Monday, August 26, 2013

ECS Holdings: Beneficiary of product refresh cycle (OCBC)

ECS Holdings:
Fair value S$0.56
add: 12m dividend forecast S$0.022
versus: Current price S$0.49

Beneficiary of product refresh cycle
• 2Q13 core PATMI misses
• Positive operating cashflows generated
• Trim estimates but maintain BUY

We met up with the management of ECS Holdings following its recent 2Q13 results. Revenue and PATMI rose 23.5% and 11.0% YoY to S$1,017.5m and S$9.0m, respectively. However, after adjusting for forex and other exceptional items, we estimate that core earnings declined 7.3% YoY from S$7.4m to S$6.9m, which was below our expectations. On a positive note, ECS managed to lower its net gearing ratio from 59.4% (as at end 2Q12) to 38.5% (as at end 2Q13) due to good working capital management. Looking ahead, we expect ECS to be a beneficiary of new product launches by major IT vendors such as Apple. We trim our FY13 and FY14 core PATMI forecasts by 6.2% and 3.9%, respectively. But as we also roll forward our valuations to 6x blended FY13/14F core EPS, our fair value estimate only declines marginally from S$0.57 to S$0.56. Maintain BUY.


2Q13 core earnings below expectations
We met up with the management of ECS Holdings following its recent 2Q13 results. It reported a 11.0% YoY increase in 2Q13 PATMI to S$9.0m on the back of a 23.5% hike in revenue to S$1,017.5m. However, if we exclude forex and other exceptional items, we estimate that core earnings would have decreased 7.3% YoY from S$7.4m to S$6.9m. This was below our expectations due largely to a lower-than-estimated gross margin, which came in at 3.6%, as compared to 4.5% in 2Q12 and 3.7% in 1Q13. For 1H13, revenue increased 22.2% to S$2,107.8m, forming 50.1% of our FY13 forecast. Estimated core PATMI rose 9.6% (reported PATMI jumped 21.0%) from S$14.1m to S$15.4m, or 44.5% of our full-year estimate.

Good working capital management
On a positive note, ECS generated healthy net operating cashflows of S$50.6m in 2Q13 (2Q12: -S$32.2m), which helped to lower its net gearing ratio from 59.4% (as at end 2Q12) to 38.5% (as at end 2Q13). We believe ECS remains on track to meet our S$0.022 DPS forecast for FY13, which translates into a dividend yield of 4.5%.

New Apple product launches could be re-rating catalyst
Apple, one of the key vendors for ECS, is likely to launch new products in fall this year. This could come in the form of the iPhone 5S, iPad 5 and iPad Mini 2, according to media reports. In addition, there is also market talk that Apple may introduce a low-end smartphone, although whether this is true remains to be seen. We expect a product refresh cycle by Apple to benefit ECS, although a flip side would be lower margins carried by such mobile devices.

Lower FV marginally, but maintain BUY
We trim our FY13 and FY14 core PATMI forecasts by 6.2% and 3.9%, respectively. But as we also roll forward our valuations to 6x blended FY13/14F core EPS, our fair value estimate only declines marginally from S$0.57 to S$0.56. Maintain BUY, as ECS trades at 0.54x and 0.50x FY13 and FY14 P/NTA, respectively, which we view as cheap.



Source/Extract/Excerpts/来源/转贴/摘录: OCBC-Research,
Publish date:22/08/13

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