INVESTMENT HIGHLIGHTS

• 1HFY18 earnings in-line with expectation

• Net profit for 1HFY18 fell 15.6% to RM20.4m

• Positive on Cambodian tourism project

• Maintain BUY with unchanged TP of RM2.36

1HFY18 earnings came in within expectation, making up 50% of ours and 46% of consensus’ estimates. Scicom’s earnings for the period came up to RM20.4m. An interim dividend of 2.0 sen per share was declared, bringing YTD DPS to 4.0 sen.

Net profit for 1HFY18 fell 15.6% to RM20.4m as revenue declined by 14.3% to RM88.9m. Revenue from Malaysia slid by 10.9% to RM24.1m while revenue from the Philippines dropped by 25% to RM11.3m in 2QFY18. The lower revenue is attributed to change in requirements and strategies by its business processes outsourcing (BPO) customers. On top of that, it is estimated to have processed lower number of visa applications for foreign students looking to study in Malaysia.

2QFY18 net profit declined 22.3% yoy and 14.3% qoq. The lower quarterly profit is attributed to revenue for 2QFY18 which slipped by 16.6%yoy to RM43.0m. The lower revenue is because of lower income from the Education Malaysia Global Services and change in strategies from its BPO customers. The qoq drop in net profit is largely due to the fewer student visas processed as it was in the yearend holiday season. Meanwhile, PAT fell sharper than revenue due to higher taxes. Tax rate was at 12.2% during the quarter compared to 8.8% a year ago. On a brighter note, its operating margin improved to 26.0% in 2QFY18 from 23.3% yoy indicating that management’s cost cutting measures are taking effect.

Positive on Cambodian tourism project. Scicom announced that it has been awarded a project to develop, implement, operate and maintain a fully integrated Cambodia Tourism Management System by the country’s government. The project will take 5 years with an extension option of two years. We are positive on this announcement as we expect this project to contribute positively to the company from FY19F onwards. The income from this project will be tied to the number of air travellers to and from Cambodia. The number of travellers to Cambodia was estimated at five million in 2016.

Forecast maintained. We make no changes to our earnings estimates pending an upcoming briefing on Friday.

Source: MIDF Research - 8 Feb 2018