Singapore Computer Systems

Possibly Another Pleasant Surprise
05 March 2008



If you've reaped profit from Singapore Computer System's double good news in late February, you must be wondering if more can be expected in the future.

SCS's counter had been moving upwards a week before its financial year  results for 2007 were out.

Investors had been expecting either good earnings from the company or a consortium win for a S$1.3 bln Standard Operating Environment (SOE) contract.

Come Friday 28th February, those invested cheered.

SCS announced both winning the contract and showed off better than expected results.
So what now?

The good news is, based on SCS's latest numbers, it can still be considered as a value stock. The company istrading at a price-earnings ratio of 8.1 times

And comparing its book value to the current market price, we're looking at a value of 1.2 times

This is more than the ideal break-even point of 1. But are we expecting SCS to be bankrupt soon? No, so this doesn't really matter.

How about its net dividend yield? Taking into account a special payout, that would be a 3.5%.

But for DBS Vickers, this is not good enough. They are of the view that  despite the government project, margins are not likely to be attractive.

It is also not clear what percentage of the total project value would be attributable to SCS.
The research house has given it a HOLD call.

In an earlier report by SIAS Research last year, the analyst believed that the company has already been priced fairly and also gave it a HOLD call.

Although SIAS Research has not updated their report since last Friday's announcement, we note that both research houses have chosen to be more conservative with their estimates on the company.

DBS Vickers for one, refused to account for any income from the newly clinched SOE project.

They believe the bulk of the implementation will only be recognised in 2009 and 2010. But if you had stayed away from the counter because of the analysts' previous advice to HOLD, well you would have missed out on the profit gained from Friday's announcements.

It's not too late if you're still keen.

SCS is also competing for another SOE project from MINDEF.

Given that it has previously worked with MINDEF before, the chances are good that the company might win this too.

By Ashley Choo Investor Central

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