Jun 27, 2018

SCICOM - Riding Cambodia’s Growth;

Symmetrical triangle breakout.

SCICOM could be riding on the healthy tourist growth (11.8% in 2017) in Cambodia, following the award of contract from Ministry of Tourism of Cambodia. SCICOM has a net cash of RM45.8m (12.9 sen/share) as of end March 2018 and its dividend yield stood at 4.5%. The share price suggests that SCICOM has experienced a symmetrical triangle breakout above RM2.00, accompanied by healthy volumes. Upside will be pegged around RM2.29- RM2.40, followed by a LT target of RM2.50. Support will be located around RM1.84-1.90, with a cut loss at RM1.80.

Figure #1 Weekly chart: Hovering above weekly SMA200:scicom technical analysis

Company profile. Scicom (MSC) Berhad (SCICOM) is engaged business process outsourcing (BPO), which features four core segments, namely (i) Customer Lifecycle Management, (ii) Education solutions, (iii) e-Commerce Solutions and (iv) e- Government services. At this juncture, the integrated solutions company has 64% of revenue generated from Malaysia, while the rest are registered internationally (Singapore, Philippines, Thailand, Sri Lanka and China).

Figure #2 Daily chart: Symmetrical triangle breakout above RM2.00scicom daily chart

Cambodia tourism management system project. SCICOM has been awarded a project by the Ministry of Tourism of Cambodia to develop, implement, operate and maintain a fully integrated Cambodia Tourism Management System for a period of five years with an extension option of two years. The expected revenue from this contract is dependent on the number of air travellers to and from Cambodia. SCICOM commented that it will not have any effect on its earnings until FY19. We believe the project is positive for SCICOM, judging from the healthy growth of 11.8% in 2017 of international tourist arrivals to Cambodia (Figure #3).

Net cash, decent dividend yield and compelling ROE. SCICOM has a net cash position of RM45.8m (12.9 sen/share) as of end March 2018 and its dividend yield stood at 4.5%. We believe given its expertise within the e-Solutions services would be able to maintain its compelling ROE of 34%, while continue to reward the shareholder with its healthy cash position. Despite the potential downside risk towards its current domestic, following the recent changes in Malaysia’s political scene, we believe the outlook remains positive supported by the international BPO clients as well as the project from Cambodia.

Figure #3 International tourist arrival to Cambodia (2012-2017)tourist to cambodia
Symmetrical triangle pattern breakout. SCICOM rallied since February 2018 from the RM1.68 level towards the 2018 peak of RM2.14 in March. Since then, it has been consolidating sideways within a symmetrical triangle formation over the past four months. We opine the uptrend remains intact as the prices are hovering the weekly SMA20 and above the daily SMA200 and volumes have been picking over the past two days with the price surging above the RM2.00 (trendline). We anticipate that the share price could retest the all-time-high of RM2.29, followed by RM2.40 as well as a LT target of RM2.50. Support will be pegged around RM1.84-1.90, with a cut loss set
below RM1.80.

source: HLIB Retail Research – 27 June 2018