Review

• Supercomnet Technologies Berhad’s (Scomnet) 9M23 net profit of RM21.7mn (-19.3% YTD) was below our expectations and consensus at 55.1/57.3% of full-year forecasts respectively. The variance was largely attributed to weaker-than-expected sales.

• 9M23 PBT decreased by 21.0% to RM27.9mn as revenue fell 14.7% to RM103.2mn. The weaker result was due to: i) reduction in orders from all 3 segments, ii) higher electricity tariff, iii) one-off expenses of RM0.8mn related to the transfer of listing to the main market of Bursa Malaysia and iv) fair value expenses related to ESOS.

• 3Q23 net profit increased 1.4% QoQ to RM7.4mn despite lower revenue of 2.4% to RM32.5mn. We attribute the better performance to higher margin from automotive and industrial segments. PBT margin rose 0.7pp QoQ to 29.0%.

• A first interim single tier dividend of 0.5sen per share was declared.

• In terms of contribution, the medical segment remained the key earnings contributor to the group, accounting for 77% of sales while automotive and industrial segment accounted for 2% and 21% of revenue respectively.

Impact

• We maintain our earnings forecasts pending updates from management.

Outlook

• We are confident that 2024 will be a better year for the group, driven by improving demand for the medical segment and new customers. For instance, the overall demand for the IHS project is estimated at 1mn units per month, which will make IHS its top 3 customers in FY24.

Valuation

• Reiterate our Buy recommendation on the stock. No change to our TP of RM1.85/share based on 32.0x CY24 EPS.

Source: TA Research - 23 Nov 2023