Background: ECS is an information technology and communications product and service provider with strong established partnerships with leading IT vendors including Apple, HP, Dell, Cisco, IBM, Oracle and Microsoft. It also has a deep regional reach, comprising 39 offices in six countries (including China where it is the official distributor for Apple products) and more than 23,000 partners and resellers.
Recent development: ECS has been a hive of activity in recent months, starting with the clinching of distribution rights for Apple’s iPad and iPhone products in China late last year. Early last year, it also listed its Malaysian subsidiary on Bursa Malaysia, albeit at valuations similar to the Singapore listco, and it is now pursuing a depository receipt listing in Taiwan.
Key ratios…
Price-to-earnings: 5.8x
Price-to-NTA: 1.2x
Dividend per share / yield: $0.036 / 4.3%
Net gearing: 0.4x
Return on equity: 19.6%
Share price S$0.84
Issued shares (m) 365.4
Market cap (S$m) 306.9
Free float (%) 10.3%
Recent fundraising activities Nil
Financial YE 31 December
Major shareholders VST Holdings (89.3%)
YTD change +3%
52-wk price range S$0.515-0.945
Our view
Aggressive expansion with VCT at the helm. ECS is currently 89.3% owned by Hong Kong-listed IT product distributor, VST Holdings (856 HK). VST made a general offer for ECS in 2007 at $0.668/share but kept the public listing active and the original management involved. Since then, VST/ECS has been expanding aggressively in terms of geography, products and capital-raising, namely, significant contracts with Apple (in China) and Lenovo and Dell (regionally) as well as a successful Malaysian listing last year.
Upcoming iPhone 5 could generate more interest in ECS. ECS secured the distributorship for Apple’s iPad (now iPad 2) and iPhone 4 in China late last year. Already, the country accounts for almost half of group revenue of more than S$3b. FY11, which should see a full year’s contribution from the Apple distribution contract, will also be further boosted by Apple’s plans to launch a new iPhone, most likely in the third quarter of this year.
Arguably undervalued relative to listed peers in Taiwan. Unlike listed comparables such as Synnex (2347 TT) and Digital China (0861 HK), ECS trades at only 5-6x historical and 4-5x consensus earnings forecasts. Synnex trades at 14-17x forecasts while Digital China is valued at 10-12x. ECS hopes that a TDR listing to raise an estimated $50m will prompt the market to realise that it is undervalued. It is currently in the process of submitting documents to the Taiwan Stock Exchange.
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