Supercomnet Technologies Bhd’s earnings forecasts has been revised downwards by Malacca Securities, at the back at lower core earnings.
In its research note today (Nov 23), the research house said the earnings forecasts were cut by 23 to 25% to RM29.7 million, RM32.3 million and RM34 million.
It maintains a BUY rating for Supercomnet with lower TP at RM1.50, derived by assigning a target P/E multiple of 38x to FY24f diluted EPS of 3.94 sen.
“(The forecasts are following) core earnings that below expectations. In 3QFY23, the group recorded core earnings at RM8.2 million, down by 3% QoQ and down by 17% YoY, bringing the core net profit for 9M23 to RM24.1m, down 10% YoY.
“The core net profit was below expectations, accounting to only 60% and 62% of ours (RM39.1 million) and consensus (RM37.9 million),” it said.
For the quarter, a 0.5 sen dividend was declared and to be distributed by Dec 7.
Malacca Securities added the core earnings have taken into account the fair value expense related to share options granted under ESOS RM1.6 million for 9M23 and RM0.78 million on the transfer of listing expenses to main board while the key deviations were mainly due to
softer-than-expected demand in the medical and industrial segments.
The research house noted that Supercomnet has a solid balance sheet, and as at end-3QFY23, the group has zero borrowings and a cash position of RM50 million, in addition to margins that has grew above 25% for the quarter.
“Going forward, the medical segment (77.0% and 68% of total revenue in 3Q23 and 9M23 respectively) will be the main contributor to the group, premised on the introduction and commercialisation of new products in the pipeline.
“Also, the factory expansion plans are on track with the 2nd floor expansion in existing operations will add 990sqm of floor space. Over the next 3 years, it will construct a new five-storey building to house the production of new medical products, and will boost the production floor space by 12,000 sq m.
On investment risks, Malacca Securities said that it could include potential delay in the FDA approval of new product launches which affects the prospects of growth in new income stream.
“Fluctuation in raw material costs may affect margins whereby material cost accounts approximately 75% of the group’s production costs. Exposure to currency risk as most of their products is sold in USD.”
