KEY INVESTMENT HIGHLIGHTS

• No major surprises to 1QFY20 earnings

• 1QFY20 CNI jumped by 30%yoy to RM6.4m

• Sequentially, CNI surged 43.3%qoq due to improvement in the EMGS segment

• Tenders for new projects still on-going

• Maintain NEUTRAL with a revised TP of RM1.10

No major surprises to 1QFY20 earnings. Scicom’s 1QFY20 core net income (CNI) of RM6.4m met our estimates at 28% and % of consensus’. The company has announced an interim dividend of 1.5 sen, which is also in-line with our expectation of full year DPS of 6.0 sen.

1QFY20 CNI jumped by 30%yoy to RM6.4m in-line with revenue that rose by 24.4%yoy to RM48.1m. Also helping is the PBT margin that improved by 1.7ppt to 19.3% due to higher volume of applications processed under the Education Malaysia Global Services (EMGS) segment. Meanwhile, its business process outsourcing (BPO) segment is expected to remain rather stable since the implementation of new projects from its major customers since last quarter.

Sequentially, CNI surged 43.3%qoq to RM6.4m mainly due to the improvement in the EMGS segment. Revenue climbed 13.9%qoq to RM48.1m mainly due to the higher number of applications processed. Meanwhile, PBT margin improved by 1.8ppt.

Tenders for new projects still on-going. The management has taken efforts to further grow its topline by participating in a few local and international government e-solution projects. Some of these projects are related to the immigration and security systems. We understand that the tendering processes are on-going and the award and implementation of these projects may have moving timelines. We have not factored in any new sizeable project wins at this juncture due to the fluid nature of these tenders. For the time being, we expect its existing business segments to continue to drive growth. We expect its BPO segment to grow modestly while EMGS may have been recovering from a low base.

Maintain NEUTRAL with a revised TP of RM1.10 (previously RM0.96) as we rollover our base year to FY21F, which is estimated to record an EPS of 7.36 sen. Our new TP is premised on an unchanged PER of 15.0x. We are leaving our FY20E/FY21F estimates unchanged for now in view of the results that are within expectation. We maintain our NEUTRAL recommendation on the stock as on-year earnings growth is unexciting without a new sizeable project win. The stock has also recovered by 23% since end-September. Dividend yield is estimated at 5.6%.

Source: MIDF Research - 26 Nov 2019