Period    1Q13

Actual vs. Expectations      The 1Q13 net profit of RM6.4m was slightly below expectations and accounted for 21.2% and 20.4% of ours and the street full-year estimates respectively. Note that the group’s 1Q normally accounted for c.23% of the group’s net profit.

Dividends     No dividend was announced during the quarter.

Key Result Highlights    YoY, the 1Q13 revenue of RM320.3m increased by 4.9% thanks to the higher performances of all its three business segments, namely ICT distribution (+5.2%), Enterprise systems (+4.0%) and IT services (+15.2%). The higher sales in the ICT distribution segment were mainly driven by better consumer spending on ICT products such as tablet and notebook. The Enterprise systems segment and IT service, on the other hand, were mainly boosted by the higher sales of networking products and enterprise software. Despite the top line growth, the group’s gross profit margin, however, fell to 6.1% from 7.1% previously as a result of a poor product mix at the Enterprise systems segment. Hence, the group’s net profit was reduced by 21.2% to RM6.4m.

QoQ, the revenue declined by 4% due mainly to the lower sales at its Enterprise Systems segment (-23.9% to RM108.6m) as a result of seasonality factors. In tandem with the poorer turnover coupled with a lower PBT margin in its Enterprise systems segment (3.5% vs. 5.8%) and a higher effective tax rate (27.52% vs. 25.22%), the group’s net profit was down by 33.6%.

Outlook      Remain intact underpinned by: 1) stronger sales from the enterprise network systems, driven by emerging mobility solution provided by cloud computing in the SME space as business environments are changing with the increasing proliferation of consumer devices such as smartphones and tablets; and 2) the likelihood of more products/brands that are expected to be distributed in CY13. In 1Q13, the group has secured some new distributorships such as Lenovo smartphone, Microsoft Surface RT Tablet PC, IBM’s enterprise cloud computing solutions and Samsung mobility devices for the enterprise market.

Change to Forecasts     No changes to our FY13E-FY14E estimates.

Rating     Maintain MARKET PERFORM

Valuation      Post-results, we have raised our ECS target price to RM1.22 (from RM1.02 previously) after rolling over our valuation base year to FY14 with a targeted PER level of 6.7x, representing +1.5SD-level of its PER Band since IPO. The higher target PER (vs. 6.1 previously) is driven mainly by influx of liquidity as well as the higher expected EPS growth in FY14 (of 8.9% vs. FY13’s 1.0%). Besides, this valuation is still undemanding vis- à-vis the FBM Small Cap average Fwd. PER of 8.6x.

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

Source: Kenanga