Summary

• We attended Supercomnet Technologies Bhd’s (SCOMNET) post 2QFY22 results briefing and came away feeling upbeat on their prospects, moving forward with outstanding orders are fully booked towards end-2022. Growth is expected to be dominated by the medical segment which was the major contributor to the group’s revenue in 2QFY22.

• We were briefed that the new products in the pipeline (with massive quantity of orders being placed) under the medical segment will come on stream in 4QFY22 and that would be the key revenue contributor for FY23f. The new products would also yield decent margins and are expected to take up majority of the Phase 2 of second floor production expansion of additional 990-sqm of floor space.

• Upon completion of the aforementioned expansion, SCOMNET will be undertaking another massive expansion adjoining to the current production facility. The 5-storey new factory building will house 12,000-sqm of total production floor space, mainly to cater for new products on stream as demand for medical devices remains relatively solid.

• Greater emphasis will be place onto the healthcare sector from larger Budget allocations across the globe. Demand for medical products and devices are expected to remain robust, in view of the rising demand for healthcare services due to higher number of incidences of non-communicable diseases, coupled with the pent-up demand from those that have postponed their elective surgeries during the Covid-19 pandemic.

• In view of the rising cost of materials, we note that SCOMNET has performed a revision on their products pricing in April 2022. To keep margins intact and little signs of tapering of inflationary pressure, the second revision of product pricing were also performed during August 2022. Moving forward, we reckon that net margins could chalk in slightly above 20.0% mark in subsequent quarters amid the favourable exchange rates, coupled with the gradual introduction of new medical devices that yields decent margins.

• Onto the transfer into the Main Board of Bursa Malaysia, the progress is largely on track at the moment, pending certain approvals. Upon obtaining all relevant approvals, SCOMNET will submit their documentations to relevant authorities and that would speed up the transfer of listing process.

Valuation & Recommendation

• We revised our net profit forecast higher between 12-29% for the period FY22f to FY24f, after taking into account for the stronger-than-expected outlook of contribution from new products and stronger margins. We retained our BUY recommendation on SCOMNET with a higher target price of RM1.94. Our target price is derived by assigning a target P/E multiple of 38.0x to FY23f diluted EPS of 5.1 sen.
• Risks to our recommendation include potential delay in FDA approval of new product launches which affects the prospects of growth in new income stream. Fluctuation in raw material costs may affect margins whereby material cost accounts approximately 50.0% of SCOMNET production costs. Exposure to currency risk as most of their products are sold in USD.

Source: Mplus Research - 26 Aug 2022