Medical Segment Updates
We gather that contribution from Ambu declined by 30% in 3Q22 (vs. 1Q22) but this was offset by higher contribution from Edwards Lifesciences, which increased by 30% in 3Q22 (vs. 1Q22) driven by increased orders of reusable cables, which will continue till June 2023. We attribute the weaker contribution from Ambu to stock adjustment (from 6 months to 2 months) following Ambu’s profit warning in June 2022 and lower demand for endoscopy (-20%). In addition, management shared that its previous target of 10k units per month for Ambu Gastroscopes has been reduce to 3k units per month over the next 2 quarters. As for Mermaid Medical, management shared that the group sold about 1.5k units of the D*Clot HD in 3Q22 but only able to deliver 540 units per month (Mermaid wants 2k-4K unit monthly) till 1Q23 given the shortage of raw materials. Meanwhile, we understand that Plass' soldier first aid hemostatic product (wound occluder) is still awaiting FDA approval.
Positively, the growth momentum of Scomnet’s medical segment will be driven by maiden contribution from IHS. IHS Intravenous (IV) Controller will begin commissioning next week with about 10k units. Thereafter, if IHS agrees with the quality, Scomnet will mass produce a total of 4 types of IHS Syringe Infusion system (300k unit per month). As such, management expects that IHS FY23 revenue contribution to inch closer to Edward’s contribution (about 25% of Scomnet’s revenue). Separately, the expansion project ‘2nd floor expansion’ (990 sqm) is on track for completion by 4Q22 and will cater for its new medical products.
Automotive Segment will Grow in FY23
In line with the localisation policy, Scomnet’s automotive sector will be boosted by orders from Stellantis. The mass production for fuel tanks and wire harness is expected to begin in Feb 2023 and April 2023 respectively. We understand that Scomnet will supply to 2 different Peugeot models (about 500 units for each model per month) while the third Peugeot model is still in discussion (pending LOA). In our forecast, we assume FY23 automotive segment revenue to surge by 63%.
Expecting 4Q22 to be Flattish
To recap, Scomnet’s 9M22 net profit of RM26.9mn (+55.6% YoY) has surpassed its FY21 earnings of RM25.2mn, thanks to higher sales from all three segments (medical, automotive and industrial). On a QoQ basis, 3Q22 earnings improved to RM10.1mn as compared to RM9.4mn in 2Q22. Moving into 4Q22, we expect Scomnet to post a flattish QoQ result. In all, we expect Scomnet’s earnings to grow by 51.3% to RM38.2mn. Thereafter, we project FY23 earnings to increase 40.8% to RM53.7mn driven mostly by maiden contribution from IHS and better automotive segment performance.
Separately, management guided that MITI has approved Scomnet’s application for the transfer of listing to the Main Market. The group hopes to submit the application to Bursa Malaysia by the end of 2022.
Forecast
Maintain FY22-FY24 earnings forecasts.
Valuation
We maintain our Buy recommendation with an unchanged target price of RM2.00/share based on a target PE of 32.0x CY23 diluted EPS.
Source: TA Research - 25 Nov 2022
