Period 1Q12
Actual vs.
Expectations
The 1Q12
net profit (NP) achieved of RM2.9m was far below our full year NP forecast of RM21.5m
(making up only 14%) as we have factored in the contribution from its JV with Cosway
in China for 2H12.
The NP also
came in below the street’s estimate of RM18.8m (15%).
Dividends A
single first tier interim dividend of 5 sen per share was declared during the
quarter. We expect Eng Kah to distribute 22.5sen for FY12, which translates
into dividend yield of 6.5%.
Note that
the company has proposed a 1-for-10 bonus issue together with a 1-for-10 free warrants
issue last month.
Key Result Highlights
Revenue
declined 6% YoY due mainly to a more stringent credit sales control policy set
by the company and also because the higher growth registered in the previous
1Q11 came from a new MNC client from Australia then.
PBT dropped
by 13% YoY as additional costs were incurred for product trial runs and product
testing for potential new regional clients after the Thai flood last year as
well as quality control costs incurred pertaining to new product development
for clients.
NP
meanwhile declined 14% YoY from the lower PBT above and also due to a slightly
higher tax bracket in the quarter.
Despite the
lower revenue on a QoQ basis (-5% QoQ), Engkah registered a much better NP this
quarter as compared to 4Q11 (+16% QoQ). This is due to the higher operating
costs incurred in 4Q11 due to expenses spent for new product developments then
as well as marketing expenditures incurred for new opportunities in China and
Indonesia.
Outlook We are
still positive on Eng Kah’s prospect as its sales to multinational companies
(MNC) are still growing together with its existing and new potential clients.
We also understand from management that there will be a delay in the contribution
from its China’s JV. However, we still believe that the overall company’s
prospect remains bright as it rides on the strong potential of Cosway and its
MNC clients.
Source: Kenanga
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