SYS: exchange-gain delights

A prominent local software house looks set to close the ongoing calendar year on an even better note than the last one. For the six-month period ended June 30, 2018, Systems Limited (PSX: SYS) posted an impressive bottom-line growth over same period last year. The amelioration in consolidated financials was due only in part to better operating performance – a touch of non-core has surely helped.

Starting from the top, if one is to break down the impressive top-line growth in consolidated results, one sees that 56 percent of the yearly top-line gains came from SYS subsidiaries and the rest from the holding company, Systems Limited.

The latter’s top-line expanded by 21 percent year-on-year in 1HCY18, lower than the 113 percent growth seen in the combined top-line of the two subsidiaries. Resultantly, the holding company’s share in consolidated top-line went down from 81 percent in 1HCY17 to 71 percent in 1HCY18.

Clearly, the subsidiaries – E-Processing Systems (which is based in Pakistan and mainly provides airtime solutions) and TechVista (which is based in Dubai and provides software development solutions in the MENA region) – are adding vitality to SYS financials. Between the two, TechVista is the dominant entity providing much of the gains, whereas EP Systems is in early stages, likely making losses.

After a lackluster CY17, the good bit from the holding company this year is that it has posted a robust, 75 percent growth in its net profits. Consequently, it accounted for 93 percent of group profitability in 1HCY18, up from 87 percent in the year-ago period. The holding company’s better operating performance is in contrast to the two subsidiaries’. The subsidiaries, especially TechVista, have to spend more on core costs and operating expenses as they are focusing more on higher sales at this stage.

The non-core element helping SYS this year – through the holding company – has been the PKR depreciation relative to USD. Most of the company’s costs and expenses are in PKR. Export revenues account for three-fifth of its net revenues. Therefore, if PKR undergoes even more pressure in the coming months, it is only going to accrue more exchange-related gains for SYS in the remainder of CY18. Meanwhile, at the bourse, the SYS stock seems to be in good spirit. The share price as jumped about 50 percent in the year-to-date period – clearly outperforming the KSE-100 index, which has increased just over two percent YTD.