Tariff War: Systems Limited stands poised to turn challenges into opportunities

As global tariffs rise and businesses in developed countries seek cost-cutting measures, systems Limited (SYS) leverages Pakistan’s competitive outsourcing edge to cement its position as a key player in the IT services industry, company management informed an analyst briefing the other day.

It may be mentioned here the Trump administration has exempted smartphones, computers and semiconductor chips from reciprocal tariffs, a move that could ease potential price hikes for consumers and benefit major electronics companies like Apple and Samsung.

An analyst at IM Securities stated that Systems Limited (SYS) is not directly impacted by U.S. tariffs. Management believes the company remains unaffected, viewing this as an opportunity despite challenges in the global economy and low demand.

SYS anticipates that as businesses in developed countries seek to cut costs, there will be an increase in outsourcing, which could benefit the company.

Saudi Arabia has invited China to establish industries within its borders. Although the drop in oil prices has reduced current demand, it is expected to create new demand as China faces more tariffs.

Management asserts that Pakistan remains an ideal destination for outsourcing. During the COVID-19 pandemic, while many nations struggled, Pakistan experienced growth. The current challenges mirror those seen during the pandemic.

SYS’s revenue mix is heavily foreign currency-based at 94%, whereas 57% of its operating costs are denominated in PKR. While the services industry remains largely unaffected by tariff implications, short-term demand softness is anticipated from Northern U.S. and European markets.

SYS has set a 2025 top-line growth target of 26% in USD terms, emphasizing expansion within existing markets. Management remains optimistic about the company’s growth trajectory, supported by a healthy order backlog.

The company has made significant progress in talent retention, adding an average of 80 to 100 employees per month over the past year. Additionally, the management foresees minimal risk of increased taxation on the technology sector in the near future due to the sector’s relatively small size.

In the fourth quarter, a one-off trading transaction adjustment impacted gross margins. However, the company aims to gradually improve margins by 4 to 5 percentage points by maintaining stable fixed costs.

SYS management anticipates a 20% to 30% growth rate in IT exports. However, they highlight the importance of addressing key challenges such as branding, talent development, and infrastructure improvements to meet the government’s ambitious targets.