SYS is expected to post 4QCY21 consolidated NPAT of PKR1.0bn (EPS: PKR7.39), up 86% yoy, but slightly lower sequentially (down 2% qoq). Key expectations behind the massive jump in earnings are: (i) elevated revenue amid higher influx of orders coupled with the increase in number of employees during CY21, and (ii) exchange gains due to PKR devaluation. This will take the CY21 net profits to PKR3.6bn (EPS: PKR25.89), up 65% yoy. SYS is also expected to announce a final dividend of PKR6.50/sh, which compares well with PKR3.50/sh and 10% bonus shares last year.
Key expectations for 4QCY21 results:
Net sales are expected to rise 57% yoy and 11% qoq to PKR4.4bn. Key expectations are: (i) greater sales to US and UAE based clients, (ii) addition of new employees coupled with introduction of new services, and (iii) PKR devaluation of over 10% in the past two quarters. CY21 revenues will thus be PKR14.9bn, up 51% yoy, surpassing its last 5yr revenue CAGR of 32%.
We expect gross margins to rise by c.1.0ppt yoy, but they are likely to decline by 1.3ppt qoq to 32.7% in 4QCY21. The qoq decline in GMs is majorly due to the increase in number of fresh graduates hired earlier during the year, who usually go through extensive training programs (which last about 4-6 months) before adding to revenues.
Other income is expected at PKR214mn in 4QCY21 vs. PKR293mn in 3QCY21. The qoq decline is majorly due to lower PKR devaluation in 4Q, which will lead to lower exchange gains of about PKR136mn (c.PKR1.0/sh) in 4QCY21 vs. PKR253mn (c.PKR1.83/sh) in 3QCY21.
In other line items (i) finance cost is projected to rise by 11% yoy (10% qoq) as short-term borrowings and interest rates both have been increasing, (ii) distribution expenses will increase substantially from negative PKR6mn in 4QCY20, due to lack of one-offs, and (iii) effective tax rate is expected to clock in at 4% vs. 1% in SPLY.
SYS is likely to exceed 30% yoy growth in topline in the next 3-5 years – just as in 9MCY21 the topline has surged by a massive 49% yoy. This is backed by: (i) the continued acquisition of new clients, (ii) introduction of new services (such as SAP led services); on top of (iii) higher software implementation, cloud based and BPO services for international clients. Additionally, gross margins will ultimately expand beyond c.30% as growth in revenues will be driven mostly by the higher-margin US, UAE and European markets. Therefore, we reiterate our Buy stance on the scrip with a TP of PKR1,020/sh.