Scicom (MSC) Bhd
(July 25, 91.5 sen)
Downgrade to neutral with an unchanged target price (TP) of 96 sen: Scicom (MSC) Bhd has been served an originating summons by Education Malaysia Global Services (EMGS) wherein the latter is seeking to enforce a right under an agreement signed between the two parties on Nov 1, 2012.

Scicom has sought and obtained legal advice that the originating summons filed by EMGS is without merit.

We believe the legal case may not lead to a significant financial impact in the near term. However, we do not rule out the possibility that this case may affect investor sentiment. It was reported by the media that Scicom is one of the contenders for the Integrated Immigration System, which led to an increase in Scicom’s share price.

We note that these two events are separate as one is under the purview of the education ministry, while the other is under the home ministry.

We have made no changes to our earnings forecasts as we believe it will be business as usual for Scicom as its operations should continue concurrently while litigation takes place.

Moreover, we have not factored in other new sizeable contract wins to our financial year ended June 30, 2019 (FY19) and FY20 estimates.

Our TP of 96 sen is based on 15 times FY20 forecast earnings per share of 6.41 sen.

We have downgraded the stock to “neutral” mainly due to the recent rebound in its share price, which resulted in a limited upside in the near term. Its dividend yield is estimated at 6.3%. — MIDF Research, July 25