Review

• Supercomnet Technologies Berhad’s (Scomnet) 1H23 net profit of RM14.3mn came in at 36.3/36.6% of ours and consensus’s full-year estimates. We deem the results to be within expectations as we expect the group to deliver a better performance in 2H23.

• 2Q23 net profit increased 4.0% QoQ to RM7.3mn despite lower revenue of 10.8% to RM33.3mn. The improved margins for medical equipment and favourable sale mix mitigated the lower revenue contribution from the automotive segment and resulted in a higher PBT margin of 4.1pp QoQ to 28.3%.

• In terms of contribution, the medical segment remained the key earnings contributor to the group, accounting for 69% of sales while automotive and industrial segment accounted for 11% and 20% of revenue respectively.

• YoY, 1H23 PBT declined by 16.7% to RM18.4mn while revenue decreased 6.8% to RM70.7mn. We attribute the weaker performance to: (1) lower revenue from medical and industrial segments, (2) post pandemic inventories adjustments by customers and (3) one-off expenses of RM0.6mn related to transfer of listing to the main market of Bursa Malaysia.

Impact

• We maintain our earnings forecasts.

Outlook

• We are sanguine that 2H23 will be better on the back of improving demand for the medical segment and maiden contribution from IHS in 4Q23. Note that overall demand for the IHS project is estimated at 1mn units per month, which will make IHS its top 3 customers in FY24.

Valuation

• No change to our target price of RM1.85/share, based on an unchanged 32.0x CY24 EPS. Maintain Buy on Supercomnet.

Source: TA Research - 23 Aug 2023