Eng Kah’s 9MFY12 earnings of RM10.2m were largely in line expectations, accounting about 73.1% of our and 72.4% of street’s full-year forecasts. A third interim single-tier dividend of RM0.05 was declared, in line with our expectation. 3QFY12 earnings were higher q-o-q on improved margin. We like Eng Kah for its solid balance sheet, generous dividend payout, new MNC customers to boost its sales and potential growth from its China venture over the long-term. We are maintaining our Buy call on Eng Kah with a revised fair value of RM4.00, pegging at its 5-year average PER of 16.4x, based on its enlarged share outstanding post-bonus issue.
Improved bottom-line in 3QFY12 despite lower top-line. Eng Kah’s 3QFY12 bottom-line of RM3.8m was 9.8% higher q-o-q (+29.3% y-o-y) despite a drop in revenue to RM21.0m (-5.1% y-o-y; -8.5% q-o-q). EBIT margin during the quarter under review improved from 18.4% in 2QFY12 to 21.7%. This is due to a change in product mix that fetches higher margin and improvement in working capital management as well as lower cost incurred for product trial run and testing. The personal care segment continued to be the key contributor, accounting for about 86.0% of its total sales, while the remaining 14.0% sales came from household products. Its 9MFY12 net earnings of RM10.2m was slightly lower than the corresponding period of FY11, no thanks to the higher cost incurred during 1HFY12 for product trial run and testing as well as additional expenses incurred for new market developments. Eng Kah announced its single-tier third interim dividend of 5 sen per share, in line with our expectation.
Slowly in place. Eng Kah’s 30%-owned joint-venture company Cosway China, known as V-Mart in China, has opened 20 stores thus far (as at end-2QFY12: 10 stores). We reaffirmed the view that Cosway China would not be able to meet its initial target to have 100 stores by end-2012. We believe a more pragmatic estimate of 25 stores is achievable. We see no major contribution from its China venture for FY12-FY13f, hence, we are maintaining our minimal contribution from this segment in our forecasts.
Maintain BUY with RM4.00 FV. We are maintaining our BUY call on Eng Kah with a revised fair value of RM4.00, pegging at its 5-year average PER of 16.4x, based on the enlarged share outstanding following its 1-for-10 bonus issue. We continue to like Eng Kah for its: (i) prudent management, (ii) impressive dividend payout track record, (iii) solid balance sheet, (iv) new MNC clients that would further boost its sales. However, we think that Cosway China’s expansion plan would be a long-term catalyst and would not have major impact on its earnings in FY12-FY13f.
Improved bottom-line in 3QFY12 despite lower top-line. Eng Kah’s 3QFY12 bottom-line of RM3.8m was 9.8% higher q-o-q (+29.3% y-o-y) despite a drop in revenue to RM21.0m (-5.1% y-o-y; -8.5% q-o-q). EBIT margin during the quarter under review improved from 18.4% in 2QFY12 to 21.7%. This is due to a change in product mix that fetches higher margin and improvement in working capital management as well as lower cost incurred for product trial run and testing. The personal care segment continued to be the key contributor, accounting for about 86.0% of its total sales, while the remaining 14.0% sales came from household products. Its 9MFY12 net earnings of RM10.2m was slightly lower than the corresponding period of FY11, no thanks to the higher cost incurred during 1HFY12 for product trial run and testing as well as additional expenses incurred for new market developments. Eng Kah announced its single-tier third interim dividend of 5 sen per share, in line with our expectation.
Slowly in place. Eng Kah’s 30%-owned joint-venture company Cosway China, known as V-Mart in China, has opened 20 stores thus far (as at end-2QFY12: 10 stores). We reaffirmed the view that Cosway China would not be able to meet its initial target to have 100 stores by end-2012. We believe a more pragmatic estimate of 25 stores is achievable. We see no major contribution from its China venture for FY12-FY13f, hence, we are maintaining our minimal contribution from this segment in our forecasts.
Maintain BUY with RM4.00 FV. We are maintaining our BUY call on Eng Kah with a revised fair value of RM4.00, pegging at its 5-year average PER of 16.4x, based on the enlarged share outstanding following its 1-for-10 bonus issue. We continue to like Eng Kah for its: (i) prudent management, (ii) impressive dividend payout track record, (iii) solid balance sheet, (iv) new MNC clients that would further boost its sales. However, we think that Cosway China’s expansion plan would be a long-term catalyst and would not have major impact on its earnings in FY12-FY13f.
Source: OSK
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