Scicom reported a weak set of results – FY18 core net profit fell by 24% to RM34m due to lower revenue (-17%) and a higher tax rate. Despite the weaker earnings, Scicom maintained its full year dividend of 9 sen. We maintain our forecasts for its BPO and EMGS business but incorporate a 3-month delay in the commissioning of its Cambodia project to 4QCY18 (from 3Q18), resulting in a 7% cut to our FY19E EPS. We roll forward our valuation horizon to 2019 (from FY19) and raise our TP to RM2.76, based on an unchanged 20x PER. Maintain BUY. We continue to like Scicom for its expertise in the e-government services segment and high ROE business model.

FY18 Core Net Profit Fell by 24% to RM34m, Below Expectations

Scicom’s FY18 core net profit declined by 24% yoy due to lower revenue (- 17% yoy) and a higher tax rate. The Business Process Outsourcing (BPO) revenue was affected by lower activities, while the Education Malaysia Global Services (EMGS) revenue was affected by a reduction in the numbers of foreign students in Malaysia. Overall, the results were below consensus and our expectations – FY18 core profit accounts for 84% of the street and 95% of our full year forecasts - the variance was attributable to lower numbers of foreign student applications processed post General Election (temporary hangover). Nonetheless, Scicom has maintained its FY18 dividend of 9 sen, as forecasted.

Sequentially, Core Pretax Profit Was 5% Weaker

Sequentially, Scicom’s 4QFY18 core pretax profit fell by 5% to RM7.5m on lower revenue (-3% qoq) and weaker EBITDA margin of 24% (from 25%). The EMGS segment recognised a lower 4Q18 revenue as the campuses and foreign students temporarily held back applications post General Election. The decline is partly offset by higher BPO revenue. Elsewhere, Scicom has reported higher effective tax rate in 4Q18, as expected, resulting in a steep 46% sequential decline in core net profit to RM5.4m.

Possible Delay in Commissioning of Cambodian Project, We Think

We understand that Scicom has completed the installation of the Cambodian Tourism Management System. However, the Cambodian government has yet to implement the system, likely due to a delay attributable to the recent Cambodian General Election (the ruling party won the election). In view of a possible election hangover, we have incorporated a 3-month delay in project commissioning to 4QCY18.

Source: Affin Hwang Research - 28 Aug 2018