ECS Holdings (ECS) reported a positive set of 1Q13 results which exceeded our expectations. Estimated core PATMI jumped 28.6% YoY to S$8.5m on the back of a 20.9% YoY increase in revenue to S$1,090.3m. The group managed to record healthy YoY revenue and EBIT growth for all of its core segments. However, its gross margin slipped 0.4ppt to 3.7% in 1Q13 due largely to a change in product mix. We lift our FY13 and FY14 revenue projections by 8.9% and 10.6%, respectively. But as we also lower our margin assumptions slightly, our FY13 and FY14 core PATMI estimates are raised by a smaller magnitude of 4.2% each. Correspondingly, our fair value estimate increases from S$0.53 to S$0.57, now pegged to 6x FY13F EPS (previously 5.8x). As ECS is trading at an attractive 5.0x and 0.52x FY13F PER and P/NTA, respectively, we upgrade the stock from Hold to BUY.
1Q13 results above expectations
ECS Holdings (ECS) reported a positive set of 1Q13 results which exceeded our expectations. Revenue rose 20.9% YoY to S$1,090.3m, forming 28.2% of our full-year forecast. PATMI jumped 34.2% YoY to S$8.3m. Excluding forex and other exceptional items, we estimate that ECS’s core earnings rose 28.6% YoY to S$8.5m, constituting 25.6% of our FY13 forecast despite 1Q being a seasonally weaker quarter.
Growth recorded for all core segments
ECS managed to record healthy YoY revenue and EBIT growth for all of its core segments despite the general malaise in the PC market. This was due to its focus on driving sales of mobile devices such as smartphones and tablets from major IT vendors, as well as enterprise systems products. We believe that one of the key drivers in 1Q13 came from a full quarter of contribution from ECS’s distribution of Apple’s iPhone 5 in China, especially in the second tier cities such as Chengdu. Other major IT vendors which aided ECS’s growth include Lenovo and Oracle. However, due to the change in product mix as a result of higher contribution from the lower margin mobile devices, ECS’s gross margin slipped 0.4ppt to 3.7% in 1Q13.
Raise forecasts and upgrade to BUY
We lift our FY13 and FY14 revenue projections by 8.9% and 10.6%, respectively. But as we also lower our margin assumptions slightly, our FY13 and FY14 core PATMI estimates are raised by a smaller magnitude of 4.2% each. Correspondingly, our fair value estimate increases from S$0.53 to S$0.57, now pegged to 6x FY13F EPS (previously 5.8x). Coupled with a forecasted FY13 dividend yield of 4.7%, total potential returns equates to ~22%. ECS is currently trading at 5.0x and 0.52x FY13F PER and P/NTA, respectively, which we view as an attractive entry point. Therefore, we upgrade ECS from Hold to BUY.
ECS Holdings (ECS) reported a positive set of 1Q13 results which exceeded our expectations. Revenue rose 20.9% YoY to S$1,090.3m, forming 28.2% of our full-year forecast. PATMI jumped 34.2% YoY to S$8.3m. Excluding forex and other exceptional items, we estimate that ECS’s core earnings rose 28.6% YoY to S$8.5m, constituting 25.6% of our FY13 forecast despite 1Q being a seasonally weaker quarter.
Growth recorded for all core segments
ECS managed to record healthy YoY revenue and EBIT growth for all of its core segments despite the general malaise in the PC market. This was due to its focus on driving sales of mobile devices such as smartphones and tablets from major IT vendors, as well as enterprise systems products. We believe that one of the key drivers in 1Q13 came from a full quarter of contribution from ECS’s distribution of Apple’s iPhone 5 in China, especially in the second tier cities such as Chengdu. Other major IT vendors which aided ECS’s growth include Lenovo and Oracle. However, due to the change in product mix as a result of higher contribution from the lower margin mobile devices, ECS’s gross margin slipped 0.4ppt to 3.7% in 1Q13.
Raise forecasts and upgrade to BUY
We lift our FY13 and FY14 revenue projections by 8.9% and 10.6%, respectively. But as we also lower our margin assumptions slightly, our FY13 and FY14 core PATMI estimates are raised by a smaller magnitude of 4.2% each. Correspondingly, our fair value estimate increases from S$0.53 to S$0.57, now pegged to 6x FY13F EPS (previously 5.8x). Coupled with a forecasted FY13 dividend yield of 4.7%, total potential returns equates to ~22%. ECS is currently trading at 5.0x and 0.52x FY13F PER and P/NTA, respectively, which we view as an attractive entry point. Therefore, we upgrade ECS from Hold to BUY.
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