Systems Ltd announces a final dividend of PKR5.0/sh and 100% bonus shares

Systems Ltd (SYS) has posted consolidated NPAT of PKR1.82bn (EPS: PKR13.22), up 233% yoy and 76% qoq. Earnings have come in higher than our expected EPS of PKR7.39, due to a one-time gain from fair value adjustment of EP Systems. If we exclude this then the normalized EPS would be PKR7.31, in line with our expectation. The result takes the CY21 net profits to PKR4.38bn (EPS: PKR31.72), up 102% yoy. SYS has announced a final dividend of PKR5.0/sh and 100% bonus shares also vs. our expected DPS of PKR6.5 and bonus of 10%. The payout has outclassed our and market consensus expectations.

Key result highlights for 4QCY21:

Net sales have increased by 70% yoy and 20% qoq to PKR4.8bn, higher than our expectation of PKR4.4bn. Major reasons behind massive jump in quarterly revenues are: (i) greater sales to US and UAE based clients, (ii) higher revenues through addition of new employees coupled with introduction of new services, and (iii) PKR devaluation of 3.3% in 4QCY21. CY21 revenues have thus risen to PKR15.3bn, up 55% yoy, surpassing its last 5yr revenue CAGR of 32%.

The company has posted gross margins of 29%, down 2.5ppt yoy and 4.8ppt qoq. The qoq decline in GMs is majorly due to the increase in number of fresh graduates hired during the year, who usually go through extensive training programs (which lasts about 4-6 months) before adding to revenues.

Other income has increased to PKR269mn in 4QCY21 vs. PKR293mn in 3QCY21. The qoq decline is majorly due to lower PKR devaluation in 4Q, which led to lower exchange gains during the quarter. SYS has booked a one-off gain of PKR816mn in 4Q, on account of fair value adjustment booked on SYS’s stake in EP Systems (a Fintech), following sale of stake to the Gates Foundation. The gain is included in Other income in the table below.

Among other line items (i) finance cost has increased to PKR45mn, up 65% yoy and 62% qoq due to higher short-term borrowings and interest rates; (ii) admin expenses has jumped by 5.1x yoy to PKR580mn in 4QCY21, most likely due to higher salary expenses (we await detailed financials for more clarity on this); (iii) there is a share of loss on associates of PKR83.4mn (this is also a part of Other income in the table below), and (iii) a tax reversal of PKR15mn vs effective tax rate of 13% in 4QCY20.

SYS has so far exceeded its last 5yr revenue and earnings CAGR of 32% and 40%, respectively, and has posted a revenue growth of 55% in CY21 and normalized earnings growth of 69% (this is after excluding one-off gains and losses). This is broadly backed by: (i) the continued acquisition of new clients, (ii) introduction of new services (such as SAP based services), on top of (iii) organic growth in existing services: software implementation, cloud based and BPO services for international clients. We reiterate our Buy stance on the scrip with a TP of PKR1,020/sh.

Courtesy – Intermarket Securities Limited.

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