Investors in Supercomnet Technologies Bhd (Scomnet), which manufactures wires and cables for the medical, automotive and industrial segments, have seen the share price fall 23% year-to-date. Over a three-year time horizon, however, most investors would be smiling, as its share price is up 45% — outperforming the broader market, which fell about 7%.
From 88 sen on Oct 18, 2019, its share price soared to an all-time high of RM2.30 in November 2020, when the world was grappling with Covid-19. The counter has since retreated from the peak to close at RM1.57 on Oct 17, giving it a market capitalisation of RM1.2 billion.
Still, an investor who had bought 100,000 Scomnet shares at RM88,000 in October 2019 would have pocketed RM69,000 in profits in just three years if he or she sold those shares at RM1.57 apiece — not too shabby, even though gains would have been RM142,000 in just over one year had he or she taken profit early.
Investors who stayed on would have received dividends. While Scomnet has no fixed dividend policy, its payout ratio has ranged between 40% and 50% of net profit in recent years. The group has been paying 1.5 sen per share as annual dividends since the financial year ended Dec 31, 2018 (FY2018).
Based on The Edge Billion Ringgit Club (BRC) awards methodology, total shareholder return over the three-year period between March 29, 2019, and March 31, 2022, works out to 25.1%, the highest among peers in the healthcare sector. Supercomnet bags this year’s BRC award for the highest return to shareholders over three years in the healthcare sector — its first win.
Its market-beating returns came on the back of its stellar financial performance. Scomnet took the spotlight amid the Covid-19 pandemic. Thanks to improved sales of higher-margin products in its medical segment, its profit after tax (PAT) for the second quarter ended June 30, 2022 (2QFY2022), hit a record high of RM9.4 million, when it surged 74% from RM5.41 million a year ago. It was further helped by a favourable foreign exchange rate, as its sales and purchases are transacted primarily in US dollars. Revenue for 2QFY2022 increased 22% year on year to RM39.86 million in 2QFY2022.
For 2QFY2022, the medical segment remained the critical growth driver, with a revenue contribution of 61%. This was followed by the industrial and automotive segments, with revenue contributions of 29% and 10% respectively.
In announcing Scomnet’s 2QFY2022 results on Aug 23, Scomnet managing director James Shiue Jong-Zone said the company was seeing high demand from the automotive segment, even though the medical segment was still the group’s key contributor profit- and revenue-wise.
“In the coming quarters, we expect revenue from the automotive segment to catch up to the medical segment level gradually,” Shiue said.
Incorporated on May 10, 1990, as a private limited company under the name of Supercomal Wires and Cables Sdn Bhd, the company changed its name to Supercomal Technologies Sdn Bhd in July 1998. It made its debut on Bursa Malaysia’s ACE Market in April 1999 and subsequently changed its name to Supercomnet in July 2009.
The company is in the midst of seeking a transfer of its listing to the Main Market from the ACE Market. This exercise is expected to be completed by year’s end.
“We believe this may help lift investor interest on the stock — which may lead to a re-rating — since investable medical technology stocks are scarce on Bursa,” says RHB Research analyst Loong Kok Wen.
Malacca Securities analyst Kenneth Leong concurs, adding that he expects Scomnet’s trading activities will garner greater interest from institutional participants upon completion of the exercise which currently accounts for less than 15% of its shareholdings.
Meanwhile, Loong expects Scomnet’s FY2022 earnings to grow by 34% y-o-y.
“Given the pipeline production, particularly for the medical segment, we estimate FY2022 and FY2023 earnings to grow by 34% and 20% respectively. Earnings in the coming quarters should be stronger quarter on quarter, given production volume for most medical products is back-loaded. With the improvement in earnings, we believe the dividend per share will also rise accordingly, maintaining a payout ratio within the 40% region,” she wrote in an Aug 16 report.
In a recent statement, Shiue said he remained optimistic about the group’s mid- to long-term prospects, underpinned by continuous growing customer demand, visible orders at hand and several new products in the pipeline. “In the remaining quarter of FY2022, we expect one of our new medical products to start contributing to our revenue, after a very long wait,” he said, adding that the group expects its performance for FY2022 to be satisfactory. In 1HFY2022, Scomnet recorded a 63% higher PAT of RM16.81 million compared with a year ago, while revenue rose only 8% y-o-y to RM75.84 million.