Profits grow for SYS

Pakistan’s oldest software house is apparently catching its breath. After recording double-digit to-line growth in recent years, Systems Limited (PSX: SYS) seems content with single-digit top-line growth this calendar year, as per SYS financials released yesterday for the half-year period ended June 30, 2017.

The holding company, Systems Limited, grew its top-line by about 2 percent year-on-year and shrunk its bottom-line by about 5 percent year-on-year in 1HCY17. This suggests that the Company’s two subsidiaries, E-Processing Systems (EP Systems) and TechVista Systems FZ, stepped up to help SYS lock in a higher, 8 percent top-line growth and a 21 percent bottom-line expansion in the six-month period.

The holding company is engaged in the business of software development, software trading, and business process outsourcing. EP Systems, which is 70 percent owned by SYS, is in the business of buying and selling of airtime, among other related services. TechVista, the Dubai-based 100 percent-owned SYS subsidiary deals in software development and ancillary services.

Thanks to helpful operating performance by the subsidiaries, SYS financials saw amelioration in the half-year under review. Compared to the year-ago period, SYS gross margin was up 219 basis points (bps) to 30 percent and the operating margin was also up by 343bps to 17 percent in 1HCY17.

More than four-fifth of SYS revenues are provided by the holding company, whose revenues have grown remarkably well in recent years. Between CY12 and CY16, its top-line growth averaged 26 percent, supported by rising export income from software solutions provided to North American market, besides growing trading income from software sales locally.

In that backdrop, does the top-line slowdown at the holding company mark a significant concern?

BR Research spoke to Asif Peer, CEO at Systems Limited, after the results’ announcement and understood that the company’s focus was now more on achieving higher margins instead of singularly achieving top-line growth. Going forward, there would be a selective approach towards local sales, which fetch comparatively lower margins compared to exports, the CEO explained.

Mr. Peer confirmed that top-line had been growing at both subsidiaries. He also seemed confident about positive return on the company’s investments in TechVista. As for EP Systems, he told BR Research that the subsidiary’s flagship product – OneLoad, a smart e-payment solution – was growing its users by 20 percent every month. All the telecom operators and many banks have joined the one-stop platform.

Moving on, SYS is expecting strong growth this year in business from North America as well as the Middle East region. Locally, it will try to finish the system integration project at the new Islamabad Airport, besides leveraging the software partnerships it has with two major software principals, IBM and Microsoft.

Meanwhile, the stock has been up over 14 percent in the year-to-date period, with an average daily trade volume of close to one lac shares. The stock price – which has oscillated in a wide range, between a low of Rs64 per share (September 6, 2016) and a high of Rs108.9 per share (February 10, 2017) – was seen at Rs76.39 per share by close of business yesterday, down 2 percent over previous day’s closing price.