• 4QFY20 core net profit grew by 2.4% qoq to RM4.5m on a lower effective tax rate of 10.6% (from 31%). Pretax profit of RM4.9m was 33% weaker qoq due to lower revenue from the E-Solutions business.
• Cumulatively, FY20 core net profit grew by 12% to RM22.4m on higher BPO revenue, robust contribution from E-Solutions during 1-2QFY20, and a lower effective tax rate. The results were above expectations.
• We tweak our FY21-22E earnings forecasts by 0.4-0.5% after incorporating the full-year financial results for FY20. Maintain HOLD. At 18x CY21E PER, Scicom is trading near its 6-year average and looks fair to us.

4Q20 earnings supported by low effective tax rate and robust BPO revenue

Scicom’s 4Q20 core net profit grew by 2.4% qoq to RM4.5m on a lower effective tax rate of 10.6% (from 31.2% in 3Q20), attributable to the effective utilisation of prior years’ tax losses in Scicom (Academy) Sdn Bhd. At the pretax level, Scicom’s 4Q20 pretax profit fell by 33% qoq to RM4.9m due to lower revenue from the ESolutions business, partly cushioned by robust contributions from the BPO segment. Scicom declared 1.0 sen of dividend for 4Q20 (3Q20: 1 sen).

FY20 Core Net Profit of RM22.4m (12% Yoy) Was Above Expectations

Cumulatively, Scicom’s FY20 core net profit grew by 12% yoy to RM22.4m on the back of higher revenue (+17% yoy) and stable EBIT margin of 17%. The strong revenue growth was driven by higher BPO business volume throughout FY20; elsewhere, its E-Solutions segment reported robust revenue in 1HFY20 but the contribution has since waned due to lower international student arrivals during this Covid-19 pandemic period. Overall, the core net profit beat market and our expectations by 9% mainly on the lower-than-expected tax rate.

Maintain HOLD With An Unchanged Price Target of RM0.97

We tweak our FY21-22E earnings forecasts by 0.4-0.5% after incorporating the fullyear financial results for FY20 while maintaining our effective tax rate assumption at 25%; we view the low taxation in 4Q20 as a one-off. We introduce our FY23E earnings forecasts, expecting Scicom to achieve 8% earnings growth on continued recovery in international student arrivals. Maintain HOLD with an unchanged price target of RM0.97 based on 19x CY21E PER. At 18x CY21E PER, Scicom is trading near its 6-year average and looks fair to us. Key upside risk: winning major new contracts; downside risk is weaker than expected earnings.

Source: Affin Hwang Research - 1 Sept 2020