• In 4QFY09, Scicom (MSC) Bhd’s revenue grew by 17.6% to RM37.5 million from RM31.9 million in 4QFY08.
• For the full year, revenue rose 22.3% toRM144.7 million from RM118.3 million in FY08.
• The growth in FY09 revenue was due to more services rendered to an existing client in Singapore and a new client in Malaysia. The US dollar strengthening against the Malaysian Ringgit and its call centre agents training
division, which started operation in late-2008, also boosted revenue
• Scicom’s Singapore-based client, a telecommunication company, launched several key products, i.e. smartphone and iPhone, during Scicom’s FY09. This has resulted in setting up of dedicated contact lines by Scicom to service the customers of these products.
• In Malaysia, Scicom secured the AirAsia Bhd account in late-2008. This has contributed to its growth in the country. The AirAsia account is handled by a 50:50 joint venture company between Scicom and AirAsia. Since May 2009, all AirAsia’s customer contact management service has been handled by the JV firm. In FY09, the account contributed about 5% of Scicom’s revenue.
• Scicom’s operating expenses in FY09 reduced slightly to 91.3% of revenue from FY08’s 94.9%. Employee benefits cost forms a bulk of the operating expenses. The lower operating expenses in comparison to FY09’s revenue show that Scicom’s efforts to reduce cost and improve efficiency have yielded results.
• 4QFY09 pre-tax profit margin recovered to 10.3%. In the preceding quarter, 3QFY09, Scicom recorded a pre-tax loss of RM0.6 million due to provision amounted to RM4.6 million made for doubtful debts deemed to have high recoverability risk.
• In 4QFY09, Scicom made a provision of RM0.5 million for trade debt. Scicom management said the trade debt is owed by a small client overseas and has age profile of over six months. Steps are being taken to recover the amount owed. Now that most of its clients comprise of MNCs, it expects incidence of payment default to reduce.
• These provisions dragged Scicom’s FY09 pre-tax profit margin to 6.6%. However, it is still higher than the 5.5% achieved in FY08.
• Scicom proposed a final tax exempt dividend of 1.5sen per share. It had earlier paid an interim tax exempt dividend of one sen per share. In total, dividend payment is 2.5 sen, which is 0.5 sen higher than expected. The payout ratio is high at 76.2% of FY09 net profit although lower than FY08’s 86.9%. At current share price of 28.50 sen, Scicom’s net dividend yield for FY09 is high at 8.8%.
• Scicom’s balance sheet is healthy, with minimal debt and net cash of RM6.1 million.
• Cashflow-wise, Scicom’s operating activities generated RM9.1 million in FY09. Purchase of plant and equipment (RM8.0 million) and payment of FY08 final dividend and FY09 interim dividend (Total: RM5.3 million) decreased its cash balance to RM6.8 million at as end-FY09 from RM10.5 million as at end-FY08.
2. Earnings Outlook:
• We expect Scicom’s FY10 revenue to grow by about 10% to RM160 million-mainly boosted by fullyear contribution from the AirAsia account and higher billings from its Singapore client, which is expanding its products offering and this will result in higher demand for Scicom’s customer contact management service. We expect revenue from the US and UK to be flattish, as Scicom clients there are undertaking cost cutting exercise and not expanding their products offerings.
• We expect Scicom to achieve pre-tax profit margin of close to 9% in FY10. This translates into pre-tax profit of RM14.1 million. Our earnings forecast is mainly based on Scicom being able to achieve an operating expenses of 91% over revenue and provision for doubtful trade debt of not more than RM1 million. Scicom management said it does not expect further provision for non-trade debt. With an expected tax rate of about 7%, the forecast net profit is RM13.0 million.
3. Recommendation:
• Our Scicom’s forecast earnings per share for FY10 is 4.9 sen. The stock is currently trading at prospective PER of 5.8x for FY10. With the expected earnings growth, we think value is starting to emerge from this stock, as it was trading at prospective PER of close to 10 times in FY09. With a higher than expected final dividend, Scicom’s net dividend yield for FY09 is high at 8.8%.
• We expect Scicom to be able to at least maintain net dividend of 2.5 sen in FY10. Its ability to pay is supported by its net cash of RM6.1 million, positive cashflow from its operating activities and low capital expenditure in FY10 (about RM3 million).
• Hence, we are upgrading our HOLD recommendation to BUY based on Scicom’s prospective PER of 5.8x for FY10 that is supported by expected earnings growth and healthy net dividend yield of 8.8%.
By Netresearch
Analyst: Lim Boon Ngee
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