INVESTMENT HIGHLIGHTS

• BPO segment may be stronger in 2HFY18

• EMGS segment expected to improve

• Pursuing e-solution projects in other countries

• Maintain NEUTRAL with an unchanged TP of RM1.37

BPO segment may be stronger in 2HFY18. In 2QFY19, Scicom has started the jobs for a few new business process outsourcing (BPO) customers and these will continue to contribute positively in the coming quarters. We understand that some of its customers are likely adding more seats to support their growing businesses. Other than that management guided that it will start implementing a sizeable project for ones of its China-based customer in the second half.

EMGS segment expected to improve yoy. We expect its Education Malaysia Global Services (EMGS) segment to improve yoy in the second half due to potentially higher applications processed. This is premised on the low base in 2HFY18 due to the pre-election uncertainty that led to a decline in number of applicants. Among others, some private universities are having their open days in March and intakes in April.

Pursuing e-solution projects in other countries. Management updated that Cambodian tourism project has not been launched due to details that had yet to be ironed out by its awarder. At the meantime, Scicom does not rest its laurel in getting other e-solution projects in other countries. The proposals of these projects progress at various stages. We have not factored in contribution from any of the esolution projects as we understand that some of the projects take time to be implemented. Moreover, it is hard to quantify these projects at a premature stage.

Maintain NEUTRAL with an unchanged TP of RM1.37. Despite a disappointing 1HFY19, we believe that things may turn for the better in 2HFY19. We maintain our NEUTRAL stance as the improvement in 2HFY19 may not be great enough to bring the full year number to exceed the earnings recorded in FY18 without contribution from new e-solution projects. Our TP is derived from 17.0x PER FY19 EPS of 8.04 sen. Dividend is estimated at 6.2%.

Source: MIDF Research - 4 Mar 2019