Scicom’s fundamentals are intact despite decline in share price, selloff

KUCHING: Scicom (MSC) Bhd’s (Scicom) business fundamentals are intact, analysts say, despite the steep decline in share price on earnings miss and broad-based selloff in Malaysia-listed e-services providers.

According to Affin Hwang Investment Bank Bhd (AffinHwang Capital), Scicom’s share price is down 30 per cent since early December on soft earnings and the broad selloff in Malaysia- listed e- services providers.

Broadly, the research firm believed that Scicom’s business fundamentals are intact, the earnings disappointment is now priced-in and the derating seems excessive.

“In view of Scicom’s stable business fundamentals, the selloff looks excessive,” AffinHwang Capital opined.

“At a current year 2019 estimate ( CY19E) price earnings ratio (PER)/yield of 11.8-fold/7.6 per cent, Scicom’s valuation looks attractive.

“We like the group’s expertise in E-Solutions and high return on equity ( ROE)/ asset- light business model. Its robust balance sheet and high yield should cushion any short-term earnings fluctuation.”

AffinHwang Capital highlighted that Scicom’s business operations are largely intact given that the business- process outsourcing (BPO) segment has seen lower revenue in financial year 2018 ( FY18)/ first quarter of FY19 ( 1QFY19) due to lower client activity.

“Management expects the BPO business activities to recover in 3QFY19, once the prevailing client commitments translate to actual work.”

The research firm also highlightedthattheE-Government Solutions business remains stable, noting that Scicom has processed higher numbers of foreign student applications in 1QFY19 and the group is looking to expand its scope of work.

Moreover, the Cambodia Tourism Management System project is intact, the research firm said, but the launch date will likely slip into January 2019 (from December 2018).

“Meanwhile, discussions on the utilisation of the tourist development fund and future scope of work are still ongoing.

“As such, we expect Scicom to only realise full revenue potential from this starting in FY20.”

In view of the stable business operations, strong free cash flow (FCF) and robust balance sheet, AffinHwang Capital believed Scicom’s annual dividend per share (DPS) of nine sen is sustainable, translating to an attractive yield of 7.6 per cent per annum.