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Scicom to Benefit from growing BPO market (Star Biz - 2016)

17 Jun 2016 (Fri)

KUALA LUMPUR: PublicInvest Research expects Scicom, which is Malaysia’s largest outsourcing company, to benefit from the growing global business process outsourcing (BPO) market.

It said on Friday various industry forecasts expect the market to grow by 6%-9% over 2013-2020, with a projected market size of US$220bil by 2020. Malaysia’s ranking as a major outsourcing destination has improved from 32nd in 2007 to 18th in 2014.

PublicInvest Research said Scicom should benefit from this global trend, it said. The company has chalked a five-year earnings compounded annual growth rate (CAGR) of 33% and has been profitable since its inception in 1997.

“Coupled with its clean balance sheet, we think there is still room for dividend payout to increase from current ratio of 80% (3.4% dividend yield).

“We value the stock at RM2.68 based on 20 times FY17F EPS, which translates to a price-to-earnings growth (PEG) of 1.3 times. Its US peers are trading at lower PE multiple of 17 times but their earnings growth potential is also lower at an average of 9%.

“Meanwhile, Malaysia’s e-government service providers are valued at an average price-to-earnings ratio of 23 times 2017 earnings,” it said.

PublicInvest Research pointed out Scicom is supporting customers from over 37 countries in 30 languages from its call centres in Kuala Lumpur and Colombo, and derives 70% of its revenue from outside Malaysia.

For e-government services, Scicom is the sole service provider appointed by the Ministry of Education to process foreign student visas via the Education Malaysia Global Services (EMGS).

The portal was developed by Scicom, complementing the government’s objective to make Malaysia a regional education hub and achieve foreign student enrolment of at least 200,000 by 2020 from 100,000 currently.

“Scicom’s business model requires limited capex as it is mainly driven by human capital and software systems. As a result, the company has zero borrowing and has been sitting on a net cash position (RM36.6mil at March 31, 2016). It also pays an attractive payout of about 80%, though we believe there is still room for higher dividend payment given the strong earnings growth and low capex requirement.

“Malaysia has been gradually moving up the ranks as one of the major outsourcing destinations due to its ability to offer multi-lingual customer care and support services.

“Scicom’s business is easily scalable and replicated across various sectors, judging from its diversified pool of customers.