Scicom selloff may have been excessive, says Affin Hwang

KUALA LUMPUR: Scicom Bhd's 30% drop in share price since early December may have been overdone, said Affin Hwang Capital research as it upgraded the counter to a "buy" rating with a target price of RM1.40.

The research house said Scicom's steep decline in share price is likely due to disappointing 1QFY19 results, a broad-based selloff in Malaysia-listed e-services providers partly led by the cancellation of Prestariang's SKIN contract, and Scicom's low share liquidity, which likely exacerbated the magnitude of the selloff.

However, Affin Hwang said Scicom's business fundamentals remain intact and the earnings disappointment is now priced in while the derating seemed excessive.

"At a CY19E PER/yield of 11.8x/7.6%, Scicom’s valuation looks attractive. 

"We like the group’s expertise in E-Solutions and high ROE/asset-light business model. Its robust balance sheet and high yield should cushion any short-term earnings fluctuation," it said.

The research house said management expects the business-process outsourcing business activities to recover in 3Q FY19 once the prevailing client commitments translate to actual work. 

It added that Scicom has processed higher number of foreign student applications in 1Q FY19 and the group is looking to expand its scope of work.

On the Cambodia Tourism Management System project, Affin Hwang said it is intact 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."