This article first appeared in The Edge Financial Daily on May 27, 2019

Scicom (MSC) Bhd
(May 24, 84 sen)
Maintain neutral with a lower target price of 96 sen: Scicom (MSC) Bhd’s nine-month financial year 2019 (FY19) core net profit (CNP) of RM16 million made up only 47% of our full-year estimate. The lower-than-expected figure can be partially attributed to the slower-than-expected recovery in its Education Malaysia Global Services (EMGS) segment. An interim dividend of one sen was announced, bringing year-to-date dividend per share (DPS) to 4.5 sen.

Third quarter of FY19’s CNP fell 32% year-on-year (y-o-y) to RM4.9 million while revenue increased by 4.5% y-o-y to RM40.6 million. The increase in its top line can be attributed to the growth in its business processes outsourcing (BPO) division but was offset by lower number of foreign student applications processed, which resulted in lower profitability.

We have excluded the foreign exchange loss of RM590,000 and bad debt of RM300,000 from our CNP calculations. Compared with the previous quarter, CNP was lower by 19.8% quarter-on-quarter (q-o-q) whereas revenue improved by 2.1% q-o-q.

For the first nine months, CNP fell 45.9% y-o-y to RM16 million as revenue for the period slid 6.8% y-o-y to RM118.9 million. The lower revenue can be attributed to the decline in business from both the BPO and EMGS segments.

Earnings estimates for FY19/FY20 slashed by -38%/-43% to RM21.2 million/RM22.8 million respectively.

We have lowered our earnings estimates to factor in lower profit margin and revenue growth in view of the slower-than-expected progress for its prospective e-solution projects. We have also lowered our DPS estimates to 5.5 sen and six sen from eight sen in FY19 and FY20 following the reduction in our earnings estimates. — MIDF Research, May 24