Earnings Report /

Systems Ltd: 1QCY22 review – higher revenues and exchange gains boost earnings; in line

  • SYS posted consol NPAT of PKR1.2bn (EPS: PKR4.35), up nearly doubling yoy but down 34% qoq, in line with expectations

  • Revenues increased by 75% yoy largely due to greater sales, addition of new employees and PKR slippage

  • SYS continues to impressive, exceeding its 5yr revenue and earnings CAGR in 1QCY22

Intermarket Securities
28 April 2022

Systems Ltd (SYS) has posted a consolidated NPAT of PKR1.2bn (EPS: PKR4.35), nearly doubling yoy, while down 34% qoq. Earnings have come broadly in line with our expected EPS of PKR4.12. The yoy increase in profits are majorly due to (i) massive rise in revenues and (ii) higher other income led by higher exchange gains. The qoq decline in earnings is attributed to the PKR816mn one-off gain booked on FV adjustment of EP Systems (an associate of Systems Limited) in the last quarter.

Key result highlights for 1QCY22:

  • Net sales have increased by 75% yoy and 12% qoq to PKR5.3bn, in line with our expectation of PKR5.3bn. The major reasons behind the massive jump in revenues are: (i) greater sales to US and UAE-based clients, (ii) introduction of new services, coupled with the addition of new employees, and (iii) PKR devaluation of c.2% in 1QCY22.

  • The company has posted gross margins of 30%, down 5.0ppt yoy and 0.8ppt qoq basis. GMs came in line with our expectation of 30%. The yoy decline in GMs is majorly due to a continuous increase in the number of fresh graduates hired in CY21 and 1QCY22, who usually go through extensive training programs (which last about 4-6 months) before contributing to revenues.

  • Other income increased to PKR334mn in 1QCY22 vs. PKR269mn in 4QCY21. The qoq increase is majorly due to higher exchange gains amid sharper PKR devaluation in 1Q. During last quarter, SYS had booked a one-off gain of PKR816mn, on account of fair value adjustment booked on SYS’s stake in EP Systems (a Fintech), following the sale of a stake to the Gates Foundation.

  • Among other line items (i) Finance cost has increased to PKR33mn, up 57% yoy due to higher short-term borrowings and interest rates; (ii) Admin expenses have jumped by 79% yoy to PKR434mn, likely due to higher salary expenses (we await detailed financials for more clarity on this); (iii) share of loss from associates of PKR75mn and (iii) effective tax rate clock in at 2.2% in 1QCY22 vs effective tax rate of 3.9% in 1QCY21.

SYS has posted massive revenue and earnings growth of 75% yoy and 99% yoy in 1QCY22, exceeding its last 5yr revenue and earnings CAGR of 38% and 56%, respectively. This is broadly backed by: (i) continued acquisition of new clients, coupled with a growing presence in new geographies, (ii) introduction of new services (such as SAP-based services), and (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 PKR490/sh.