• The entry of new international students into Malaysia is on hold until further notice. This, coupled with cross-border travel restrictions and weakened global economies, will have a material impact on Scicom’s profitability.
• We cut our FY20-22 earnings forecasts by 2-28% after incorporating lower revenue from the e-solution business.
• Maintain HOLD with a lower TP of RM0.97 after incorporating our EPS cut but raising our target PER to 19x CY21E (from 15.5x) due to ample liquidity and the re-rating across the e-service segment.

Entry of New International Students Is on Hold Until Further Notice

In 2019, there were 93.6k international students in Malaysia’s higher education institutions, a notable 29-31% decline from the 132-136k in 2016-18. To curb the spread of Covid-19, the entry of new international students into Malaysia is on hold until further notice. This, coupled with the cross-border travel restrictions imposed by various countries and the weakened global economies, will further lower the number of foreign students in Malaysia and affect Scicom’s e-solution business.

Elsewhere, the BPO Segment Is Stable

Scicom has adopted a rotating work from home arrangement and hence, we see limited disruptions to its BPO business throughout the MCO / CMCO period. Broadly, we expect the BPO revenue to remain stable – existing operations should support revenue but growth may only return in FY22.

Scicom is among six frontrunners for NIIS project, according to FocusM

According to an article published by Focus Malaysia, Scicom is one of six frontrunners for the RM1.2bn National Integrated Immigration System (NIIS) concession. We have not factored this into our forecasts; securing the NIIS project would materially improve Scicom’s earnings prospects. However, we observe that the competition is stiff and the award may take longer than expected.

Cutting FY20-22 Earnings Forecasts by 2-28%, Maintain HOLD

We have cut our earnings forecasts after incorporating lower revenue from the esolution business due to the temporary halt in entry of new international students and longer-than-expected restrictions in cross-border travel. Maintain HOLD with a lower 12-month price target of RM0.97 (from RM0.99). At a 19x 2021E PER, Scicom is trading near its 6-year average and looks fair to us.

Source: Affin Hwang Research - 10 Aug 2020