INVESTMENT HIGHLIGHTS

• Not Shariah compliant in the upcoming review

• Court case against Scicom dropped

• Earnings estimates maintained but PER lowered

• Maintain NEUTRAL with an adjusted TP of RM1.21

Not Shariah compliant in the upcoming review. Scicom announced that it will be removed from the list of Shariah compliant securities in the upcoming review to be announced on 31 May 2019. That is mainly due to Scicom’s FY18 financial statement where cash placed in conventional bank accounts and instruments over its total assets had exceeded the 33% financial ratio benchmark set by the SC’s Shariah Advisory council. The company has taken necessary measures to ensure that the financial ratio is met for FY19 and onwards. We expect selling pressure in regards to this announcement as some Shariah-compliant funds may have to trim their stake in order to comply with their mandates.

Court case against Scicom dropped. On another more positive note related to a recent legal case, Tawasol Al-Sharq Marketing Services has wholly discontinued its claim against Scicom. The costs of the case are to be paid by the Tawasol to Scicom with the sum to be fixed, taxed or agreed. The writ of summons was served on 28 October 2018, claiming a sum of approximately RM1.7m over a debt recovery Nokia Private Ltd. Scicom was a second defendant in the case.

Earnings estimates maintained but PER lowered. We make no changes to our earnings estimates, which is based on FY19 EPS of 8.04 sen. However, we view the removal from the Shariah compliant list as a negative and revise our valuation from 17.0x PER to 15.0x PER, which is one SD below its 5-year average.

Maintain NEUTRAL with an adjusted TP of RM1.21. We maintain our NEUTRAL due to the unexciting earnings prospect in the nearterm. This is in view of the slower than expected sizeable project win. On the flipside, Scicom’s balance sheet is still strong with a net cash of RM39.8m which can support its dividend yield that is estimated at 6.4%.

Source: MIDF Research - 5 Mar 2019