ECS - Smooth sailing

Period    1Q12

Actual vs.  Expectations

 1Q12 net profit of RM8.1m was in line with expectations and accounted for 24.2% and 23.7% of ours and the street’s full year estimate respectively.

Dividends   No dividend was announced during the quarter.

Key Result Highlights

 YoY, the 1Q12 revenue of RM305.0m increased by 9.5%, thanks to higher performance from all its three business segments, namely ICT distribution (+5%), Enterprise systems (+18%) and IT services (+40%). The higher sales in its ICT distribution segment were mainly driven by more retailers stocking up for PC Fairs during March. Enterprise systems and IT services on the other hand were mainly boosted by higher sales of networking products, enterprise software and completion of a few project transactions.  Despite high single digit revenue growth, the group’s net profit was much higher by 15%, thanks to better gross profit margin in its Enterprise Systems and IT services segments. 

 QoQ, revenue dipped by 11% mainly attributed to the lower sales from its Enterprise Systems segment (-23%, to RM104.4m) as a result of seasonality factors. In tandem with its poorer turnover coupled with the lower PBT margin in its ICT distribution segment (2.0% vs 3.2%) and a higher taxation rate (28.2% vs 25.5%), the group’s net profit was down by 23%.  

Outlook   Remains bright, underpinned by robust IT spending and encouraging market trends. According to the latest IDC forecast, Malaysia’s ICT spending is estimated to reach USD8.2b (+10.1% YoY) driven by rising sales in the smart devices and ultrabooks.

Change to Forecasts

 No changes in our FY12-13E net profit of RM33.5m - RM35.6m respectively. 

Rating  MAINTAIN OUTPERFORM

Valuation    Maintaining our ECS TP at RM1.70, based on an unchanged targeted FY12 PER of 6.1x (+2SD).

Risks   Lack of or delay in new ICT products. 

 Slower growth in Malaysia’s internet penetration rate. 

Source: Kenanga