KEY INVESTMENT HIGHLIGHTS

• 1QFY21 earnings within expectation

• 1QFY21 CNP improved +5.5%yoy to RM6.8m

• Sequentially, CNP jumped +54.2%qoq while revenue increased +23.6%qoq

• Online consumer product vertical within BPO activities to continue to support the financial performance of the group

• Upgrade to BUY with a revised TP of RM0.97

1QFY21 earnings within expectation. Scicom (MSC) Berhad’s 1QFY21 core net profit (CNP) came in at RM6.8m, accounting for 26.4% and 35.7% of our and consensus full year estimates respectively. Moreover, the company has announced an interim dividend of 1.5sen, which represents 25% of our full year estimate of 6.0sen.

1QFY21 CNP improved +5.5%yoy to RM6.8m while revenue increased by +9.2%yoy to RM52.5m. The higher profit during the quarter was attributable to higher contribution from several of its existing and newly secured business process outsourcing (BPO) clients, making up roughly 99% of the group’s total revenues.

Sequentially, CNP jumped +54.2%qoq while revenue increased +23.6%qoq. The increase in profit was on the back of higher transaction volume for its online consumer product during the quarter, partially supported by the increase in revenue from Education business through external online corporate training programmes.

Online consumer product vertical within BPO activities to continue to support the financial performance of the group. We gather that the movement control order (MCO) and travel ban have had a mixed impact on the financial performance of Scicom’s BPO business. However, it is worth noting that the revenue contribution from business activities of the group’s BPO clients largely within the online consumer product vertical outweighed the decline in revenue from the group’s BPO clients primarily in the tourism, leisure and the education verticals, leading to a net increase in the group’s BPO revenue by +9.3%yoy to RM52.48m. As such, we continue to foresee the e-commerce segment within the group’s BPO activities to continue to grow, supporting the financial performance of the group.

Earnings estimates. We make no changes to our earnings estimates, on assumption that the upcoming results are to continue to be in line with expectations.

Target price. Our TP is premised by pegging PER of 13.5x (previously 13.1x), which represents the group’s two-year historical average, to its FY21 earnings per share of 7.22sen.

Upgrade to BUY. Note that since the implementation of the MCO, the group has been recording a gradual increase in transactional volume for the BPO’s existing and newly-secured clients, specifically within the online consumer product vertical. As the BPO segment comprises of nearly 99% of the group’s total revenues, we continue to anticipate the group’s future earnings to continue to grow, backed by its BPO business activities especially the e-commerce division in theintermediate term. Dividend yield is estimated at +6.5%.

Source: MIDF Research - 30 Nov 2020