• 1Q21 core net profit rebounded by 56% qoq to RM7.1m on higher revenue from the E-Solution segment and cost savings from the work from home arrangements. Scicom declared a higher DPS of 1.5 sen (4Q20: 1.0 sen).
• The results were above market and our expectations due to higher-thanexpected revenue from the E-Solution segment and robust BPO earnings.
• We raised our FY21-23E EPS forecasts and upgraded Scicom to BUY. We like Scicom for its high ROE business model focusing on digital solutions and e-services. At 15x CY21E PER, Scicom trades at a discount to its average PER of 19x and looks attractive to us.

1Q21 core net profit of RM7.1m, a strong sequential rebound (+56% qoq)

Scicom reported a strong set of results - 1Q21 core net profit rebounded by 56% qoq to RM7.1m on the back of a higher revenue of RM52.5m (+24%) and improved EBITDA margin of 26.3% (from 21.6%). The 1Q21 revenue from the E-Solutions business was surprisingly strong, as the group processed ample foreign student visa applications despite the closure of borders.

The universities / colleagues have started online classes and student visa is a requirement for the foreign students

We understand that universities and colleges have started online classes, ahead of physical attendance pending the re-opening of borders. The student visa is a requirement for foreign students to enrol in these courses. Also, Jul-Sep is a seasonally busier quarter for the E-Solutions business, as the peak intake period is between 3Q-4Q of a calendar year. In tandem, Scicom declared a higher dividend of 1.5 sen per share (4Q20: 1.0 sen).

Core earnings grew by 7% yoy, above expectations

Yoy, Scicom’s 1Q21 core net profit grew by 7%, driven by higher revenue from the BPO business and some cost savings from the work from home arrangements during the pandemic period. While the BPO business volume from tourism and leisure clients were affected by the pandemic, the higher activities from online consumer products and new clients secured last year have more than offset the decline. Overall, the results were above market and our expectations – Scicom’s 1Q21 core net profit accounted for 37% of street and 45% of our full year earnings forecasts. The earnings beat was attributable to stronger-than-expected revenue from the ESolutions business despite the border closure.

Raising FY21-23E earnings forecasts by 8-30%

We raise our FY21-23E earnings forecasts by 8-30% after incorporating: (i) the stronger-than-expected 1Q21 results; (ii) higher number of foreign student visa processed for FY21. In spite of the border closure, the enrolment for the courses remain strong and a student visa is required before foreign students can start these temporary online courses (pending re-opening of borders); (iii) higher BPO revenue; and (iv) higher EBITDA margin due to changes in revenue mix.

Upgrade to BUY with a higher price target of RM1.15

We upgrade Scicom to BUY (from HOLD) with a higher 12-month price target of RM1.15 (from RM0.97) based on an unchanged 19x CY21E PER. We like Scicom for its high ROE business model focusing on digital solutions and e-services. At 15x CY21E PER, Scicom is now trading below its 6-year average PER of 19x and looks attractive to us. Elsewhere, Scicom is continuously bidding for e-solution contracts from the Malaysian and foreign governments. Our forecast does not take into account any new e-solution contract wins. Key downside risk is weaker than expected earnings.

Source: Affin Hwang Research - 30 Nov 2020