Earnings Report /
Pakistan

Systems Ltd: 2Q22 – Substantial performance backed by higher topline and exchange gains

  • SYS posted consolidated EPS of PKR6.34, up 93%YoY and 47%QoQ in 2Q, this came in higher than our expected EPS of PKR5.59

  • Gross margins increased by c.3.6ppt QoQ and remained flat YoY at 33.5%, slightly higher than our expectation of 32.7%

  • Other income has surged by a massive 94%QoQ to PKR647mn versus our expectation of PKR421mn amid greater exchange gains

Intermarket Securities
26 August 2022

SYS has posted a 2QCY22 consolidated NPAT of PKR1.76bn (EPS: PKR6.34), up 93% YoY and 47% QoQ. The result came in slightly higher than our expected earnings of PKR1.55bn (EPS: PKR5.59), higher-than-expected other income and reversal of other expenses lead to major deviation.

Key result highlights:

  • Net sales increased by 75% YoY and 15% QoQ to PKR6.1bn, majorly driven by: i) higher sales in existing exporting regions, coupled with fresh presence in new geographies, ii) continued addition of new employees, accompanied with introduction of new services, and iii) PKR devaluation of around 8% in 1HCY22. Topline was in-line with our expectation of PKR6.2bn.

  • Gross margins increased by c.3.6ppt QoQ and remained flat YoY at 33.5%, slightly higher than our expectation of 32.7%. The company posted decent GMs despite continuous addition of fresh graduates, which usually undergo training before contributing to the topline.

  • Other income has surged by a massive 3.4x YoY and 94% QoQ to PKR647mn versus our expectation of PKR421mn, due to greater exchange gains. We expected exchange gains of PKR276mn (c.PKR0.99/sh).

  • In other line items: i) finance cost rose by 170% YoY  to PKR75mn amid higher short-term borrowings and interest rates, ii) admin expenses have increased substantially by 104% YoY to PKR551mn in 2QCY22, and iii) the company has booked other expenses reversal of PKR16mn. We await availability of financial accounts for further clarity on this point. 

  • Effective tax rate clocked in at 7.1% vs. 2.1% in SPLY, due to absorption of super tax from deferred tax asset which was already available to the company. We expected an ETR of 7.4%.

SYS has posted an exceptional topline and profitability in 2Q, furthermore continuing the momentum of higher growth trajectory. This was primarily backed by: i) continued acquisition of new clients, corroborated with higher influx of orders from existing clients, ii) introduction of new compatible services, as well as expanding into new geographies, and iii) acquisition of new IT companies will further fuel growth in the coming years. Additionally, gross margins are likely to sustain current momentum amid exports to high margin regions and continuous slippage of PKR, coupled with higher contribution from new employees. Therefore, we reiterate our Buy stance on the scrip with a TP of PKR490/sh, offering potential upside of 26%. However, we look to revise our earnings and target price estimates in light of recent acquisitions, PKR slippage, and presence in new geographies.