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SYS 1HCY22 Analyst Briefing Takeaways, (AKD Off the Analyst's Desk Sep 01, 2022)

AKD, Off the Analyst's Desk

SYS: 1HCY22 Analyst Briefing Takeaways

Systems Limited (SYS) held its corporate briefing today for 1HCY22. To recall, the company recorded PkR11.5bn in revenue, growing substantially by 75%YoY. Furthermore, earnings for the year clocked in at PkR3.0bn (+96%YoY), with PkR1.2bn earned in the 1QCY22 and PkR1.8bn in the second quarter. Key takeaways from the meeting are;
 Revenue mix for the consolidated financials was 38% from North America, followedby 41% from Middle East & Australia, 6% from Europe and 15% from Pakistan. Operations in the Middle-East and Australia region have increased exponentially, growing by 137%YoY to clock in a revenue of PkR4.7bn. Furthermore, North America and Europe also post tremendous growth, up 53%YoY and 45%YoY respectively.
 Digital services continue to be the core of the company’s income, providing 80% of the revenue. BPO has further shrunk its contribution (5%) while managed services increase to 15%. The management believes digital services and consultancy to be the path to growth going forward.
 In terms of the client mix, the total number of active clients bringing more than US$100k in revenue has increased from 80 in 1HCY21 to 108 in 1HCY22. Hence, the company has been able to diversify its revenue, with the top 5 clients now contributing 29% while the top 10 clients clock in at 40%.
 With a well diversified revenue profile amongst various industries, the management was confident about its hedge against industry cycles along with the potential to grow in these sectors. The Telecommunication sector remains the largest revenue generator at 20%, followed by BFS at 19%, Retail & CPG at 18% and the Technology sector at 15% while others make up the remaining 28%.
 The company has further expanded its global reach, opening offices in Singapore, Egypt, and South Africa. With this, Systems now operates in 11 countries through its direct or indirect reach.
 The company anticipates operating margins to sustain themselves. Although the new regions bring better pricing power, they require the company to invest heavily during the first phase, where the offices are setup and efforts are put into client acquisition. As the new regions are operated by wholly owned subsidiaries, the consolidated financials will see better gross margins along with a positive impact on income as revenue is boosted.
 As the company expands into new regions, contribution to total costs by the PkR have decreased to 76% from 80%. On the flipside, revenue from foreign currencies has in-creased to 85% of the mix. Due to this, the company was able to record PkR665mn in other income during 1HCY22 as the local currency slid against the Dollar.
 The company has further hired ~400 new employees as it continues to build its bench, increasing its workforce by 65% since CY19, taking total number of employees to 5,570.The company expects this growth to continue as it plans to meet the demand in new regions along with handling recurring clientele. The company has been able to take on more clients due to larger force, and hence has been able to sustain revenue per em-ployee to ~US$30k.
 In an update on Oneload, the start-up has reached PkR10.6bn GMV in 1HCY22, up by 53%YoY. Although the number of active retailers has decreased to 32,251 Systems has been able to increase the throughput per retailer, hence maintaining immense growth. Furthermore, EP Systems acquired US$11mn in funding during the half year, as its EMI product is on the verge of launch.
 The company is under the process of acquiring NdcTech, a regional partner of Temenos. The start-up is operating in the Banking industry, handling the core banking services of its clients. Major clientele in Pakistan includes SBP, Meezan bank, and UBL, while the company boasts 75+ clients in 17 countries.
 NdcTech is expected to boost consolidated revenue by ~10-15% according to manage-ment, along with the space to grow in the Banking sector as SYS has finally entered core banking services. Furthermore, NdcTech makes 85% of its revenue in USD with 15% in PkR, hence keeping consolidated revenue for Systems hedged against the depreciation of the local currency.
 The company is in a hyper-growth stage according to management. With the increased global spending on IT post-Covid, there is confidence that the growth can be sustained. Moreover, the management will remain on the look-out for in-organic growth if they believe the opportunity will create synergies. This is backed up by the fact that it recent-ly announced the agreement to acquire TreeHouse Consultancy, an IT services provider in the Middle-East, along with its subsidiaries and associates.