KEY INVESTMENT HIGHLIGHTS

• 9MFY20 earnings within expectation

• 3QFY20 CNI improved by 2.8%yoy to RM5.1m

• Sequentially, CNI dropped 17.9%qoq while revenue dipped by 1.8%qoq

• FY20E/FY21F earnings estimates cut by 9.6%/4.8%

• Maintain NEUTRAL with a revised TP of RM1.05

9MFY20 earnings within expectation. Scicom’s 9MFY20 core net income (CNI) of RM17.7m met expectations at 77.7% and 74.6% of ours and consensus’ full year estimates respectively. The company has announced an interim dividend of 1.0sen, bringing YTD dividend to 4.0sen, which is slightly below our full year estimates of 6.0sen.

3QFY20 CNI improved by +2.8%yoy to RM5.1m, backed by revenue that increased by +10.9%yoy to RM45.0m. The higher income during the quarter can be attributed to higher contribution from some of its business process outsourcing (BPO) clients. We believe that the movement control order (MCO) has resulted in a spike in activities for its customers that has exposure to the e-commerce segment. During the MCO, the management was able to place more than 90% of its staff to work from home. On top of that, it was able to recruit additional headcount to support the higher volume of jobs requested by its customers to manage the increase in contact volume during the period. On the other hand, we believe that the Education Malaysia Global Services (EMGS) segment had been adversely affected as foreign students could not apply to study in Malaysia due to the Covid-19 pandemic.

Sequentially, CNI dropped -17.9%qoq while revenue dipped by -1.8%qoq. We believe that the EMGS segment registered weaker numbers compared to 2QFY20 due to lockdowns that happened in different cities in light of the Covid-19 pandemic. This was cushioned by the higher number of jobs from the BPO segment.

FY20E earnings estimates cut by 9.6% as we anticipate that the EMGS segment may be hit harder by the MCO and lockdowns in the region. Looking ahead, we expect 4QFY20 CNI to be further dampened by the lower number of student applications processed under the EMGS segment. In view of the current uncertainties, we also take a more conservative view on the dividend payout and cut our FY20E DPS to 5.0sen from 6.0sen. However, income from its collaboration with Qualitas for the Covid-19 integrated testing platform may cushion the impact of the slowdown in EMGS. We also trimmed our FY21F earnings by -4.8% as we expect a gradual recovery in the EMGS segment while we anticipate a conservative take up rate of the Covid-19 integrated testing platform due to the lack of enforcement for compulsory screening for now.

Source: MIDF Research - 1 Jun 2020