net research

4QFY10 Results Update Lim Boon Ngee

30 August 2010

Price: 43 sen
Scicom (MSC) Bhd Market Capitalisation: RM114.7 million
Board: Main Market
Sector: Trading Services
Index Component: NIL
Stock Code: 0099 Recommendation: SELL

Key Stock Statistics FY10 FY11F FY12F

EPS (sen) 3.1 3.0 3.3 Volume (‘000)
P/E on EPS (x) 13.8 14.4 12.8
Dividend/Share (sen) 2.0 2.0 2.0
NTA/Share (sen) 19.5 20.0 21.0
Book Value/Share (sen) 19.5 20.0 21.0
Issued Capital (m shares) 266.8 266.8 266.8
52-weeks Share Price Range (sen) 22.0 – 54.5

Major Shareholders: %
Netinsat Asia Sdn Bhd 16.1
Leo Suresh Ariyanayakam 15.3
PT Telekomunikasi International 18.8

Per Share Data FY09 FY10 FY11F FY12F

Year-end 30 June 4QFY10 results highlights and review:
Book Value (sen) 18.6 19.5 19.5 20.0
Cash Flow (sen) 1.5 4.2 4.0 4.2 (RM million) 4QFY10 4QFY09 % Change
Earnings (sen) 3.3 3.1 3.0 3.3
Revenue 32.1 37.5 -14.4
Dividend (sen) 2.5 2.0 2.0 2.0
Payout Ratio (%) 76.2 64.0 67.0 59.4 Operating Profit 1.9 3.7 -47.4
PER (x) 13.1 13.8 14.4 12.8 Pre-tax Profit 1.3 3.9 -66.7
P/Cash Flow (x) 28.5 10.8 10.0 10.0 Net Profit 1.9 3.9 -51.3
P/Book Value (x) 2.3 2.2 2.2 2.0 Operating Margin 5.9 9.9
Dividend Yield (%) 5.8 4.7 4.7 4.7 Pre-tax Margin 4.0 10.4
Net Gearing (%)* n.c. n.c. n.c. n.c.
Net Profit Margin 5.9 10.4
*n.c.-net cash ___________________________________________

1. Scicom’s 4QFY10 results declined y-o-y

P&L Analysis (RMm) FY09 FY10 FY11F FY12F
Year-end 30 June
Revenue 144.7 122.7 129.0 144.0
• Scicom’s 4QFY10 revenue declined by 14.4% to
Operating Profit 12.6 8.1 9.4 10.5 RM32.1 million from RM37.5 million in
Depreciation (6.7) (7.1) (7.8) (8.1) 4QFY09 mainly due to lower contribution from
Pre-tax profit 9.5 7.5 8.6 9.7 the US, which dropped to RM1.4 million in
Effective Tax Rate (%) 8.7 - 7.4 7.4 4QFY10 from RM8.9 million in 4QFY09 as a
Net Profit 8.7 8.3 8.0 9.0 result of weaker demand and the company’s
Operating Margin (%) 8.7 6.6 7.3 7.3 strategic decision to refocus on other markets.
Pre-tax margin (%) 6.6 6.1 6.7 6.7 Consequently, Scicom posted a net profit of
Net margin (%) 6.0 6.8 6.2 6.2 RM1.9 million in 4QFY10, a 51.3% drop from
RM3.9 million in 4QFY09.

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• Revenue from Singapore in 4QFY10 fell 32.3% to RM10.3 million year-on-year, mainly due to Scicom’s
reclassification of billings from Singapore under category for ‘Others’. Consequently, revenue from
‘Others’segment rose to RM8.0 million in the quarter under review from RM1.0 million in 4QFY09.
• Scicom’s financial results were also adversely affected by the stronger ringgit, having to recognise a forex
loss of RM0.7 million in 4QFY10 compared to a gain of RM0.5 million in the previous corresponding
quarter. With the strengthening of Ringgit against US Dollar, Scicom recognised a loss on foreign exchange
of RM0.7 million versus a gain of RM0.5 million in the previous corresponding quarter.

FY10 results:

(RM million) FY10 FY09 % Change

Revenue 122.7 144.7 -15.2%
Operating Profit 8.1 12.6 -35.7%
Pre-tax Profit 7.5 9.5 -21.1%
Net Profit 8.3 8.7 -4.6%
Operating Margin 6.6% 8.7%
Pre-tax Margin 6.1% 6.6%
Net Profit Margin 6.8% 6.0%

• For FY10, revenue fell 15.2% to RM122.7 million from RM144.7 million in FY09. However, net profit
declined by only 4.6% to RM8.3 million from RM8.7 million previously. This is mainly due to the absence
of provision for doubtful debts and write-back of over-provision of tax of RM0.8 million in FY10.
• Scicom’s balance sheet healthy, having a net cash position of RM7.0 million as at end-June 2010
versus RM2.1 million three months earlier due to positive cashflow generated by operating
activities.

Earnings Outlook:

• Scicom has made a strategic decision to focus on growing its existing operations in Malaysia, Singapore
and the UK, where efforts are ongoing to pursue and secure new clients as well as to generate more
businesses from existing clients.
• The Group has decided to shutdown the call centre operation in the US due to weak demand for contact
management services, and will only be maintaining a sales and marketing office instead.
• Although contribution is still small, the group is optimistic about its call centre agent training division,
which started operation in end-CY08, and delivered about RM8 million in revenue in FY10.
• In Singapore, Scicom management expects demand for its call centre services from its telecommunication
client to pick up, as more products and services are launched.
• Going forward, we expect Scicom’s earnings growth to be relatively flat in FY11, with net profit of RM8.0
million compared to RM8.3 million in FY10. This is mostly undermined by the shutdown of the US
operations and the stronger Ringgit, albeit partially offset by single-digit organic growth in markets such as
Malaysia, Singapore and the UK. The Group’s financial performance may improve subsequently if it is
successful in growing its identified key markets, potentially underpinned by a more sustainable economic
recovery longer term.

3. Recommendation:

• Our forecast earnings per share for FY11 is 3.0sen. At a share price at about 43 sen, the stock is trading at
prospective PER of 14.3x.
• We are maintaining our SELL recommendation for now, due to its relatively high mid-teens PER and weak
near term earnings growth visibility. However, with positive cashflow from operating activities and net cash
of RM7.0 million as at end-June 2010, Scicom should be able to maintain 2 sen per share dividend in FY11,
translating to decent dividend yield of 4.7%.

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Investment ratings:
Buy (generally >10% upside over the next 12 months)
Hold (generally negative 10% downside to positive 10% upside over the next 12 months)
Sell (generally >10% downside over the next 12 months)

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