SYS has a good start

It’s been a good start to the year for a prominent local software house. As per a company notice sent to the stock exchange, Systems Limited (PSX: SYS) has scored significant growth in its consolidated top line and bottom line for the quarter ended March 31, 2019. At this pace, SYS, which derives most of its revenues from software exports, is expected to exceed the blockbuster performance it achieved in CY18, when the consolidated bottom line had exceeded the billion rupee mark.

The 1QCY19 performance is remarkable in two ways. First, the holding company (Systems Limited) has shown a much-needed strength during the quarter. The holding company provided 70 percent to the group top line but a higher, 93 percent to the bottom line. It provided 66 percent of the gain in consolidated top line, 78 percent of the increment in gross profit, and covered entire gains of operating and net profits in the quarter under review.

And second, the SYS financials – which are a summation of the results of holding company Systems Limited and its two subsidiaries – have shown resilience despite a drop in ‘other income’. The drop in PKR had helped the consolidated bottom line throughout CY18.

Now, in the first quarter this calendar year, there is yearly decline under the head of ‘other income’, as PKR decline has not been hat pronounced in this period.

Meanwhile, the two subsidiaries – the majority-owned E-Processing Systems (which sells airtime solutions in Pakistan) and the wholly-owned TechVista (which sells software development solutions in the MENA region) – are also growing in strength. The two subsidiaries’ combined top line grew by 53 percent year-on-year to Rs484 million in 1QCY19.

The subsidiaries, which are gradually raising their share in the consolidated top line, seem focused more on top line growth instead of profit margins at this stage. Standing at 30 percent of the consolidated top line, the subsidiaries provided a lower, 7 percent of consolidated operating and net profits in 1QCY19. That is down from 11 percent and 10 percent, respectively, from the same period last year.

But still, it’s good to have growth-stage subsidiaries become a source of net profits, no matter how small, instead of being a drain on profitability. At the bourse, SYS is currently trading below Rs100 threshold, down more than 10 percent in value in the year-to-date period. From what it looks, SYS would have to score more profitable quarters in the ongoing year to scale the peak of Rs127, last seen in July 2018.