INVESTMENT HIGHLIGHTS

• 9MFY19 earnings missed expectation

• 3QFY19 CNP fell 32%yoy to RM4.9m

• FY19E/FY20F earnings estimates slashed by -38%/-43%

• Maintain NEUTRAL with an adjusted TP of RM0.96

9MFY19 earnings missed expectation. Scicom’s 9MFY19 core net profit (CNP) of RM16.0m made up only 47% of our full year estimate. The lower than expected figure can be partially attributed to to the slower than expected recovery in its Education Malaysia Global Services (EMGS) segment. An interim dividend of 1.0 sen was announced, bringing year-to-date DPS to 4.5 sen.

3QFY19 CNP fell 32%yoy to RM4.9m while revenue increased by 4.5%yoy to RM40.6m. The increase in its topline can be attributed to the growth in its business processes outsourcing (BPO) division but was offset by lower number of foreign student applications processed, which resulted in lower profitability. We have excluded the forex loss of RM0.59m and bad debt of RM0.3m from our core net profit calculations. Compared to the previous quarter, CNP was lower by 19.8%qoq whereas revenue improved by 2.1%qoq.

For the first nine months, CNP fell 45.9%yoy to RM16.0m as revenue for the period slid 6.8%yoy to RM118.9m. The lower revenue can be attributed to be decline in business from both the BPO and EMGS segments.

Earnings estimates for FY19E/FY20F slashed by -38%/-43% to RM21.2m/RM22.8m respectively. We have lowered our earnings estimates to factor in lower profit margin and revenue growth in view of the slower-than-expected progress for its prospective esolution projects. We have also lowered our DPS estimates to 5.5 sen and 6.0 sen from 8.0 sen in FY19E and FY20F following the reduction in our earnings estimates.

Maintain NEUTRAL with an adjusted TP of RM0.96 (from RM1.21 previously). Our TP of RM0.96 is based on 15.0x FY20F EPS of 6.41 sen. We maintain our NEUTRAL due to the unexciting earnings prospect in the near-term. This is in view of the slower than expected sizeable project win. On the other hand, Scicom’s balance sheet is still strong with a net cash of RM40.6m. Dividend yield is estimated at 6.2%.

Source: MIDF Research - 24 May 2019