SYS: promising start to 2020

Among the few uplifting corporate results to have come out of PSX lately includes Systems Limited (PSX: SYS). The first quarterly financials, disclosed last week, signify strength for the leading software house. This comes after a strong performance in CY19. The strength shown in 1QCY20 is much-needed to be carried over into second quarter.

And it’s in the second quarter, ending June 2020, when impact of the pandemic will be clearly visible on the financials of PSX-listed corporates, with clear winners and losers in sight. The SYS management is confident that it would come out as the winner on the other side of the curve.

The holding company, Systems Limited, stands out in the quarter under review, contributing significantly to the gains made all the way from topline to bottomline. The holding company, which deals in software development, software trading and BPO business, is expected to weather the crisis better as its BPO business can score more clients during lockdowns abroad as demand for remote operations is increasing.

The company – which scores bulk of its revenues from overseas clients in North America, Europe and Middle East, and which accounted for 73 percent of net revenues and 96 percent of net profits in the consolidated financials for 1QCY20 – was helped, in part, by the surge in ‘other income’. This is attributable to the foreign exchange gains due to currency depreciation in the quarter.

In contrast, the two subsidiaries – the majority-owned EP Systems (which covers Pakistani market with airtime products like OneLoad) and the fully-owned TechVista (the Dubai-based firm that provides software development solution in the MENA region) – have together contributed positively to the consolidated topline, but their share in operating and net profits had somewhat reduced.

The latest director’s review suggest that going forward, the holding company expects to increase its foreign business by catering to increased overseas demand for services mainly BPO contact centers, IT support, managed services, cloud services, and digital e-commerce. With nationwide lockdowns making exceptions for software houses, BPO, and call centers, the firm can capitalize on these opportunities.

As for local business, SYS can count on its local telecom clients, whose revenues are almost shielded from the impact of lockdowns. Besides, the banking sector is also operational, albeit partially. The local EP Systems also seems well-positioned, through its network of retailers and shopkeepers, to ride a potential wave of pandemic-induced digitization in Pakistan. No wonder, the stock has rallied on the bourse post-lockdown, rising more than 50 percent since touching a panic-induced low in late March.