ECS Holdings drew a disappointing 21.4% decline in profits

Check out how it can bounce back.

According to OCBC Investment Research, ECS Holdings reported a 21.4% YoY dip in its 4Q12 PATMI to S$7.1m despite a 10.5% increase in revenue to S$1,021.1m. Excluding forex and other exceptional items, OCBC estimates that core earnings would have declined 16.4% YoY to S$6.6m. 

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This is below our expectations due largely to a 1.1ppt slide in gross margin to 3.4%. For FY12, revenue inched 1.0% higher to S$3,643.7m, forming 102.0% of our FY12 forecast. Estimated core PATMI declined 18.4% to S$29.4m (reported PATMI fell 24.4% to S$29.6m), which missed our estimate by 5.8%.

On a positive note, a first and final dividend of S$0.022 per share was declared, similar to FY11, but above our S$0.017 per share forecast.

This translates into a yield of 4.3%.

Looking ahead, ECS aims to broaden its range of distribution products and services to accommodate the shift in consumer preference from PCs to mobile devices, while it is also looking to develop its own cloud-based solutions and products.

Geographically, ECS has earmarked China and Indonesia to drive its growth in 2013. We understand that ECS also recently made headways in its negotiations with Samsung, with distributorship agreements in place for most of ECS’ addressable markets.

This is an important development for ECS given Samsung’s growing stature as a mobile device player. In our view, other key IT vendors for ECS include Apple, HP, Lenovo, and Oracle.

In particular, we believe that how successful HP manages to turn its business around would have a huge underlying implication on ECS’ growth prospects moving forward.