Eng Kah (EKC) registered 3QFY15 earnings of RM1.1m, down 12% YoY, while YTD earnings stood at RM3.1m, 25% lower than 9MFY14. YTD revenue decreased by 6.8% YoY to RM43.3m. EKC was affected by the long auditing process and slowing demand amidst challenging market, as it is yet to secure new customers. We remain Neutral as we expect earnings to be stable and flattish in the near term. We lower our FY15F by -33% accounting for the year’s weaker sales coupled with higher operating expenses and ultimately, thinner margins. Nevertheless, we retain our expectations for FY16-FY17 pending better business orders coming in for Eng Kah as the auditing process should be completed for a few of its potential customers in the medium term. We keep our TP unchanged at RM1.97, premised on a 16x multiple pegged to our FY16F EPS of 12.3sen. EKC declared a third interim single-tier dividend of 1 sen per share, putting the YTD dividend to 3 sen per share.
Slight improve in PBT margins (8.0% YoY) and net margins (1.7% YoY), is mainly attributed to share of profit of a JV, despite the change of sales mix as well as lower turnover for the quarter. For 9MFY15, demands for personal care and household products are 76.2% and 23.8% respectively, as opposed to 79.7% and 20.3% in last year’s 9M. This is a positive change for Eng Kah as we understand that household products command higher margins as opposed to its personal care products.
Slower consumption pattern and weak consumer sentiment had affected Eng Kah for the past quarters of this year, as some of its current customers has reduced or held orders in view of the GST implementation in April. Outlook for FY15 remain flattish while we expect next year to be better for Eng Kah, given that it is able to secure new customers soon.
Source: PublicInvest Research - 30 Nov 2015
ENGKAH (7149) - Eng Kah - 3QFY15 Challenges Continue
