Period 4Q12/FY12
Actual vs. Expectations The FY12 net profit (NP) of
RM13.0m was slightly below the street’s estimate and our forecast of about
RM14.1m, making up 92.9% of the street and our numbers.
Dividends A single
tier third interim dividend of 5.0 sen was declared during the quarter. We are
expecting another 5.0 sen for FY12, implying a total NDPS of 20.0 sen (a net
dividend yield of 6.9%).
Key Result Highlights QoQ, the 4Q12 revenue decreased by 20.9% due mainly
to the group’s strategy to institute a better working capital management as
well as a more stringent credit control policy, resulting in lesser sales made.
Meanwhile, the PBT margin was lower by 1.9 percentage points to 19.8% in 4Q12
due to the change in the product mix as well as higher operating expenses.
Hence, the NP fell 27.4% in tandem with the drop in the PBT.
YoY, the FY12 revenue declined 11.8% YoY due mainly
to the reasons mentioned above. However, the FY12 NP rose slightly by 1.3% YoY
on the back of lower interest and taxation expenses.
Outlook The
group has continued its efforts to secure new multinational companies (“MNC”)
clients as well as strengthen its customer portfolio by securing more sustainable
orders from the bigger MNCs.
We remain cautiously optimistic on the
company’s prospect on its investment in China (JV with Cosway China) as it
should eventually ride on the strong potential growth of Cosway China, which
should lead to higher earnings for Engkah.
Change to Forecasts We have raised our FY13E operating cost
forecast on likely higher administrative expenses, which in turn has led to a
cut in our FY13 earnings estimate by 6.6%. Meanwhile, we are introducing our
FY14E earnings forecast of RM16.3m. The rise in the group’s profits would be
mainly supported by its higher sales activities.
Rating Maintain
MARKET PERFORM.
Valuation Despite
the earnings cut above, our TP has been revised up slightly to RM3.63 (from
RM3.57 previously) due to a higher PER valuation of 16.5x (from 15.0x
previously) used after adjusting for the stock’s latest running 5-year average
PER.
Risks The main
risk to our call is a slowdown in the global economy, which would cut the
purchasing power of consumers.
Source: Kenanga
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