Scicom’s 1QFY19 results miss expectations, analysts downgrade ratings

KUALA LUMPUR: Scicom (MSC) Bhd (Scicom) reported a disappointing set of results for the first quarter of the financial year 2019 (1QFY19) with its core net profit declining by seven per cent quarter-on-quarter (q-o-q) to RM5 million while the 2.7 per cent q-o-q revenue growth was generally below expectations.

In a report, the research arm of Affin Hwang Investment Bank Bhd (AffinHwang Capital) pointedoutthatScicom’s1QFY19 core net profit slipped by seven per cent q-o-q to RM5 million due to lower contributions from the Business Process Outsourcing (BPO) segment and higher overheads/upfront costs for the Cambodian Tourism project, partly cushioned by higher earnings from the E-Solutions segment.

It added, BPO revenue had declined unexpectedly in 1QFY19 due to lower ad-hoc projects and lower activities from a main client.

While the E-solutions segment delivered higher profit driven by higher number of applications processed (up 38 per cent q-o-q), the research team said, the increase was not sufficient to offset the weakness elsewhere.

“All in, the results were below market and our expectations – 1QFY19 core earnings only account for 11 per cent of street and our full year earnings forecasts. The earnings miss was due to weak BPO revenue and low overall earnings before interest, tax, depreciation, and amortisation (EBITDA) margin,” it commented.

Meanwhile, MIDF Amanah Investment Bank Bhd’s research arm (MIDF Research) said, the Cambodia project may be delayed further even though the solution is ready to be rolled out because of some details that have not been ironed out.

“On top of that, the delay in a sizeable BPO project to 2HFY19 is also expected to affect the company’s performance,” it added.

Overall, MIDF Research cut its earnings forecast by 22.7 and 12.8 per cent for FY19 and FY20 to RM34.4 million and RM43.3 million, respectively. It had also reduced its revenue expectations by 10.6 and 5.9 per cent in FY19 and FY20 to RM190.1 million and RM212.9 million as it factor in the project delays as well as slower recovery in the EMGS segment.

It downgraded its call on the stock to ‘neutral’ from ‘buy’.

“WebelievethatScicom’snearterm outlook will be unexciting due to the further delay in the project implementation,” it added.

AffinHwang Capital also downgraded its call to ‘hold’. It said: “The soft immediate earningsoutlook(lacklustreBPO segment, timing uncertainty in Cambodian project) is balanced by good long-term business prospects (expertise in E-Solutions segment), and supported by its strong balance sheet (RM51 million net cash) and 5.3 per cent yield.”