Scicom targets foreign worker tracking, SKIN contracts

This article first appeared in The Edge Malaysia Weekly, on July 15, 2019 - July 21, 2019.
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SCICOM (MSC) Bhd is hopeful of winning a contract to track foreign workers in Malaysia soon. The contract will be awarded by a source country that exports thousands of workers to 12 countries, including Malaysia, Scicom CEO Datuk Seri Leo Ariyanayakam tells The Edge.

If the contract materialises, it will be a great boost to Scicom.

“The system will be a one-stop centre for local employers who wish to hire workers from that country. With the system, the country’s embassy in Malaysia will be able to track each worker, for better protection,” says Leo.

“So, if ... workers lodge a complaint [of abuse] against their employers at the embassy, and if the allegations prove to be true, the embassy would be able to blacklist the employers and people connected with them [so they can no longer] hire workers from that country.”

The system will be funded with the fees paid by employers when they look to hire workers from the country through the embassy. There will be a form of revenue sharing with Scicom as the proprietor and operator of the system.

Malaysia is a major destination for workers from other developing countries due to the abundance of jobs and the stability of its economy, currency and sociopolitical system. It is estimated that there are six million foreign workers here. However,  many of the foreign workers here are undocumented, which has cost the country a lot of tax and non-tax revenue. Over the last decade, this problem has worsened. According to statistics from the Ministry of Human Resources, between 2008 and the second quarter of 2018, the percentage of documented foreign workers dropped from 19.3% to 11.9% of the total.

This is why both Malaysia and the source country require a comprehensive system that can track the movements and whereabouts of foreign workers in the host country.

According to Leo, if Scicom wins the contract to provide the system to be deployed in Malaysia, there is potential for the group to win the same contract in another two or three host countries. If that happens, the income potential is very promising.

Scicom is also bidding for other governmental processing systems, with the largest one being the Integrated Immigration System (IIS), which the Ministry of Home Affairs issued a request for proposal last May.  The contract to provide an integrated solution for border and immigration control was earlier awarded to Prestariang Bhd. However, the RM3.5 billion Sistem Kawalan Imigresen Nasional (SKIN) was terminated by the ministry in December last year as it was deemed too expensive.

Leo believes Scicom is in a good position to win the tender. “We have already built a lot of the modules for the IIS and we can build the entire system within 24 months.”

The deadline for the submission of bids for the contract is Aug 17. It is worth about RM1 billion and will run for five years.

For its financial year ended June 30, 2019 (FY2019), Leo is anticipating another drop in net profit on the back of lower earnings from the Education Malaysia Global Services (EMGS) division as well as the business process outsourcing (BPO) division.

For the nine months ended March 31, (9MFY2019), Scicom’s net profit dived 45% year on year to RM15.42 million on a 6.83% drop in revenue to RM118.93 million.

According to a May 28 report by MIDF Research analyst Ng Bei Shan, the EMGS segment is experiencing the negative impact of the massive shutdown of certain educational institutions.

“But there should be a gradual recovery over time as the number of genuine foreign students looking to study in Malaysia should improve along with the expansion of the country’s education industry,” says Ng in the report.

Her optimism stems from the government’s target of having 250,000 international students enrolled in Malaysia’s higher education institutions by 2025, compared with 172,886 in 2016.

Leo sees Scicom’s net profit improving from FY2020 on the back of its e-solution business, which includes the provision of the EMGS one-stop centre, as well as more efficient cost and revenue control over its BPO business.

Over the past 12 months, the stock has fallen 51% to close at 86.5 sen last Thursday, valuing the company at RM307.5 million. At the current price, Scicom is trading at a trailing four-quarter dividend yield of 8.67%.

MIDF Research’s Ng believes the counter is becoming more attractive as it is trading at a forward price-earnings ratio of 12.5 times, which is close to two standard deviations below its two-year mean.

“Our target price of 96 sen is based on 15 times FY2020F earnings per share of 6.41 sen. Moreover, we have not taken into consideration any new sizeable project wins,” says Ng, adding that the recommendation is supported by Scicom’s net cash position and dividend yield.

 

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