Eng Kah’s FY12 earnings of RM13.0m were slightly below expectations, accounting for about 93.1%/92.1% of our and street forecasts. The company declared a final single-tier dividend of 7.5 sen, representing a total dividend of 22.5 sen or a dividend yield of 6.8% for FY12. We are revising our FY13 revenue and net earnings estimates downwards by 25.6% and 14.9% respectively. All in, we continue to like Eng Kah for its strong balance sheet, impressive dividend payout, and efforts to strengthen its clientele base by focusing on MNC jobs, albeit its China venture might take a longer gestation period. Following our earnings adjustment, we are trimming our FV to RM3.65, pegged to its 5-year average PER of 17x.
Flat FY12 bottomline. Eng Kah reported a relatively flat bottom-line of RM13.0m (+1.6% y-o-y) despite an 11.8% drop in revenue to RM84.3m, mainly due to changes in its business model with one of its customers. Previously, Eng Kah purchased materials on behalf of its customer and billed the latter after re-packaging them into customised-size products. Now, it only acts as an intermediate for re-packaging without the need to commit itself for more working capital after it stopped managing customer’s inventory. In turn, it charges the customer for a re-packaging fee (lower selling price), thus causing its top-line to decline. On the other hand, both personal care and household segments reported lower revenue contribution in FY12, at RM73.6m (-13.2% y-o-y) and RM12.5m (-7.3% y-o-y) respectively. Nevertheless, PBT margins generally improved. The personal care segment recorded a higher PBT margin of 19.2% versus 16.2% in FY11, while its household segment registered a PBT margin of 8.6% in FY12, up from FY11’s 7.6%. The group’s 4QFY12 results were generally lower q-o-q, weighed down by changes in its product mix, its slower-than-expected China venture, as well as stringent credit control policy. Its FY12 net earnings sank 27.4% to RM2.8m, on the back of a 20.9% decrease in revenue to RM16.6m.
Generous payout. The company proposed a final single-tier dividend of 7.5 sen, bringing total dividend to 22.5 sen for FY12. The dividend payout is generous despite the enlarged share capital upon the completion of its corporate exercise last year. We expect the company to keep its quarterly dividend payout with a total dividend of 22.5sen for FY13, translating into a decent dividend yield of 6.8%.
Maintained BUY, RM3.65 FV. Eng Kah’s strategy to focus on MNC customers is slowly in place. The group had delivered its first batch of products to one of the MNCs in January 2013. Two of the MNCs have conducted manufacturing process auditing on Eng Kah 2-3 times. The company’s balance sheet remains solid, with net cash per share of 26.8sen per share. We are revising our FY13 revenue and net earnings revised downwards by 25.6% and 14.9%, to reflect a change in its business model with its customer and a lower contribution from its China venture respectively. While we still like Eng Kah for its strong balance sheet, impressive dividend payout, and its efforts to strengthen its clientele base, however, it might take a longer gestation period for its China venture. With our lower forecasts, we are trimming our FV to RM3.65, pegged to its 5-year average PE of 17x. Maintain BUY.
Flat FY12 bottomline. Eng Kah reported a relatively flat bottom-line of RM13.0m (+1.6% y-o-y) despite an 11.8% drop in revenue to RM84.3m, mainly due to changes in its business model with one of its customers. Previously, Eng Kah purchased materials on behalf of its customer and billed the latter after re-packaging them into customised-size products. Now, it only acts as an intermediate for re-packaging without the need to commit itself for more working capital after it stopped managing customer’s inventory. In turn, it charges the customer for a re-packaging fee (lower selling price), thus causing its top-line to decline. On the other hand, both personal care and household segments reported lower revenue contribution in FY12, at RM73.6m (-13.2% y-o-y) and RM12.5m (-7.3% y-o-y) respectively. Nevertheless, PBT margins generally improved. The personal care segment recorded a higher PBT margin of 19.2% versus 16.2% in FY11, while its household segment registered a PBT margin of 8.6% in FY12, up from FY11’s 7.6%. The group’s 4QFY12 results were generally lower q-o-q, weighed down by changes in its product mix, its slower-than-expected China venture, as well as stringent credit control policy. Its FY12 net earnings sank 27.4% to RM2.8m, on the back of a 20.9% decrease in revenue to RM16.6m.
Generous payout. The company proposed a final single-tier dividend of 7.5 sen, bringing total dividend to 22.5 sen for FY12. The dividend payout is generous despite the enlarged share capital upon the completion of its corporate exercise last year. We expect the company to keep its quarterly dividend payout with a total dividend of 22.5sen for FY13, translating into a decent dividend yield of 6.8%.
Maintained BUY, RM3.65 FV. Eng Kah’s strategy to focus on MNC customers is slowly in place. The group had delivered its first batch of products to one of the MNCs in January 2013. Two of the MNCs have conducted manufacturing process auditing on Eng Kah 2-3 times. The company’s balance sheet remains solid, with net cash per share of 26.8sen per share. We are revising our FY13 revenue and net earnings revised downwards by 25.6% and 14.9%, to reflect a change in its business model with its customer and a lower contribution from its China venture respectively. While we still like Eng Kah for its strong balance sheet, impressive dividend payout, and its efforts to strengthen its clientele base, however, it might take a longer gestation period for its China venture. With our lower forecasts, we are trimming our FV to RM3.65, pegged to its 5-year average PE of 17x. Maintain BUY.
Source: OSK
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