ECS Corporate Presentation 3Q15 Financial Results Update 5 November - - PowerPoint PPT Presentation

ECS Corporate Presentation

3Q15 Financial Results Update

5 November 2015

Preferred Supplier of Choice for ICT Products & Value-added Services

CONTENTS

3Q15 Operations Highlights 3Q15 Financial Results Growth Strategies Investment Merits Appendix

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3Q15 OPERATIONS HIGHLIGHTS

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ICT Distribution sales still going strong in the dampened market… demand remains sluggish for Enterprise Systems

3Q15 Operations Highlights

• PC and mobility products continue to drive ICT Distribution

– Boosted by expanded range of mobility products (ASUS Zenfone 2, Microsoft Mobile and Xiaomi’s MiPad in 1H15) coupled with strong sales

• f PCs
• Slower project implementations impact Enterprise Systems

– Lower sales of networking hardware, hi-end servers and storage – Slowdown also affected ICT Services billings

4

3Q15 FINANCIAL RESULTS

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Strong double-digit sales growth in 3Q15, though profitability impacted by less-favourable product mix and steep rise in USD vs MYR… 9m15 performance commendable

Revenue & Profit Analysis

6 +18.6%

• 28.7%
• 34.7%

+23.4% +14.4% +13.1%

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3Q15 Segmental Revenue

(RM’mil) Revenue Gross Profit 3Q14 3Q15 3Q14 3Q15 ICT Distribution 278.5 358.0 9.5 10.7 Enterprise Systems 98.5 94.1 7.1 5.7 ICT Services 15.0 13.0 2.2 1.9 Total 392.0 465.1 18.8 18.3

ICT Distribution Enterprise Systems ICT Services ICT Services Enterprise Systems ICT Distribution

ICT Distribution recording 9th consecutive quarter of year-on- year growth, largely due to mobility products… overall Group margins mainly impacted by forex

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9m15 Segmental Revenue

(RM’mil) Revenue Gross Profit 9m14 9m15 9m14 9m15 ICT Distribution 792.0 1,049.2 31.4 39.7 Enterprise Systems 311.5 320.9 23.7 22.9 ICT Services 36.1 36.7 5.7 5.4 Total 1,139.6 1,406.8 60.8 68.0

All segments seeing expanded revenue in 9m15 lifted by pre-GST spending and favourable product mix in 1H…

Enterprise Systems ICT Distribution ICT Distribution Enterprise Systems ICT Services

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Operations Statistics

Working capital days returns to normal… cash conversion at best-ever level of below 30 days from faster-moving inventory

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Revenue Trend

On track to set a new revenue record in FY2015…

+18.6% yoy +7.4% yoy

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Profit Trend

FY14 ROE: 13.7%

(FY13: 13.7%)

FY14 ROA: 7.7%

(FY13: 7.9%)

• 34.7% yoy

+6.5% yoy

Profitability impacted by less favourable product mix…

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Robust balance sheet with healthy cash position…

Balance Sheet

(RM’mil) As at 30.09.15 As at 31.12.14 Comments Plant & Equipment 3.5 3.3

• Other Non-Current Assets

2.0 2.0

• Current Assets

444.4 406.5 Improves largely due to higher cash and cash equivalents, as well as receivables, deposits and prepayments Current Liabilities 209.1 187.7

• Non-Current Liabilities

0.0 0.0

• Total Shareholders Equity

240.8 224.1 Retained earnings continue to strengthen Total Borrowings

• No borrowings

Cash & Cash Equivalents 124.0 89.7 Cash per share of 69 sen as at 9m15 Gearing (net of cash) (x) Net cash Net cash Net cash position allows future expansion Net Assets/share (RM)* 1.34 1.24

• *Based on total number of shares of 180.0 mil shares of RM0.50 par

Dividend History

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Declares interim and special dividend in conjunction with Group’s 30th anniversary…

#Adjusted for 1-for-2 bonus issue

Dividend policy of minimum 30 % of net profit

*To be paid on 10 December 2015

8.0

GROWTH STRATEGIES

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Malaysia’s ICT sector continues to be robust with increased demand for mobility products and potential of IoT devices…

Sector Opportunities

• Malaysia ICT sector to grow 14.2% in 2015 (Source: PIKOM)

 Growth to be driven by higher demand for IT services especially from e- commerce and online transactions

• Increasing demand for affordable smartphones (Source: IDC)

 ASUS’ smartphone sales climbed to no. 2 from no. 3 due to popularity of ZenFone 2 (as at 1H15)  Lenovo climbed to no. 4 from no. 6 previously, largely due to its bundled low- end model (A319) with local SIM packs sold at an affordable price

• Internet of Things (IoT) market to be one of the fastest growing

segments in Asia Pacific (Source: Frost and Sullivan)

 Total IoT spend forecasted to be USD59 billion by 2020  Malaysia, India, Thailand and Indonesia expected to be among fastest growing markets

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Growth Strategies

• To expand ICT Distribution portfolio with new wave of products

– Targeting new products such as ‘wearables’ and ‘IoT’

• To grow Enterprise Systems segment

– Closely working with System Integrators and vendors to seek out new private and public sector projects

• Windows 10 anticipated to be precursor to next tech upgrade
• To continue to expand ICT Services

– Still on the lookout for potential merger and acquisition opportunities to increase the Group’s value added services

ECS spearheading leadership in the ICT and now IoT space… hopeful of returning Enterprise Systems projects soon

INVESTMENT MERITS

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Valuation

Undemanding valuation for growth-centric consumer stock… commendable dividend yield

1 Net of cash per share of RM0.69 per share (as at 30 Sep 2015) 2 Based on Net Assets per share of RM1.34 (as at 30 Sep 2015) 3 Based on total dividend declared of 6.0 sen per share in respect

• f FY14

Source: Wall Street Journal

1-year stock performance (31-Oct-14 to 30-Oct-15) Change ECS:MK +7.30% FBMKLCI:IND

• 9.38%

ECS 1-year Outperformance +16.68%

Share Price (@30 Oct 2015) RM1.47 Market Capitalisation ('mil) (@30 Oct 2015) RM264.6

12 months trailing PE

8.3x

12 months trailing PE (net of cash)1

4.4x

12 months Trailing EV/EBITDA

3.3x

Price to Book Ratio2

1.1x

Historical Dividend Yield3

4.1%

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Market leadership, growth catalysts and dividend policy underpin ECS’ investment case...

Investment Merits

Market leader in ICT distribution in Malaysia Domestic ICT market continues expansionary mode Mobility devices to be growth catalyst Net cash position allows for future expansion Dividend payout policy of 30% on net profit Proxy to growing ICT spending with consistent dividend payout Single digit PE valuation

THANK YOU

Bursa Code: 5162 Bloomberg: ECS:MK www.ecsm.com.my

Appendix

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CORPORATE PROFILE

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Background

Malaysia’s leading ICT distribution hub...

• Established in 1985, ECS is in the business of distributing ICT

products in Malaysia.

• ECS’ range of products include volume ICT products (notebooks,

personal computers, smartphones, tablets, printers and software) and value enterprise systems (network, communication infrastructure, servers and enterprise software).

• ECS has working relationships with close to 40 global brands

such as Hewlett Packard, Lenovo, Asustek, Dell, Oracle, Microsoft, Cisco, Apple, IBM and VMWare.

• ECS has a nationwide distribution network of more than 5,000

resellers consisting of retailers, system integrators and corporate dealers.

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Vision and Mission

Aims to be at the centre of all things IT...

To be the leading provider of ICT products and value- added services. We strive for sustainable growth to achieve optimum returns to shareholders.

VISION

• To be the preferred supplier of choice for ICT products and

value-added services by building stronger customer relationships.

• To bring the best-of-breed ICT products and services to

enhance the competitiveness of our customers' businesses.

MISSION

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Milestones

More than two decades in the ICT industry since the advent

• f personal computers...

1985

• Began business in marketing personal computers under K.U. Sistem Sdn Bhd (now known as ECS KU Sdn Bhd)

1986

• Management buy-out of K.U. Sistem Sdn Bhd by founders Foo Sen Chin and Dato’ Teo Chiang Quan
• Pericomp Sdn Bhd (now known as ECS Pericomp Sdn Bhd) was formed to distribute peripherals to dealers

1994

• Set up a branch office in Penang

1997/98

• KUS Holdings Sdn Bhd (now known as ECS Kush Sdn Bhd) won the inaugural Enterprise 50 award
• Astar Sdn Bhd (now known as ECS Astar Sdn Bhd) won the Enterprise 50 award

2000

• KUS Holdings Sdn Bhd (now ECS Kush Sdn Bhd) became a 60% subsidiary of ECS Holdings Limited of Singapore

2001

• Listing of ECS Holdings Limited on the SGX Mainboard

2004

• KUS Group of companies adopted the ‘ECS’ corporate identity
• ECS ICT Berhad was awarded MSC status by MDeC

2005

• Introduction of program to install credit card terminals at resellers’ sales points

2006

• Implemented Enterprise Knowledge Portal to improve information storage and sharing

2007

• Establishment of warehouses in Kota Kinabalu and Kuching

2008

• Installation of 720 credit card terminals with over 107 retailers to improve collections
• Implemented the FPX payment gateway which enables direct online payment from resellers
• Establishment of sales office in Johor Bahru and Kuantan
• Launch of our integrated corporate office and warehouse facility in Kota Damansara

2010

• Listing of ECS ICT Berhad on the Main Market of Bursa Malaysia Securities Berhad

2011

• Appointed strategic authorised distributor for Dell’s commercial & consumer products & solutions
• Appointed as Lenovo's distributor for 3 business segments: Consumer, Small & Medium Business and Relationship (corporate)
• Set up of ECS Technology Centre at ECS’ head office, showcasing Oracle Exadata Database machine, the first in Malaysia
• Nominated as one of the companies in "The Edge Billion Ringgit Club“

2012

• Appointed distributor for Google Nexus 7 & Asus Padfone tablet PCs; enters smartphone segment with Huawei Ascend P1 & first foray into cloud computing
• Signs agreement to distribute Huawei’s entire range of enterprise systems products and services
• Undertook 1-for-2 Bonus Issue

2013

• Appointed distributor for Lenovo smartphones, Samsung smartphones (for enterprise systems segment), Microsoft Surface RT and Surface Pro

2014

• Appointed distributor for ASUS and BenQ smartphones, Zebra printing solutions, Seagate storage solutions and F5 Networks’ solutions.

2015

• Appointed distributor for Microsoft Mobile, Xiaomi MiPad and Veeam.

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Corporate Structure

Focused on the distribution of ICT products...

ECS ICT Berhad

ECS Kush Sdn Bhd (100%) ECS Astar Sdn Bhd (100%) ECS KU Sdn Bhd (100%) ECS Pericomp Sdn Bhd (100%)

Management, Financial, and Logistics services Distribution of ICT Products Provision of ICT Systems and Services Distribution of Value ICT Products Investment holding and provision of e-commerce systems and solutions

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Market Positioning

Well-positioned to play and intermediary role in the ICT supply chain...

Direct Sales Two-Tier Distribution One-Tier Distribution

End Customers Resellers Resellers

Retailers, System Integrators, Corporate Dealers

ICT Distributors

ICT Principals

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Business Model

“One-stop shop” ICT supplier for diverse customer base...

ICT DISTRIBUTORS Channel Development and Management Logistics Finance Services

• Pre-sales
• System Architecture
• Implementation
• Training
• Post-sales
• Maintenance

ICT PRINCIPALS Value Products Servers Network Systems Data Centers Enterprise Software Cloud Services Volume Products Notebooks Personal Computers Smartphones Tablets Printers & Supplies Software END USERS Finance Telco Manufacturing Services Government Corporate Enterprises Commercial SME Home RESELLERS System Integrators Solutions Providers Service Providers Corporate Dealers Retailers

Economies of Scale and Better Pricing Aggregation

Total solution

Single Source Supplier

After sales support

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Product Portfolio

Principals are the “who’s who” of brands in the ICT industry...

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Products and Services

ECS distributes a wide array of ICT products and Enterprise Systems... value added with strong technical support

ICT Products

• Notebooks
• Personal Computers
• Smartphones
• Tablets
• Printers & Supplies
• Software

Enterprise Systems

• Servers
• Network Systems
• Data Centers
• Enterprise Software
• Cloud Services

ICT Services

• More than 40 engineering

personnel providing support for ICT products

• Over 200 certifications from 15

principals

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Distribution Infrastructure

Established and efficient distribution infrastructure backed by advanced logistics centre...

• Purpose-built flagship

warehouse in Kota Damansara spanning 40,000 sq ft

• Handles an average

intake of 5 containers and output

• f 25 lorries per day
• Daily sales of more than

RM6 mil with 750 invoices/deliveries

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Competitive Advantages

ECS’ leadership driven by established brand name, efficient distribution ability and strong relationships with principals ...

Partnership with Key ICT Players

• Long term track records with more

than 30 leading ICT principals Wide range of ICT products

• More than 3,000 SKUs (Stock Keeping

Unit) sold in FY2014 Effective Financial Management

• Effective inventory management to

minimise product holding cost

• Credit card terminal programme, trade

card programme and ePayment interfaces to improve collection and reduce credit exposure Time-tested Distribution Infrastructure

• Extensive network of more than 5,000

resellers

• Timely delivery supported by an

integrated ERP system Strong Technical Support Team

• Team of 40 certified service personnel

with certifications from leading ICT principals Established Name in ICT Industry

• In business for 30 years since the

introduction of personal computers

1 2 3 4 5 6

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Key Management

Led by industry veterans...

• Mr. Foo Sen Chin, Executive Chairman
• Responsible for steering the Group’s overall corporate direction; instrumental in guiding ECS into a RM1 billion company
• Has more than 30 years of experience in the ICT industry
• Graduated with a Bachelor of Science in Electrical and Electronic Engineering from the University of Birmingham, UK; later obtained an

MBA from Cranfield School of Management, UK

• A key figure in the ICT industry: served as councilor, treasurer, and deputy chairman of PIKOM from 1995 – 2005; on PIKOM’s board of

advisors from 2006 to present

• Mr. Soong Jan Hsung, Chief Executive Officer
• Responsible for the development of new sales and marketing strategies
• Contributed significantly to the Group’s success, especially in market development aspects
• Has close to 30 years experience in ICT products distribution
• Graduated with a Bachelor in Science majoring in Mathematics from the University of Malaya
• Mr. Tee Ang Kuan, Group General Manager
• Responsible of the overall distribution and services business of the Group
• Has more than 25 years of experience in the promotion and distribution of ICT products to end users as well as corporate customers
• Graduated with a Bachelors of Art (Honours) majoring in Economics from the University of Malaya
• Mr. Chan Puay Chai, Group Financial Controller
• Responsible for the Group’s financial planning & control, financial compliances, credit management, risk management, and other finance

related operations

• Has more than 20 years of experience in various key accounting positions
• Is an Associate Member of the Charted Institute of Management Accountants (U.K.) and a registered accountant with the Malaysian

Institute of Accountants

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Key Management (cont’)

With years of experience in the industry…

• Mr. Chia Chin Pooi, General Manager of ECS Astar
• Responsible for the operations, namely the design and development business and marketing strategies, marketing distribution of ICT

products, and sales staff management

• Has more than 20 years in the ICT industry
• Graduated with a Diploma in Computer Science from TAR College, Malaysia in 1990
• Mr. Chang Yew Hwa, General Manager of ECS Pericomp
• Responsible for the operations, namely the design and development of business and marketing strategies, marketing and distribution of

Enterprise ICT products, and sales staff management

• Has more than 20 years of working within the Group
• Graduated with a Bachelor of Science in Economics from Portland State University, USA in 1988
• Mr. Tan Say Meng, General Manager of ECS KU
• Responsible of the overall ICT sales and services
• Has been with the Group for more than 20 years and is still involved in the ICT services component of the Group
• Graduated with a MBA majoring in e-Commerce from Charles Sturt University, Australia

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Substantial Shareholders

Part of a leading regional ICT player based in Singapore... 33% free float

ECS ICT Berhad ECS Holdings Ltd Sengin Sdn Bhd (1) Oasis Hope Sdn Bhd (2) Dasar Technologies Sdn Bhd

(1) Deemed interest of Mr. Foo Sen Chin, Executive Chairman of ECS ICT Berhad (2) Deemed interest of Dato’ Teo Chiang Quan, Non-independent & Non-executive director of ECS ICT Berhad

41.0% 12.2% 5.5%

Incorporated in Singapore Incorporated in Malaysia Incorporated in Malaysia

Incorporated in Malaysia 8.6%

Industry Statistics

Industry Statistics show growing market potential…

Source: IDC report published in July 2015 Data : Total Hardware and Software excluding Services