Saturday, August 29, 2009

Scicom Net Profit Up 44% yoy, ROE at 18%

Scicom's net profit jumped 43.7% yoy to RM 8.701 million in the FYE June 30, 2009. Sales increased by 22.3% yoy to RM 144.672 million.

The improvement is mainly due to increased billing from new projects secured during FY2009, gain from forex as USD appreciated vs RM, and contribution from educational division which was launched during FY2009.

However, Scicom’s full year performance was significantly affected by a net loss of RM 0.88 million in 3Q09 due to the provision for doubtful debts on outstanding receivables amounting to RM 4.607 million for debts deemed to have high recoverability risk in the current economic crisis. Another provision was allocated in 4Q09 albeit at a smaller amount of RM 0.478 million, thus bringing the total provision for doubtful debts to RM 5.085 million for FY2009. Risk remains where Scicom may record more provision in the following quarters as current economy still remain in shambles.

But according to Scicom in its 3Q09 report, "The current global financial crisis has also resulted in an increase in recoverability risk for the Group’s receivables. The Group has made sufficient provision for debt that is deemed to have a high recoverability risk."

For 2010, Scicom has a positive view - "The Group continues to intensify its business development activities in all of its business divisions and is confident that the Group will have robust growth for 2010."

FY2009 - ROE at 18.3%, D/E less than 2%, CR at 3.95x
NPM at 10.47% in 4Q09, compared to 7.62% in 4Q08 and 4.47% in 1H09
NPM at 6.01% in FY09 vs 5.12% in FY08

For FY 2008, though sales up 9.14% yoy, Scicom's NPAT declined 46.46% yoy, mainly due to the depreciation of USD vs RM (clients are billed in USD previously), reduction in operating margins by some of the major clients due to cost-cutting measures, and longer than expected sales cycle for major new business. Before that, Scicom had a good track record with increasing sales and higher profits. NPM was 10.38% in FY07 and 11.67% in FY06.

A final dividend of 1.5sen is expected to be paid out in October/November, adding to the 1sen interim dividend paid in March. Total dividend is 2.5sen for FY2009, up 25% from 2sen paid in both 2007 and 2008.

Thursday, August 20, 2009

Warren Buffett Has Something To Say About US Economy

Op-Ed Contributor
The Greenback Effect
Published: August 18, 2009

IN nature, every action has consequences, a phenomenon called the butterfly effect. These consequences, moreover, are not necessarily proportional. For example, doubling the carbon dioxide we belch into the atmosphere may far more than double the subsequent problems for society. Realizing this, the world properly worries about greenhouse emissions.

The butterfly effect reaches into the financial world as well. Here, the United States is spewing a potentially damaging substance into our economy — greenback emissions.

To be sure, we’ve been doing this for a reason I resoundingly applaud. Last fall, our financial system stood on the brink of a collapse that threatened a depression. The crisis required our government to display wisdom, courage and decisiveness. Fortunately, the Federal Reserve and key economic officials in both the Bush and Obama administrations responded more than ably to the need.

They made mistakes, of course. How could it have been otherwise when supposedly indestructible pillars of our economic structure were tumbling all around them? A meltdown, though, was avoided, with a gusher of federal money playing an essential role in the rescue.

The United States economy is now out of the emergency room and appears to be on a slow path to recovery. But enormous dosages of monetary medicine continue to be administered and, before long, we will need to deal with their side effects. For now, most of those effects are invisible and could indeed remain latent for a long time. Still, their threat may be as ominous as that posed by the financial crisis itself.

To understand this threat, we need to look at where we stand historically. If we leave aside the war-impacted years of 1942 to 1946, the largest annual deficit the United States has incurred since 1920 was 6 percent of gross domestic product. This fiscal year, though, the deficit will rise to about 13 percent of G.D.P., more than twice the non-wartime record. In dollars, that equates to a staggering $1.8 trillion. Fiscally, we are in uncharted territory.

Because of this gigantic deficit, our country’s “net debt” (that is, the amount held publicly) is mushrooming. During this fiscal year, it will increase more than one percentage point per month, climbing to about 56 percent of G.D.P. from 41 percent. Admittedly, other countries, like Japan and Italy, have far higher ratios and no one can know the precise level of net debt to G.D.P. at which the United States will lose its reputation for financial integrity. But a few more years like this one and we will find out. (lets wait and see what will happen)

An increase in federal debt can be financed in three ways: borrowing from foreigners, borrowing from our own citizens or, through a roundabout process, printing money. Let’s look at the prospects for each individually — and in combination.

The current account deficit — dollars that we force-feed to the rest of the world and that must then be invested — will be $400 billion or so this year. Assume, in a relatively benign scenario, that all of this is directed by the recipients — China leads the list — to purchases of United States debt. Never mind that this all-Treasuries allocation is no sure thing: some countries may decide that purchasing American stocks, real estate or entire companies makes more sense than soaking up dollar-denominated bonds. Rumblings to that effect have recently increased.

Then take the second element of the scenario — borrowing from our own citizens. Assume that Americans save $500 billion, far above what they’ve saved recently but perhaps consistent with the changing national mood. Finally, assume that these citizens opt to put all their savings into United States Treasuries (partly through intermediaries like banks).

Even with these heroic assumptions, the Treasury will be obliged to find another $900 billion to finance the remainder of the $1.8 trillion of debt it is issuing. Washington’s printing presses will need to work overtime.

Slowing them down will require extraordinary political will. With government expenditures now running 185 percent of receipts, truly major changes in both taxes and outlays will be required. A revived economy can’t come close to bridging that sort of gap.

Legislators will correctly perceive that either raising taxes or cutting expenditures will threaten their re-election. To avoid this fate, they can opt for high rates of inflation, which never require a recorded vote and cannot be attributed to a specific action that any elected official takes.

In fact, John Maynard Keynes long ago laid out a road map for political survival amid an economic disaster of just this sort: “By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.... The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”

I want to emphasize that there is nothing evil or destructive in an increase in debt that is proportional to an increase in income or assets. As the resources of individuals, corporations and countries grow, each can handle more debt. The United States remains by far the most prosperous country on earth, and its debt-carrying capacity will grow in the future just as it has in the past.

But it was a wise man (and my best partner) who said, “All I want to know is where I’m going to die so I’ll never go there.” We don’t want our country to evolve into the banana-republic economy described by Keynes.

Our immediate problem is to get our country back on its feet and flourishing — “whatever it takes” still makes sense. Once recovery is gained, however, Congress must end the rise in the debt-to-G.D.P. ratio and keep our growth in obligations in line with our growth in resources.

Unchecked carbon emissions will likely cause icebergs to melt. Unchecked greenback emissions will certainly cause the purchasing power of currency to melt. The dollar’s destiny lies with Congress.

Warren E. Buffett is the chief executive of Berkshire Hathaway, a diversified holding company.

"There is the plain fool, who does the wrong thing at all times everywhere, but there is also the Wall Street fool, who thinks he must trade all the time. No man can have adequate reasons for buying or selling stocks daily - or sufficient knowledge to make his play an intelligent play." - Jesse Livermore