Scope reported 4QFY21 net profit of RM2.3m, bringing FY21 profits to RM6.8m, a massive 400% turnaround from FY20 net loss of RM29m!  But the standout statistic to Axcapital was a 100% QoQ increase in revenue from Sonos from RM19m last quarter to RM38m this quarter!!!  Although profits did not increase in a similar manner, Axcapital believes this was due to 1) MCO shutdown that escalated costs and 2) Start-up cost from the upcoming new capacity, which our channel checks suggest will start in Oct 2020.

Axcapital, in our previous article, has always pointed out that Sonos drives Scope. Sonos latest results showed a 14% QoQ increase in revenue, yet this translated to a 100% QoQ increase in revenue for Scope, which is a 7x revenue multiplier!! And all this is happening before Sonos has even fully transferred its manufacturing orders to Malaysia due to our Covid situation, which is improving day-by-day.

So, what  might Scope look like 3-years out, you might ask? Well, Sonos has provided all the guidance. They are forecasting revenue of US$2.25bn in 2024, vs forecast of US$1.65bn in FY21, which is conservative given that they are having to revise guidance all the time every quarter, due to overachievement. That’s a 35% increase for Sonos, which means a whopping almost 7-fold increase for Scope to RM1bn revenue!

Using a conservative operating margin for Scope of 10% (vs. 14% now) and deducting income tax, we arrive at a potential net profit for Scope of RM80m in FY24. At a conservative sector P/E of 25x, this gives a conservative valuation of RM1.80 in 3 years time (500% upside to where we are now). So in-a-nutshell, Axcapital was pleased with this quarter’s results, the best is yet to come.

Perhaps Axcapital should make Sonos our top pick for the next 3 years instead of just 2022.....

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