SCOMNET: Strong Medical Performance and Cost Efficiencies Drive Quarterly Earnings Beat
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
The company reported a robust financial performance for the third quarter of 2025 (3Q25), with net profit significantly exceeding expectations, primarily driven by strong contributions from its medical segment and enhanced operational efficiencies. This positive trend sets the stage for anticipated growth and recovery.
Performance Review
In 3Q25, net profit surged by 22.2% quarter-on-quarter (QoQ) to RM7.7 million, even as revenue saw a slight dip of 0.6% QoQ to RM37.6 million. Management highlighted that despite a decline in contributions from the industrial and automotive divisions, the robust medical segment provided a strong offset. The company’s pre-tax profit (PBT) margin notably improved by 6.2 percentage points, reaching 27.5%, attributed to high-margin medical product sales, improved operational efficiency, and a stable foreign exchange environment. Key clients, Customer A and Customer B, collectively accounted for 73% of 3Q25 sales.
Medical Segment Gaining Momentum
The medical segment is projected to be a significant growth driver, with sales contributions from Customer A and Customer B expected to grow by 5-10% QoQ in 4Q25, fueled by stronger demand for smart cables and single-use endoscopy products. This momentum is anticipated to extend into 2026. Key updates on its medical products include:
- Smart Cables: Orders for new smart cables from Customer B, used in critical care monitoring, are forecast to rise to 600-700 units per month in 4Q25, up from 500 units previously. This segment is expected to contribute approximately 28% more in FY26.
- EEG and Magnetar Cables: Scomnet has supplied 3,000 EEG units for a medical exhibition, with mass production planned for 3Q26. The Magnetar cable is scheduled for commercial production in September 2026.
- Intravenous Controller: The first shipment occurred in September 2024, with orders from IHS remaining modest until year-end. Demand is expected to increase as the customer expands this product into new regions.
- Mini-Drill: 960 sets were supplied for final testing in 3Q25. Mass production is slated for next year, with a projected capacity of 40,000 units per month.
- Nanomedicine Therapy Device: FDA results for Customer N’s nanomedicine residual value are expected by mid-December 2025.
Automotive Segment Outlook and Investment Recommendation
While the automotive division is expected to contribute only about 2% to revenue in 4Q25 and may register losses of approximately RM420,000 due to soft orders, the company is actively working to secure new customers to diversify its revenue base. Discussions with prospective new clients are progressing well, and a turnaround for the automotive segment, supported by higher wire harness orders, is anticipated in the second half of 2026.
Analysts maintain their FY25-27 earnings estimates, believing “the worst is behind the group.” The investment bank TA SECURITIES reiterated its BUY recommendation with an unchanged target price of RM1.05 per share, based on an unchanged 25x CY26 EPS.
