ENG KAH CORPORATION BERHAD

4QFY11 Results
FY2011 result within expectation Eng Kah Corporation (EKC)'s FY11 results were within our estimates. Net profit of RM13.3m accounted for about 103% of our full year target whilst its revenue of RM95.6m clocked in for about 99% of our projection. The group reported a 10% increase in net profit despite a relatively flat full year revenue of RM95.6m, thanks to the change of product mix that is able to generate better margin as well as new products developed throughout the year and new customers secured in FY11.

On a yearly basis, 4Q revenue dipped 10% to RM25.0m. Net profit was also lower at RM2.5m. The
lower revenue was due to rescheduling of deliveries by some customers and stricter credit control policy implemented by the group. In addition, lower PBT margin of 11.8% compared to 15.4% in 4QFY10 was mainly due to additional cost incurred for product trial run and product testing as well as quality control for new product development. 4QFY11 revenue rose 13% QoQ on higher orders from new and existing customers. PBT was however lower at RM3.0m on higher R&D and marketing costs.

Higher than expected dividend The group proposed a final single-tier dividend of 7.5sen per share, which bring total dividend of 22.5sen, exceeded our forecast of 20sen per share for FY11. We view this as a positive surprise. Total dividend of 22.5sen represented an attractive dividend yield of 7.0%.

Fair value of RM4.04 We are introducing our FY13 forecast and keeping our BUY recommendation on Eng Kah with a higher fair value of RM4.04. We like Eng Kah on its strong position in the OEM industry for personal care and household products, sound fundamental (strong balance sheet and in net cash position) and attractive dividend payout.

Source:Jupiter Securities Research 27 February 2012