Summary

• To recap. In 1QFY24, SCOMNET recorded core PAT of RM6.0m (+4% QoQ, -3%YoY) and it was in-line with ours and consensus expectations, accounting to 18.0%and 15.4% of the estimates, respectively.

• Solid balance sheet. As of 1QFY24, SCOMNET continues to maintain a solid balance sheet with zero borrowings and a cash position of RM245.55m.

• Outlook. We expect the medical segment to remain the main contributor for SCOMNET. Note that the medical segment contributed 79% and 76% of total revenue in 1Q24 and 4Q23, respectively. However, Edwards Lifesciences, one of their largest clients, has recently downgraded its full-year guidance for transcatheter aortic valve replacement to 5-7% from 8-10%, which has impacted its share price by more than 30% in the US stock markets. Nevertheless, we believe that other clients in the medical segment, namely Ambu, Mermaid Medical, and Innovative Health Sciences, will be able to offset the softer growth in Edwards (if any). Additionally, Customer N is undergoing late-stage clinical trials, with mass production of the Nanomedicine Therapy Device tentatively expected this year, which could positively impact SCOMNET’s earnings going forward. For its expansion plan, SCOMNET will be shifting SAC (automotive) production to a new plant in Gurun to free up space and cater to SMP (medical) demand going forward.

Valuation & Recommendation

• Reallocating resources and cease coverage. Despite the positive outlook on SCOMNET, we terminate our coverage on SCOMNET due to a reallocation of resource. Our last rating on the stock was a HOLD with a target price of RM1.52, pegged to a P/E of 38.0x on our FY24f diluted EPS of 3.99 sen.

Source: Mplus Research - 5 Aug 2024