Eng Kah’s (EKC) reported 2QFY15 results showed a YoY decline of 4.3% in its revenue, registering RM14.9m for the quarter. YTD revenue accumulated to RM29.6m, a slight 3.4% lower than the first half last year. Earnings too declined 35.2% YoY to record RM1.0m compared to RM1.5m in 2QFY15. While it remains committed in its efforts to secure new customers, Eng Kah is yet to see contracts from new customers coming up, considering the slow demand pattern and the long auditing process. We retain our Neutral call as our outlook for the year remain stable and flat due to lack of near term catalysts and slow growth. Our TP remains unchanged at RM1.97 premised on a 16x multiple pegged to our FY16F EPS of 12.3sen. EKC declared a second interim single-tier dividend of 1 sen per share, putting the YTD dividend to 2 sen per share.Lower PBT margins (-14.5% YoY) and net margins (-32.3% YoY), is mainly attributed to lower sales and higher percentage of lower margin products. Although changes in product mix is not unusual in Eng Kah’s line of business, the declining margin trend is fairly worrying as it has been continuing since past few quarters. For the quarter, demands for personal care and household products are 72.9% and 27.1%, as opposed to 79.3% and 20.6% in last year’s 2Q.
Eng Kah relies on orders from current customers, which it expects to increase in 2H15 as more business slowly adapt to any changes post-GST. The slower consumer spending pattern had affected demand from its customers somewhat, as many had reduced their orders on order to opt for a wait-and-see approach to the matter. Outlook for the year remains flattish as Eng Kah waits for new customers to come aboard.
Source: PublicInvest Research - 24 Aug 2015
ENGKAH (7149) - Engkah - 2QFY15 A Weak Quarter
