ECS Holdings (ECS) reported a 14.6% YoY decline in its 1Q14 revenue to S$930.9m and a 13.0% dip in PATMI to S$7.2m, such that topline and bottomline both formed 20.2% of our FY14 forecasts, respectively. We view this as below our expectations. Despite a 36.6% YoY revenue growth in its Enterprise Systems segment to S$351.6m, this was more than offset by a 30.6% fall in its Distribution segment revenue to S$571.0m

Given this change in product mix, ECS managed to increase its gross margin by 0.5 ppt YoY to 4.1%. However, this was insufficient to make up for the decline in revenue, higher finance costs (+13.6%) and lower share of profit of associates (-20.4%).

Looking ahead, market watcher IDC believes IT spending will continue to grow, driven by both consumers and enterprises. However, ECS is watchful of the ongoing political uncertainty in Thailand, which is expected to cause its operations there to remain challenging. We will speak to management to gather more information. For now, we place our Sell rating and S$0.585 fair value estimate on ECS under review.

Source: OCBC Research - 15 May 2014