Karachi, August 29, 2023 (PPI-OT): 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 (Up70.8%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 (Up~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.