ECS profit down 24.2% to S$8.1m

ECS Holdings’ set of results was below analysts’ expectations.

OCBC Investment Research noted:

ECS Holdings (ECS) reported a 24.2% YoY decline in its 2Q12 PATMI to S$8.1m on the back of a 3.0% fall in revenue to S$823.6m.

Excluding forex and other exceptional items, we estimate that core earnings would have decreased 23.1% YoY to S$7.4m. This set of results was below our expectations.

For 1H12, revenue increased 2.0% to S$1,725.2m, forming 44.3% of our FY12 forecast. Core earnings slipped 29.8% (reported PATMI fell 32.5%) to S$14.1m, or 40.3% of our full-year estimate.

ECS’s gross margin declined 0.6ppt YoY to 4.5% in 2Q12, although this was an improvement vis-à-vis the 4.0% registered in 1Q12. The YoY decline can be attributed to intense competition in the ICT industry and a change in sales mix as there was higher revenue contribution from lower-margin media tablets and phone devices within its Distribution segment.

ECS saw healthy revenue growth from products from Apple Inc, Oracle, ASUS and Lenovo in 2Q12. We believe that these major IT vendors would continue to be a key growth driver for ECS moving forward, given new product launches and the anticipated rollout of Microsoft’s new Windows 8 operating system in Oct this year.

Management is also seeking opportunities in mobility/social media and big data and would also focus on its higher-margin business such as enterprise servers, software and networking products and professional IT services.

Continued efforts would also be made to strengthen its working capital management. The group’s cash conversion cycle improved from 44 days in 2Q11 to 39 days in 2Q12.

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