• 2Q18 core profits fell by a staggering 89% qoq and 83% yoy on poor performance of its core businesses Software & Services and Academy as well as exacerbated by the surge in tax expense.

• Over 1H18, however, earnings rose 11% largely on 1Q18 core earnings which contributed 90% of 1H18; still, it trailed ours and consensus estimates at 19% and 15% respectively.

• Our earnings are currently under review and so is the stock recommendation and TP pending updates from management.

Dragged by its core

2Q18 core earnings fell 89% qoq and 83% yoy to RM1.0m. The poor performance was due to its core businesses – Software & Services and Academy segments – slipping into the red. We believe the former could be impacted by the government transition in May possibly resulting in timing of payment in services. Additionally, the effective tax rate surged drastically in the quarter.

1H18 growth coming from SKIN project

Overall, 1H18 core earnings grew 10.7% on higher 1Q18 revenue recognition from the SKIN project. Contribution from 1Q18 made up c.90% of 1H18 earnings. Notwithstanding, earnings trailed ours and consensus’ estimates at only 19% and 15% respectively.

Dividend declared

A second interim DPS of 0.2 sen was declared, bringing total DPS for FY18 of 2.8 sen (FY17: 3.0 sen). This implies a dividend yield of 0.2% at current level.

Call and TP under review

We have put our estimates and recommendation under review pending a revisit to our earnings outlook on the stock.

Source: BIMB Securities Research - 30 Aug 2018