Eng Kah Corporation - OUTPERFORM - 15 JUNE 2012

News   Eng Kah has declared a first interim single tier dividend of 5 sen per share for FY12.

  

Comments   The interim dividend of 5 sen above came in generally in-line with our full year expectations of 22.5 sen in dividends, which translates into an attractive full-year gross dividend yield of 6.1%.

 The payout ratio for 1Q12 was greater than 100% based on 1Q12 EPS of 4.7sen. 

 Note that the company was able to maintain such a high dividend payout for the quarter mainly due to its net cash position of 22 sen per share as at March 2012.  

  

Outlook  We continue to be positive on Eng Kah’s prospect as its sales to MNCs are still growing together with the sales to its existing and new potential clients. 

 However, we understand from management that there will be a delay in the contribution from its China’s JV. 

 Nonetheless, we still believe that the overall company’s prospect remains bright as it rides on the strong potential of Cosway and its MNC clients.  

  

Forecast  Maintaining our FY12-13E net profit estimates of RM16.2m-RM20.1m. 

  

Rating Maintain OUTPERFORM

 Based on our TP of RM4.05, the stock remains attractive with a total return of 16% from the current price. Thus, we are reiterating our OUTPERFORM call.

  

Valuation   Our TP of RM4.05 is based on an unchanged 12.5x Fwd PER over FY13 EPS of 32.4 sen.

  

Risks  The risks to our call are a slowdown in the global economy, which would cut down the purchasing power of consumers.  

Source: Kenanga