Engkah‟s 3QFY13 registered revenue of RM15.4m (-26.7% YoY, -2.0% QoQ) and earnings of RM1.7m (-20.4% YoY, -2.0% QoQ). 9MFY13 YTD revenue and earnings has only met 60% and 48% of our FY13F full year estimates. Following the continued low orders, we are less optimistic about Engkah‟s near-term performance and hence lower our TP to RM2.82 premised on FY14F EPS and PER of 15.8x. We maintain our Neutral recommendation however, reflective of its business and growth propositions, though lacking current catalysts. Albeit Engkah‟s increasing efforts in marketing and to follow-up on potential new customers, we remain concerned on the probability of new customer orders in the near-term. The group will continue their quarterly dividend payout with an interim dividend of 5.0 sen per share announced for this quarter. Dividend yield should translate to 8.2% (FY13F), 5.8% (FY14F).

No reprieve in sight yet. The reduction of a concentrated customer continues to hinder the group‟s growth potential. Given that the single large customer, previously contributing up to 48% of the group‟s revenue, has pulled back its orders by half, we are reducing our top and bottom-line growth by c.10%. Although the group has eliminated the single customer risk, it would take time to re-build its portfolio as signing on new customers can be a tedious and daunting task.

Potential new MNC order may take a while, despite the increased orders from a potential MNC from last 2 quarters yet having to place permanent orders, if any. Management has explained the long auditing and testing process, a protocol for MNCs to ensure the consistency of the products quality. One of their current long-term MNCs previously audited Eng Kah for about 2 years before permanently signing on for larger orders. If permanent orders are placed, Engkah could expect an additional estimated RM1.4m in revenue based on bi-monthly orders.

Cosway China update. Currently Cosway outlets have increased to about 70 stores. We do not expect any contributions from EngKah‟s JV with Cosway in China, until the business has expanded to at least 300 outlets.

Neutral at TP of RM2.82. Fundamentally still a well-managed company with net cash of c.RM20m (FY13F) and is consistent as a dividend play stock, it is however hindered by its top-line growth. Our TP of RM2.82 is premised on 15.8x FY14 EPS, considering its expertise in formulation and

Source: PublicInvest Research - 27 Nov 2013