Comment on Results Outlook Recommendation
Net profit of S$6.2m was up 18% y-o-y and
in line with our estimate of S$6.1m.
Revenue growth was very strong at 23%
due to more than 100% growth in
notebook sales mainly from Malaysia and
China.
Earnings growth of 18% was lower than
revenue growth of 23% due to (1) lower
margins in notebooks business (2) higher
minority interest (MI) of S$0.8m up 121% yo-
y from its 60%-owned subsidiary in
Malaysia. We are a bit concerned over
lower margins and don’t think that bigger
volume can be a substitute for better
margins.
As revenue ramp is quite strong, cash flow
from operations for the quarter was
negative at S$14m. Although, there is a
significant reduction in working capital days
to 42.4 days from 52.5 days in 2Q06, more
needs to be done in order to turn operating
cash flow positive.
We maintain our earnings estimates and
think that the company can meet our
numbers. The growth in the coming
quarters will be underpinned by:
1) Stronger demand for notebooks
compared to desktops with direct
selling model of companies like
HP and Apple performing better
than indirect selling model of
Dell, benefiting distributors like
ECS.
2) Malaysia continues to register
strong growth in distribution
business with China keeping the
pace in distribution and
enterprise business.
3) ECS is looking forward to enter
India and Vietnam in FY07.
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment