Review

• As expected, Supercomnet Technologies Berhad’s (Scomnet) 1QFY23 net  profit of RM7.0mn came in at 17.3/17.8% of ours and consensus’s full-year  estimates. We deem the results to be within expectations as we expect a  better 2H23.

• 1Q23 net profit decreased 5.2% to RM7.0mn despite higher revenue of  3.9% to RM37.4mn. The higher revenue was driven by the automotive  sector, which offset the decline in revenue from the medical segment. We  attribute the weaker medical segment sales to: i) post pandemic inventories  adjustments by customers and ii) weaker demand for Endoscopy Video  Cables.

• PBT margin contraction (-2.9pp to 24.1% YoY) was due to the lower  medical segment contribution (higher margin than auto). In addition,  margins were affected by the higher electricity tariff and implementation of  Minimum Wages Order 2002.

• QoQ, revenue was flat while PBT improved to RM9.0mn as compared to  RM7.6mn in 4Q22. The better performance was on the back of higher sales  of higher profit margin products from the medical segment. This led to a  higher PBT margin of 3.8pp to 24.1%.

• In terms of contribution, the medical segment remained the key earnings  contributor to the group, accounting for 60% of sales while automotive and  industrial segment accounted for 20% and 20% of revenue respectively.

Impact

• Our FY23/24/25 earnings estimates are adjusted lower by 2.8/0.6/0.9% after  imputing FY22 audited numbers into our model.

Outlook

• We remain confident that 2H23 will be better as demand for Scomnet’s  products is expected to continue to increase. Note that the production  setup for the non-electric syringe infusion system (with adjustable flow rate  controller) is ready but the supplier issues may only be resolved in 4Q23.

Valuation

• Following the earnings revision, our TP is lowered to RM1.85/share  (previously RM1.86/share) based on an unchanged 32.0x CY24 diluted EPS.

Source: TA Research - 30 May 2023