SYS_Earnings fall short of expectations (AKD Off the Analyst's Desk Aug 29, 2023)
AKD, Off the Analyst's Desk
SYS: Earnings fall short of expectations
SYS just announced its 2QCY23 result, posting a consolidated PAT of PkR1.4bn (EPS: PkR4.86/sh) vs. PAT of PkR1.8bn (EPS: PkR6.34/sh) in the SPLY. On a QoQ basis, the company posted a 63.5% drop in earnings, due to the impact of exceptionally high exchange gains earned in 1QCY23 and an overall increase in expenses for the quarter. Total 1HCY23 EPS clocked in at PkR18.22/sh (↑70.8%YoY) owing to high revenue and exchange gains vs. SPLY. Company has not announced a dividend payout for this period.
- The hike in revenues during the 1HCY23 can be attributed to significant growth in all verticals and the MEA region showing an exponential growth of ~165%, leading geographical sales. In business verticals, the BFSI (Banking, Financial Services and Insurance) business witnessed growth from PkR2.4bn to PkR7.1bn leading the verticals in revenue generation.
- Margins remained lower and under pressure owing to investment in subsidiaries and inflationary pressures driving up costs, however the company managed to increase margins QoQ by optimizing revenues and costs (2QCY23: 27.8% vs. 26.1% in 1QCY23).
- A higher impairment loss on a QoQ is recorded owing to prudently writing down value of carrying investment value of JOMO which the company believes inaccurately captures the fair value.
- Finance cost increased YoY and QoQ owing to record high interest rates and an increase in short term borrowings (↑~PkR1.2bn vs. Dec’22 position) owing to working capital requirements.
- Other income during the quarter remained lower after achieving record high levels last quarter owing to substantial exchange gains. However, in aggregate they lent support to propel earnings during 1HCY23 vs. SPLY.
- Although taxation remains low for the company owing to being an IT and ITeS exporter, the effective rate this quarter remained higher at 10.1% vs. 2.8% last quarter due to the impact of supertax and its retrospective impact, in our opinion.
AKD Research
AKD Securities Ltd. is one of the leading securities firm in Pakistan, providing a comprehensive range of investor focused services, including equity brokerage, economic and securities research, investment banking and financial advisory services. AKD Securities accounts for more than 6% of the average daily value of the Karachi Stock Exchange. AKD Securities was the first brokerage house to launch an online trading platform in Pakistan in November 2002 and now has the largest market share with over 6000 customers. This has helped diversify and expand the retail investor base in the country and ushered in a whole new universe of investors to the stock market.
AKD Securities Ltd. caters to a diversified group of domestic and international institutional investors, high net worth individuals and upscale retail clients, including expatriate Pakistanis. With high quality research, unparalleled execution and distribution capability for both regular and large block trades, AKD Securities Ltd. has earned an outstanding reputation in the Pakistani securities industry.Outside of commercial banks, AKD Securities Ltd. is one of the biggest capital market firms in the country. AKD Securities is the leader in raising and providing risk capital in underwriting, market making and mergers and acquisitions in Pakistan. Good corporate governance and professionalism are emphasized throughout the firm and AKD Securities Ltd. is amongst the very few companies to have introduced a firm-wide comprehensive CODE of ETHICS, overseen by an independent compliance manager.Ultimately, our success is based on the quality of service we provide to our customers and the trust and confidence reposed in us by them. Our focus, therefore, remains on customer satisfaction at all levels in the company.
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