ECS ICT - No surprises

Period   1H12

Actual vs. Expectations

1H12 net profit of RM13.7m accounted for 40.8% of ours and the street’s full year estimate. We consider this to be within expectations as we expect a stronger 2H due mainly to more products launching and seasonality factor. 

Dividends  No dividend was announced during the quarter.

Key Result Highlights

1H12 net profit rose 9% to RM13.7m, due mainly to improved sales coupled with higher interest income of RM0.72m (from RM0.13m previously). 1H12 revenue rose 4% to RM614.6m, thanks to higher performance from all its three business segments, namely ICT distribution (+5%), Enterprise systems (+1%) and IT services (+19%). 

The higher sales in its ICT distribution segment were mainly driven by  encouraging sales from tablet PC and 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. 

QoQ, despite 2Q12 revenue inched up marginally by 1%, net profit plunged 31% mainly attributed to lower sales from its higher margin Enterprise Systems segment (-12%, to RM91.9m) as a result of seasonality factor. As such, its PBT margin and net profit margin deteriorated by 1.3% and 0.8% respectively.

Outlook  Remains bright, underpinned by robust IT spending and encouraging market trends.

The lower consumer demand for Notebook PCs has mitigated by the increasing popularity of Tablet PCs and Ultrabook PCs. Recently, the group has started to distribute the Eclipse 4G smartphone to its IT channel retailers. We believe this will provide additional revenue stream to the group in future.

 

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