KEY INVESTMENT HIGHLIGHTS

• FY20 earnings came in within expectations

• FY20 CNI of RM22.1m improved by +7.52%yoy from RM20.5m

• Longer-than-expected travel restrictions continue to drag EMGS earnings

• Online consumer product vertical within the group’s BPO activities to continue to be focal point

• Maintain NEUTRAL with revised TP of RM0.95

FY20 earnings came in within expectations. Cumulatively, the FY20 core net income (CNI) of RM22.1m came in within ours and consensus expectations, accounting for 107% and 102% of full year estimates respectively. The company announced an interim dividend of 1.0sen, bringing ytd dividend to 5.0sen, which met our estimate.

FY20 CNI of RM22.1m improved by +7.52%yoy from RM20.5m, backed by its revenue that increased by +12.5%yoy to RM181.3m. We gather that the higher income was derived from higher contribution from several of its existing and newly secured business process outsourcing (BPO) clients, making up nearly 99% of the group’s total revenues.

Longer-than-expected travel restrictions continue to drag EMGS earnings. We gather that the earnings from the group’s Education Malaysia Global Services (EMGS) segment continue to weaken as all corporate trainings continue to be deferred as foreign students could not apply to study in Malaysia as an impact of Covid-19. Taking into consideration the longer-than-expected travel restrictions coupled with the current economic deceleration, we continue to posit a bleak outlook on the segment in the near-term.

Online consumer product vertical within the group’s BPO activities to continue to be focal point. Although we note a sharp decline in billings from the group’s BPO clients within the tourism, leisure and the education verticals, this decline, however, was compensated by higher contribution from business activities with its BPO clients within the online consumer product vertical. Plus, we gather that certain projects within this e-commerce segment have requested for additional headcount to manage the increase in transactional volume. Therefore, moving forward, we anticipate the e-commerce segment within the group’s BPO activities to continue to be the focal point and compensating the weakening financial performance of the other segments.

Earnings estimates. Factoring in the marginally higher contributions from the group’s BPO clients within the online consumer product vertical for FY20, we have slightly increased our earnings estimates for FY21 and FY22 by +3.1% and +3.5% respectively.

Target price. Our TP is based on PER of 13.1x (previously 15.0x), which is the group’s two-year historical average, to its FY21 earnings per share of 7.22sen.

Maintain NEUTRAL. Note that since the implementation of the recovery movement control order (RMCO) in June, the group has been recording a gradual increase in transactional volume for the BPO’s existing and newly-secured clients. As the BPO segment comprises of nearly 99% of the group’s total revenues, we foresee the group’s future earnings to continue to be supported by BPO business activities especially by the e-commerce division in the-intermediate term. Balance sheet remains strong with net cash of RM29.1m. Dividend yield is estimated at 6.5%.

Source: MIDF Research - 1 Sept 2020