ECS Holdings (ECS) reported FY11 results which were in line with expectations. Revenue grew 16.9% to S$3,607.2m, forming 100.6% of our forecast. Estimated core PATMI declined 17.1% to S$36.0m, or 0.5% shy of our projection. This was due to lower gross margin, a sharp spike in finance costs, and disruption caused by the Thailand floods. A dividend of 2.2 S cents was declared (FY10: 3.6 S cents), below our 2.6 S cents forecast. Nevertheless, a key positive came from ECS’s strengthened balance sheet, which can be attributed to its effective working capital management. Its net gearing ratio was lowered significantly from 73.9% in 3Q11 to 33.8% in 4Q11. Given ECS’s improved financial position and growing market risk appetite for cyclical stocks, we increase our valuation peg on ECS to 5.8x (previously 5.1x) FY12F EPS. This raises our fair value estimate from S$0.61 to S$0.69. Maintain BUY.
FY11 results in line with expectations
ECS Holdings (ECS) reported 4Q11 PATMI of S$9.0m (-38.5% YoY; -0.9% QoQ) on the back of a 10.0% YoY increase (-6.8% QoQ) in revenue to S$924.5m. FY11 results were within our expectations, with revenue growing 16.9% to S$3,607.2m, forming 100.6% of our forecast. PATMI dipped 26.0% to S$39.2m due to lower gross margin, a large spike in finance costs and disruption caused by the Thailand floods, which we believe is ECS’s second largest market. Adjusting for forex effects and exceptional items, we estimate that core earnings declined 17.1% to S$36.0m, or 0.5% shy of our projection. A dividend of 2.2 S cents was declared (FY10: 3.6 S cents), below our 2.6 S cents forecast due to a lower-than-expected payout ratio and translates into a yield of 3.8%.
Executing effectively on its deliverables
One of the key positives from ECS during the quarter was its effective working capital management, which helped increase its net operating cashflows from S$21.3m in 4Q10 to S$128.6m in 4Q11. This also allowed ECS to reverse its negative net operating cashflow position for 9M11, with S$44.7m of net operating cashflows generated in FY11. As such, ECS was able to repay some of its borrowings, and its net gearing ratio now stands at 33.8% as at 31 Dec 2011, versus 73.9% at end 3Q11. Management’s target is not to exceed the 70% mark.
Re-rating plausible; maintain BUY
We tweak our FY12 estimates marginally and introduce our FY13 forecasts. Given ECS’s improved financial position, which was one of our main concerns prior to its 4Q11 results, coupled with growing market risk appetite for cyclical stocks, we increase our valuation peg on ECS to 5.8x (previously 5.1x) FY12F EPS, in line with its 5-year average forward PER. This in turn bumps up our fair value estimate from S$0.61 to S$0.69. Maintain BUY.
ECS Holdings (ECS) reported 4Q11 PATMI of S$9.0m (-38.5% YoY; -0.9% QoQ) on the back of a 10.0% YoY increase (-6.8% QoQ) in revenue to S$924.5m. FY11 results were within our expectations, with revenue growing 16.9% to S$3,607.2m, forming 100.6% of our forecast. PATMI dipped 26.0% to S$39.2m due to lower gross margin, a large spike in finance costs and disruption caused by the Thailand floods, which we believe is ECS’s second largest market. Adjusting for forex effects and exceptional items, we estimate that core earnings declined 17.1% to S$36.0m, or 0.5% shy of our projection. A dividend of 2.2 S cents was declared (FY10: 3.6 S cents), below our 2.6 S cents forecast due to a lower-than-expected payout ratio and translates into a yield of 3.8%.
Executing effectively on its deliverables
One of the key positives from ECS during the quarter was its effective working capital management, which helped increase its net operating cashflows from S$21.3m in 4Q10 to S$128.6m in 4Q11. This also allowed ECS to reverse its negative net operating cashflow position for 9M11, with S$44.7m of net operating cashflows generated in FY11. As such, ECS was able to repay some of its borrowings, and its net gearing ratio now stands at 33.8% as at 31 Dec 2011, versus 73.9% at end 3Q11. Management’s target is not to exceed the 70% mark.
Re-rating plausible; maintain BUY
We tweak our FY12 estimates marginally and introduce our FY13 forecasts. Given ECS’s improved financial position, which was one of our main concerns prior to its 4Q11 results, coupled with growing market risk appetite for cyclical stocks, we increase our valuation peg on ECS to 5.8x (previously 5.1x) FY12F EPS, in line with its 5-year average forward PER. This in turn bumps up our fair value estimate from S$0.61 to S$0.69. Maintain BUY.
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