak of net cash position for more than 10 years due to its healthy operating cash flow that grew from RM12.7 million in 2013 to RM26.53 million. It also incurred low capital expenditures that ranged from RM3.5 million to RM8 million during the period. Its latest cash pile stands at RM52.3 million.
Maintain “buy” with an unchanged TP of RM2.29, which is pegged at FY19 earnings per share of 12.5 sen at 18.3 times price-earnings ratio. We believe that the healthy replenishment of jobs and recovery in its existing business segments should help Scicom achieve better earnings in FY19. — MIDF Research, Sept 20