Summary

• In-line with expectations. In 4QFY23, SCOMNET registered core PAT of RM6.1m (- 27% QoQ, flat YoY), bringing the core PAT to RM28.8m (-13% YoY). The core net profit was within expectations, accounting to only 97.1% and 90.5% of ours and consensus estimates. Core PAT was adjusted for (i) fair value gain on other financial asset, (ii) PPE written off, (iii) gain on disposal of PPE, and (iv) gain from scrap sales and other disposal.

• YoY. The core PAT increased 24% YoY as compared to RM4.9m in 4Q22, despite a dip of -7% in revenue due to decreased orders from industrial segment and temporary dip in demand for automotive segment, but it was offset by resurgence of demand for Endoscopy Video Cables. Also, the increased in sales of medical products with better profit margin and favourable foreign exchange has lifted the core PAT margin to 18% (from 13%).

• QoQ. Core PAT dropped -13% QoQ after factoring in several one-off gains this quarter, despite an improvement in the medical segment, particularly with the resurgence of demand from Endoscopy Video Cables.

• YTD. As compared to FY22, FY23 core PAT fell 9% on the back of significant decline in the industrial segment by -45% as well as higher electricity tariff.

• Dividend. No dividend was declared this quarter.

• Solid balance sheet. As at end-FY23, SCOMNET continues to maintain a solid balance sheet with zero borrowings and a cash position of RM27.5m.

• Outlook. Going forward, the medical segment (71% and 79% of total revenue in FY23 and 4Q23 respectively) will be the main contributor to SCOMNET, premised on the introduction and commercialisation of new products in the pipeline and higher demand from Endoscopy Video Cables. Over the next 3 years, SCOMNET will construct a new 5-storey building to house the production of new medical products, and will boost the production floor space by 12k sqm.

Valuation & Recommendation

• Forecast. Maintained.

• Maintained BUY with TP at RM1.50. We maintain BUY on SCOMNET with a target price of RM1.50 (upside or 16.3%). Our target price is derived by assigning a target P/E multiple of 38.0x to FY24f diluted EPS of 3.95 sen.

• Investment risks include potential delay in the FDA approval of new product launches which affects the prospects of growth in new income stream. Fluctuation in raw material costs may affect margins whereby material cost accounts approximately 75.0% of SCOMNET production costs. Exposure to currency risk as most of their products is sold in USD.

Source: Mplus Research - 29 Feb 2024