SYS is expected to post 2QCY21 consolidated NPAT of PKR677mn (EPS: PKR4.94), up 25% yoy and 13% qoq. Key expectations behind the handsome jump in earnings are: (i) higher gross margins due to greater revenues, and (ii) lower exchange losses qoq.
Key expectations for 2QCY21 results:
Net sales are expected to rise 37% yoy (up 4% qoq) to PKR3.2bn, led by the increase in number of employees (where IT professionals grew by 23% yoy in 2020) which would have helped SYS in providing more software solutions coupled with BPO, cloud and AI based services to existing and new clients, in our view. Note that in the past three quarters, SYS’s revenues have grown by an average c.35% yoy. Average PKR/USD, however, appreciated by c.5% yoy in 2Q (3% qoq).
We expect the gross margins to increase by 2ppt yoy and 0.5ppt qoq to 35.4% in 2QCY21. An expected increase in services to the US and European clients is attributed, as both regions offer better margins than local and Middle East markets.
SYS is likely to post negative other income of PKR71mn in 2QCY21 vs income of PKR33mn in 2QCY20, as PKR appreciation (on average basis) will lead to exchange losses as c.80% of company’s revenue are exports. However exchange losses should decline qoq.
In other line items (i) finance cost is projected to rise by 112% yoy (32% qoq) as short term borrowings doubled yoy by March 2021, (ii) distribution expenses will more than double to PKR58mn, where higher salaries and other expenses will increase the total cost, and (iii) effective tax rate is expected to clock in at 4% in 2QCY21 vs 2% in SPLY.
We foresee that the topline of SYS will maintain 30% yoy growth in the next three years mainly due to higher software implementation, cloud based and BPO services for international clients which have been undergoing rapid digital transformation. Additionally margins should continue to expand as growth in revenues will be driven mostly by the US and European markets (in the latter, we are expecting growth in times due to low base effect) and both regions offer margins of more than 40%. Therefore, we have a Buy stance of the scrip with a TP of PKR685/sh.
Courtesy – Intermarket Securities Limited.