SYS continued to gain traction, with its share in Pakistan’s IT exports edging up to 6.9%

IMS Research has released a report on Systems Ltd (SYS), which reported consolidated 4QCY25 NPAT of PKR3.1bn (EPS: PKR2.1), marking a 53% YoY and 11% QoQ increase, bringing CY25 earnings to PKR11bn (EPS: PKR7.49). The growth was underpinned by sustained gross margins and continued strength in Pakistan’s IT exports, which rose 15% YoY during the quarter. The quarterly EPS was in line with our estimate of PKR 2.04. The company also announced a final cash dividend of PKR2.0/sh.

Key highlights from 4QCY25 results:

§ Net sales increased by 20% YoY (+11% QoQ) to PKR23bn, in line with our estimates. The performance was underpinned by a 15% YoY expansion in IT exports during the quarter. SYS continued to gain traction, with its share in Pakistan’s IT exports edging up to 6.9% during the quarter (vs. 6.7% SPLY). This outperformance is attributed to the company’s elevated exposure to the MEA region (57% of total revenues) and its inorganic growth initiatives.

§ Gross margins improved to 30%, up 7.2ppt YoY (0.7ppt QoQ). The improvement on an annual basis is likely driven by cost stabilisation and operational consolidation, marking the highest margin level since 3QCY22, following a period of sustained investment in human capital and inorganic expansion.

§ Other income declined to PKR148mn from PKR425mn in the SPLY. Meanwhile, impairment on financial assets resulted in a net loss of PKR635mn on contract assets, up from PKR339mn in the SPLY.

§ Distribution and administrative expenses rose to 15% of sales in 4QCY25, compared to 13% in 3QCY25 and 12% in 4QCY24, indicating a sequential and annual uptick in cost intensity.

§ The effective tax rate (ETR) increased to 14% in the quarter from 11% in 3QCY25, while the annual ETR remained relatively stable at 11% versus 10% in the prior year.

SYS delivered robust earnings growth of 53% YoY, driven by a sharp expansion in gross margins and 20% YoY revenue growth, primarily from core operations. We expect the topline trajectory to remain strong, supported by continued momentum in IT exports and incremental contribution from inorganic initiatives, with acquisitions of Confiz and BAT’s captive BPO business collectively expected to add c.PKR0.77/sh. That said, downside risks persist from potential softness in MEA demand amid ongoing geopolitical tensions, although this may be partially cushioned by currency depreciation, given c. 98% of SYS’s revenue is dollar-linked. We maintain our TP of PKR179/sh on the stock.