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Setting The Course For Imminent Recoveries

Post results briefing from management, we now have better clarity on Scomnet’s recent developments and prospects. While 1H21 was uneventful due to 1Q21’s spiralling costs and 2Q21’s re-implemented Movement Control Order (MCO), the coast is now clear for Scomnet with these temporary hiccups mostly resolved. We expect a stronger 2H21,
backed by resilient order book visibility and commercial production of new products from Scomnet’s broad spectrum of key clients. Maintain BUY. Target price: RM2.15.

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WHAT’S NEW

• A commendable 2Q21, despite MCO disruptions. Despite a top-line shortfall due to nationwide workforce restrictions and a one-week plant closure, Supercomnet Technologies Berhad (Scomnet) delivered a stronger net profit (+10.7% qoq) with significant margin uptick (+3.5% qoq). In 2Q21, business segment Supercomnet Technologies Berhad (STB) is back in the black after 1Q21’s losses.

• Stage is set for a solid 2H21 recovery. With the group receiving approval from the Ministry of International Trade and Industry (MITI) to operate at 100% workforce from 1 Sep onwards, and the issues of spiking raw material costs as well as freight expenses in 1Q21 having been largely resolved, we deem that Scomnet’s earnings are on track for a robust
recovery in 2H21. The strong recovery will be mainly supported by subsidiary Supercomal Medicals Products’ (SMP) resilient orderbook which will last until 1H22. Management also guided that SMP’s existing orders for 2021 will see a 30% yoy growth.

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• Major catalysts abound to fuel supercharged growth. Scomnet is poised for a new leg of growth which will anchor a robust two-year net profit CAGR of 50% in 2022-23. This will be driven by: a) commercial launches of numerous new FDA-approved products (rotational thrombectomy devices, oximetry sensors, wound occluders and insertion tubes) which will begin production from 4Q21 onwards; b) soaring demand for Covid-19-related medical devices; c) positive contributions from newly-secured US medical client; d) commencement of fuel tank production for automotive client Naza PSA; and e) near-term capacity expansion to fulfil explosive demand for the medical segment’s products.

• Imminent mainboard listing could catalyse a potential valuation re-rating. Scomnet is also preparing for its mainboard transfer which is expected to complete in 2H22. This will further strengthen its unique proposition as an emerging healthcare proxy.