INVESTMENT HIGHLIGHTS

• EMGS filed an originating summons for an agreement dated 1 November 2012

• No material financial implications expected

• Earnings forecasts maintained

• Downgrade to NEUTRAL with an unchanged TP of RM0.96

EMGS filed an originating summons for an agreement dated 1 November 2012. Scicom has been served an originating summons by the Education Malaysia Global Services (EMGS) wherein EMGS is seeking to enforce a right under the agreement signed between the two parties. Scicom sought and obtained legal advice that the originating summons filed by EMGS is without merit.

No material financial implications expected. We believe that the legal case may not lead to a significant financial impact in the nearterm. However, we do not rule out the possibility that this case may affect investor sentiment. Recently, it is reported in media that Scicom is one of the contenders for the Integrated Immigration System, which led to an increase in its share price. We note that these two events are separate as one is under the purview of the Education Ministry while the other is under the Home Ministry.

Earnings forecasts maintained. We make no changes to our earnings forecasts as we believe that it will be business as usual for the company as operations should continue concurrently while the litigation takes place. Moreover, we have not factored in other new sizeable contract wins for our FY19F and FY20F estimates.

Downgrade to NEUTRAL with an unchanged TP of RM0.96 as we make no changes to our earnings estimates and target price. Our TP of RM0.96 is based on 15.0x FY20F EPS of 6.41 sen. We have downgraded the stock to NEUTRAL mainly due to the recent rebound of its share price, which resulted in limited upside in the near-term. Dividend yield is estimated at 6.3%.

Source: MIDF Research - 25 Jul 2019