ECS to ride ICT demand growth in Malaysia
KUCHING: ECS ICT Bhd (ECS) is set to be a beneficiary of information and communications technology (ICT) spending in the country, which International Data Corporation (IDC) expects to be sustained well above the US$10 billion mark this year, driven by increasing hardware and software sales and ICT-related services.
Maybank Investment Bank Bhd’s research arm (Maybank IB Research) in its report, said according to IDC, the Malaysian ICT industry has been resilient despite economic challenges.
It noted that the sales of hardware and software products rose 1.3 per cent in 2014 to US$7.6 billion versus US$7.5 billion in the previous year.
“We forecast a 10 per cent threeyear financial year 2014 to 2017 (FY14 to FY17) earnings per share (EPS) compound annual growth rate (CAGR) on the back of a five per cent per annum revenue growth and a slight expansion in blended profit margins on new mobility products ( smart devices) offerings and recovery in Enterprise Systems distribution,” the research house projected.
It added, the outlook for smartphone segment remains robust driven by the influx of inexpensive Chinese brands, which has contributed to a 40 per cent year-on-year (y-o-y) jump in 2014 smartphone demand in
We forecast a 10 per cent three-year financial year 2014 to 2017 (FY14 to FY17) earnings per share (EPS) compound annual growth rate (CAGR) on the back of a five per cent per annum revenue growth and a slight expansion in blended profit margins on new mobility products (smart devices) offerings and recovery in Enterprise Systems distribution.
Malaysia.
“What is positive also is that ECS is in talks with several other global smart device (which are smartphones, tablets and wearables) brand owners to further expand its smart devices portfolio,” the research house said.
Despite the positive outlook, Maybank IB Research pointed out that ECS could see a temporary dip in its near-term earnings.
“ECS would likely have benefited from the consumer rush to purchase ICT products prior to the implementation of goods and services tax (GST) on April 1, 2014 and we expect the first quarter of 2015 (1Q15) EPS to grow by 10 to 15 per cent y-o-y on the stronger demand for ICT products,” it said.
However, it highlighted, “IDC expects the GST to negatively impact the local PC market in 2Q as both consumer and commercial spending is expected to slow down significantly and the market will take a few months to adapt to the new tax but should return to normal by mid 3Q15.
“This would imply that ECS’ 2Q15 results could be affected by weak consumer spending post GST, but this would pick up again thereafter.”
Management has nevertheless been proactive in securing new mandates and in February 2015, ECS was appointed to distribute four models of the Microsoft Lumia smartphones (Lumia 930, Lumia 830, Lumia 735 and Lumia 535) to the IT channel and consumer electronic chain stores in Malaysia, the research house said.
“Moreover in March 2015, the group was appointed by Chinabased XiaoMi to be its authorised distributor of the XiaoMi MIPad tablets in Malaysia,” it added.
Maybank IB Research
All in, Maybank IB Research pegged ECS’ valuations to a FY15 price earnings ratio (PER) of 11.3folds, a 25 per cent discount to that of the Bursa Malaysia Technology Index of 15.1-folds to derive a fair value of RM2 per share (a 23 per cent increase).
“This fair value translates to a historical FY14 PER of 12.2-folds, which would be an approximate 10 per cent discount to the historical peer average of 13.6-folds.
“This discount largely reflects ECS’ smaller market capitalisation size and its more cyclical product offerings.
“Nevertheless, where ECS stands out is in its healthy balance sheet and decent dividend yields,” it added.