• 1QMar19 (FYE Jun) slipped into the red, drawing impact from termination of the SKIN project and poor performance of its core businesses.

• 1QMar19 losses was worse-than-expected, prompting us to slash FY19-21F core earnings to reflect the weaker sales and higher net opex.

• We remain negative on the stock over termination of the SKIN project. We are also cautious over its core business, software license distributor, as we see high possibility of the concession being re-tendered to attain better terms.

• Maintain SELL with lower DCF-derived TP of RM0.15 (from RM0.20).

Subdued earnings

1QMar19 (FYE Jun) turned into losses mainly on termination of the Sistem Kawalan Integrasi Nasional (SKIN) project and lower contribution from core businesses; software & services and academy (c.91% of revenue) which fell 12% yoy (Table 2). Earnings were further dragged by higher cost from education segment after it relocated UNIMY.

Offset by high opex

On qoq basis, earnings slipped into the red on higher finance cost and increased opex for software and education (UNIMY) segments.

Weaker sales and higher net opex expected ahead

Overall, 1QMar19 performed poorly as losses came in worse than ours and consensus’ expectations. We slashed our FY19/20/21F estimates to reflect weaker sales and higher-than-expected operating expenses for its core businesses.

Negative outlook

We remain negative over its long term business prospects owing to termination of SKIN project which provided an earnings buffer for the company. Besides, we are cautious over its key business, the software license distribution, as we see high possibility of the job being retendered for new entrants to attain better value for the government. Moreover, we noted that its education segment (UNIMY) remains weak and continues to bleed

Maintain SELL at lower TP of RM0.15 (from RM0.20)

Reiterate SELL with a lower TP of RM0.15 (from RM0.20). We remain negative on the stock as we expect further downside risk to earnings given the poor business outlook.

Source: BIMB Securities Research - 31 May 2019