After the Supercomal Medical Products Sdn Bhd (SMP) acquisition, SCOMNET has registered strong FY18 earnings and we believe the earnings momentum could sustain throughout FY19 with the full year contribution from SMP. We opine that the advancing technologies amongst the automotive, technology, telecommunications and medical sectors will remain robust, leading to steady demands in high-tech wires and cables moving forward. As of FY18, SCOMNET has zero debt, with a net cash of 6 sen per share. Technically, SCOMNET is poised for a triangle formation breakout above RM0.80, targeting RM0.84-0.87, followed by LT target of RM0.92. Support will be pegged around RM0.75-0.76, with a cut loss set below RM0.745.

Company profile. Supercomnet Technologies Bhd (SCOMNET) is principally involved in manufacturing, assembling and selling cable and wires for industrial usage. The products that are produced by SCOMNET are used in various industries such as automotive, home appliances, medical device industry and others (consumer electronics and computer peripherals). In Apr-2018, they have acquired Supercomal Medical Products Sdn Bhd (SMP), which sells medical cables (approved by the FDA in the US) and disposable pressure transducers (DPT, a device used in the medical device sector). For SMP, PAT stood at RM16.8m and RM16.2m for FY15 and FY16, respectively. SMP’s revenue contributions were mainly from Republican of Dominican (61%), US (23%), and Malaysia (16%).

Strong FY18 results. Following the acquisition in Apr-2018, it has registered revenue and net profit of RM88.3m (+156%) and RM12.2m (+370% YoY) as SMP has contributed revenue of RM45m and net profit of RM11.8m in 2018 and it is likely to maintain its earnings momentum throughout FY19 with the full year contribution.

Still positive outlook on high-tech wires and cables. As technology is advancing amongst the automotive, technology, telecommunications and medical sectors, we believe the demand for wires and cables are likely to sustain in the future, providing potential upside towards SCOMNET’s earnings. To recap on Budget 2019, the government has allocated around RM29m in to Ministry of Health, which may boost the health services provided at clinics and hospital, leading to potential demand for medical devices.

Net cash. Based on its FY18 financial statement, SCOMNET is currently zero debt with a net cash of RM39.5m, translating to 6 sen per share.

Poise for a triangle formation breakout. After rallying from the RM0.66 level in February, the share price has stabilised around RM0.74-0.81 levels over the past week. The MACD indicator has been turning flattish, potentially awaiting the golden cross. Also, the ADX indicator (-DMI crossed below ADX) could be suggesting that SCOMNET may poise for a breakout above RM0.80 over the near term. Target will be envisaged around 0.84-0.87, followed by RM0.92. Support will be pegged around RM0.75-0.76, with a cut loss set below RM0.745.

Source: Hong Leong Investment Bank Research - 3 Apr 2019