ECS ICT - FY12 results within expectations

Period    4Q12/FY12

Actual vs.  Expectations  The FY12 net profit of RM29.9m was in line and accounted for 104.5% and 103.4% of ours and the street’s full-year estimates respectively. 

Dividends   The company announced a single tier interim dividend of 2.5 sen/share during the quarter. The ex-date has been set as 29 May 2013. 

 The total net dividend for FY12 amounted to 5.5 sen (including an interim net dividend of 3.0 sen/share issued in 3Q12) and is within our expectation.

Key Result Highlights  YoY, the FY12 revenue rose 2.0% to RM1,276m thanks to a higher contribution from the Enterprise System segment (+8.2%) while both the ICT distribution and IT services segments saw marginal reductions in their revenues by 1.3% and 2.9% respectively. The enterprise systems were mainly boosted by the higher sales of networking products, enterprise software and the completion of a few project transactions. Nonetheless, the group’s net profit fell slightly by 0.9% to RM29.9m due mainly to 1) a lower EBIT margin of 3.05% (FY11: 3.27%) as a result of a poorer product mix from the ICT distribution segment and 2) the notable higher distribution and administrative expenses of RM46.5m (FY11: RM41.4m) due to its aggressive campaign to recruit resellers for its smartphone and tablet distribution business segment. 

 QoQ, the 4Q12 revenue inched up by 1.7% due to the seasonality factor. The net profit increased even faster to RM9.6m (3Q12: 6.5m) buoyed by stronger sales from the Enterprise Systems segment (+4.5%). The group’s EBIT margin and net profit margin improved to 3.8% and 2.9% respectively (from 2.5% and 2.0% previously) as a result of higher sales from the higher-GP margin enterprise system segment. 

Outlook   Consumers de-prioritising Notebook PCs purchasing in favour of smartphones and tablets may potentially threaten the sales of the ICT distribution segment.

 The Enterprise segment’s prospect remains bright, underpinned by continuous demand from cloud computing system and data server system, e.g. Oracle Exadata Database Machine.

Change to Forecasts  No changes to our FY13E estimates.

Rating  Maintain MARKET PERFORM

Valuation    Maintaining our TP at RM1.03 based on an unchanged FY13 targeted PER level of 6.1x over the FY13 EPS of 16.9 sen 

Risks   Weaker consumer and enterprise spending on ICT products in Malaysia.

Source: Kenanga