Systems Ltd (SYS) Earnings Review

Introduction

Systems Ltd. (SYS) delivered another quarter of strong topline growth in 2QCY26, supported by higher IT exports and the consolidation of Confiz. While revenue and operating profit posted healthy double-digit growth, the bottom line was held back by a higher effective tax rate, rising finance costs and lower other income. The quarter also highlighted the resilience of SYS’s MEA business, which continued to grow despite regional challenges. We look at the key numbers, abnormal movements and what they mean for investors going forward.

What did Systems Ltd. report in 2QCY26?

Systems Ltd. (SYS) reported consolidated profit after tax of PKR3.03bn in 2QCY26, compared with PKR2.65bn in the same period last year, representing 14% YoY growth. Quarterly, profit remained flat. EPS stood at PKR1.98 versus PKR1.73 in 2QCY25. The result was below the estimated EPS of PKR2.15, primarily because of a higher-than-expected effective tax rate.

Why did revenue grow so strongly?

Revenue increased 38% YoY to PKR25.74bn and 7% QoQ. The major drivers were a 23% YoY increase in IT exports during the quarter and the consolidation of Confiz’s financials. The MEA region remained the largest revenue contributor, accounting for 59% of topline. Despite the ongoing regional conflict, MEA revenue grew 36% YoY, with management indicating that the verticals served by SYS have not been materially affected.

How did margins perform?

Gross profit increased 40% YoY to PKR6.65bn, slightly faster than revenue growth. Gross margin improved to 26% from 25% in 2QCY25 and was also higher than the previous quarter. The improvement was supported by stronger margins in the BFSI and Technology verticals, which increased by 1ppt and 5ppt YoY, respectively. However, Retail & CPG margins declined by 4ppt YoY.

Why did operating expenses rise?

Selling and distribution expenses increased 30% YoY to PKR882mn, while administrative expenses rose 42% to PKR2.05bn. Despite the increase in absolute costs, distribution and administrative expenses remained broadly stable at around 11.4% of sales, according to the report. Operating profit consequently increased 31% YoY to PKR3.42bn.

Is the increase in finance cost a concern?

Yes. This is one of the abnormal elements of the quarter. Finance cost jumped 128% YoY to PKR174mn and increased 35% QoQ. However, the absolute amount remains relatively small compared with SYS‘s operating profit and revenue. For now, this is a warning rather than a thesis-breaker. Investors should monitor whether finance costs continue accelerating in subsequent quarters.

Why did the company miss the expected EPS?

The primary reason was taxation. The effective tax rate increased to 13% in 2QCY26 from 11% in the same period last year and 9% in 1QCY26. This higher tax burden reduced the amount of operating profit flowing through to shareholders. This explains why profit before tax grew 17%, while profit after tax grew only 14%.

What other abnormal items appeared in the quarter?

Impairment losses on financial assets increased sharply to PKR240mn compared with a negligible PKR3mn reversal/expense in 2QCY25. On a 1HCY26 basis, impairment losses stood at PKR28mn versus PKR269mn in 1HCY25. Other income also declined 53% YoY to PKR227mn from PKR487mn, creating another drag on earnings.

How did the first half of CY26 perform?

For 1HCY26, revenue reached PKR36.74bn, up 35% YoY. Gross profit increased 37% to PKR9.29bn, while operating profit rose 29% to PKR5.08bn. Profit after tax declined to PKR5.15bn from PKR6.05bn, representing a 17% YoY decline.

What is driving SYS’s growth going forward?

The report identifies two major growth engines: organic growth through increasing IT exports and inorganic expansion through the acquisitions of BAT SAAS and Confiz Ltd. The company continues to benefit from its international revenue exposure. Around 91% of revenue is generated in foreign currency, while 57% of costs are incurred in PKR, providing a natural currency hedge according to the report.

Is the Middle East exposure becoming a problem?

Not according to the current quarter’s numbers. Despite the ongoing regional conflict, MEA revenue grew 36% YoY and remained SYS‘s largest revenue contributor at 59% of topline. Management also indicated that spending across the verticals served by SYS has not been materially affected. However, this remains an area worth monitoring because MEA represents a significant portion of the company’s revenue.

What is the valuation and analyst view?

Intermarket Securities maintained a Buy rating with a target price of PKR201 per share. The report states that SYS trades at CY26/27F P/E multiples of 13.3x and 10.3x, respectively, compared with its 10-year median P/E of 15.6x.

What are the key risks for investors?

The report highlights lower-than-expected growth, slower adoption or response to new technology, difficulty finding skilled resources or high employee turnover, and PKR appreciation. The immediate quarterly risks are also clear: the higher effective tax rate, rising finance costs, impairment charges and declining other income.

Conclusion

SYS delivered a strong operating quarter: revenue grew 38%, gross profit 40%, and operating profit 31% YoY. The underlying business growth remains impressive, particularly with Confiz consolidation and strong IT exports. The weak point is below-the-line performance. Higher taxation, a 128% YoY increase in finance costs, higher impairment losses and lower other income prevented stronger operating growth from translating into earnings growth. Overall, the report remains fundamentally positive, but the 14% PAT growth is less impressive than the 38% topline and 31% operating-profit growth. Verdict: Positive, but not a flawless quarter. The business is growing aggressively; the next test is whether SYS can convert that topline growth into faster bottom-line growth while controlling tax, finance and other costs.

⚠️ This post reflects the author’s personal opinion and is for informational purposes only. It does not constitute financial advice. Investing involves risk and should be done independently. Read full disclaimer →