Scicom reported a disappointing set of results – 3QFY19 core net profit fell by 25% qoq to RM4.7m due to a sharper-than-expected decline in the number of international student visa applications and lower revenue per application. The group’s 9M19 core net profit of RM15.9m (-44% yoy) accounts for only 58-59% of the street’s and our full-year earnings forecasts. We cut our FY19-21E EPS by 17-35% incorporating: (i) weaker earnings from the E-Solutions service; and (ii) zero future revenue / profit from the Cambodian Tourism Project in view of the prolonged delay in revenue collection and low project visibility. In tandem, we reduce our TP to RM0.92 based on a 13.5x CY20E PER. Maintain HOLD.

3QFY19 Core Net Profit Fell by 25% Qoq to RM4.7m

Scicom’s 3QFY19 core net profit fell by 25% qoq to RM4.7m (-36% yoy) due to lower contributions from the E-Solutions business. Sequentially, 3QFY19 revenue grew by 2.1% on higher contribution from the Business Process Outsourcing (BPO) segment, driven by improving headcount at existing clients and the commencement of a new financial services client. The E-Solutions segment has, however, reported a lower revenue due to a lower number of international student visa applications, partly attributable to seasonal factors. The change in revenue mix has resulted in margin erosion, lower earnings, and a lower DPS of 1.0 sen for 3QFY19 (1.5 sen in 2QFY19).

9MFY19 Core Net Profit Fell by 44% Yoy, Below Expectations

Scicom’s 9MFY19 core net profit fell by 44% yoy to RM15.9m due to a lower profit contribution from the E-Solutions segment and normalisation in the effective tax rate (22% in 9MFY19, versus 9% in 9MFY18). The lower earnings translated to a lower 9MFY19 DPS of 4.5 sen (from 6.0 sen in 9MFY18). Overall, the results were below market and our expectations due to lower-thanexpected revenue from the E-solutions business and weaker margins – 9MFY19 core net profit accounted for only 58-59% of the street’s and our fullyear forecasts.

Cutting FY19-21E EPS by 17-35%

We cut our FY19-21 EPS forecasts by 17-35% after incorporating: (i) lower revenue from the E-Solutions segment due to a slower-than-expected recovery in the number of international student visa applications and lower revenue per application; and (ii) zero future revenue / profit from the Cambodian Tourism Project in view of the prolonged delay in revenue collection and low project visibility. We had expected RM18-19m of annual revenue from the tourism project starting in 2HCY19.

Source: Affin Hwang Research - 24 May 2019