• A leading distributor for ICT products in Malaysia, with more than 5,000 resellers nationwide.\
• 10% 3-year FY14-17 EPS CAGR, underpinned by 5% p.a.revenue growth and a slight expansion in profit margins.
• MYR2.00 fair value on CY15 PER of 11.3x.

A leading distributor ECS ICT (ECS), an MSC-status company, is a leading distributor of ICT products in Malaysia. It has more than 5,000 resellers nationwide and has close ties with 40 global brands such as Hewlett-Packard, Lenovo, Asustek, Dell, IBM, Oracle, Cisco, Microsoft, Apple, Samsung and XiaoMi. In 2014, ECS sold more than 3,000 stock keeping units (SKU).

A beneficiary of ICT demand growth in Malaysia ECS is a beneficiary of ICT spending in the country, which International Data Corporation (IDC) expects to be sustained well above the USD10b mark this year, driven by increasing hardware and software sales and ICT-related services. IDC also expects smartphone sales to grow by 8% to USD2.4b in 2015. What is positive also is that ECS is in talks with several other global smart device (i.e. smartphones, tablets and wearables) brand owners to further expand its smart devices portfolio.

We forecast a 10% 3-year FY14-17 EPS CAGR on the back of a 5% p.a. revenue growth and a slight expansion in blended profit margins on new mobility products (smart devices) offerings and recovery in Enterprise Systems distribution.

Valuations are undemanding with the stock trading at an historical FY14 PER of 10x versus a peer average of 13.6x. In fact, on stripping out the group’s net cash of MYR0.50/share, valuations are even more attractive at an FY15 PER of just 6.3x on an ex-cash basis. Our MYR2.00 FV (+23% upside) pegs ECS’ valuations to a CY15 PER of 11.3x, a 25% discount to that of the Bursa Malaysia Technology Index.

Source: Maybank Research - 7 May 2015