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Topline Flash Note: System Limited (SYS): Webinar takeaways

• Topline Securities hosted Systems Limited’s (SYS) management in a Webinar to discuss the impact of Covid-19 and how it is tackling the pandemic.
• The company has reported a growth in revenues of 39% YoY and in earnings of 71% YoY during 1Q2020. The management mentioned that excluding the impact of PKR depreciation, earnings still grew by ~28% YoY. The company has budgeted a PKR/USD of Rs165 till year-end.
• The management feels it is a difficult situation all around the world because of COVID-19, however it is an opportunity for IT consulting companies given the huge demand of moving from traditional brick and mortar businesses to digital businesses.
• The management believes three areas will always be in demand no matter what the external conditions are. 1) Digital (B2C, B2B), 2) Data and AI (enabling faster decision making) and 3) Cloud based services. All three areas are catered, and SYS should continue its growth momentum of 1Q2020 through the year.
• The management believes that the North American market is driving the growth for now, however expects Europe to catch up fast. In North America, the Insurance, Pharmaceutical and E-commerce segments are still flourishing and the company is taking benefit of being diversified.
• The management is of the view that the Middle East market is the most hit, however Middle East companies are looking to shift offshore to reduce costs, improve efficiency and have a back-up site available. It is a concept they were initially adverse to.
• On the local front, the company’s focus has been on private projects and as a result government based projects only account for 3-5% of total local business as the government’s tender system does not suit the company and is not very fruitful.
• Trade debts have depicted a rising trend in the recent past which is attributed to the fact that the company is operating in three continents. The front end entities operating in these areas need to be cash flow positive in order to fully deliver.
• The company’s cash flows are positive and even if no payments are received in the next six months, they will be able to survive. As per IFRS, the company has built in provisions as a buffer.
• The management believes in a skilled work force and has signed on senior executives to navigate through these tough times, and turn it into an opportunity.

OneLoad should be looked at from a valuation perspective and a growth story, instead of its impact on the bottomline.