Review

• Supercomnet Technologies Berhad’s (Scomnet) FY22 net profit of RM33.0mn (+30.9% YoY) missed our expectations and consensus forecasts, accounting for 86.5/89.2% of full-year forecasts respectively. The variance was largely due to weaker-than-expected sales as Scomnet was unable to start manufacturing one of its new products due to defective products from its FDA-approved supplier.

• 4Q22 net profit declined 39.7% QoQ to RM6.1mn as revenue fell 17.3% to RM37.3mn due to: (1) inventory adjustment from one of its key customers, (2) lower demand for Endoscopy Video Cables, and (3) unfavourable foreign exchange rate.

• In terms of contribution, the medical segment remained the key earnings contributor to the group, accounting for 64% of sales while automotive and industrial segment accounted for 6% and 30% of revenue respectively.

• FY22 PBT increased 32.4% to RM42.9mn, ahead of revenue growth of 10.2% to RM158.3mn. The record profit was on the back of higher sales from existing customers as well as maiden contributions from new customers. Coupled with increased sales of high-margin products, PBT margin improved 4.5pp to 27.1%.

Impact

• We trim our FY23/FY24 earnings estimate by 14.6%/13.1% after lowering sales by 10.1%/9.7% as we expect lower contributions from IHS and Ambu.

Outlook

• We understand that demands for Scomnet’s medical products remain strong and continue to increase. In addition, we also expect higher contribution from the automotive sector, mainly for fuel tank and wire harness products.

• With regards to the issue with the supplier (defective products), management targets to resolve this issue by 2Q23. Note that Scomnet has been in talks with another FDA-compliant supplier for the supply of this product.

Valuation

• Following the earnings revision, we lower our target price to RM1.71/share (previously RM2.00/share) based on 32.0x CY23 diluted EPS. Maintain Buy on the stock.

Source: TA Research - 22 Feb 2023