Kenanga has initiated coverage on Kumpulan Perangsang Selangor Bhd the Selangor state-owned company engaged in a variety of businesses including manufacturing (>60% of group operating profit), trading, licensing, and infrastructure. The company is like for its diversified portfolio of products, expansion in its overseas operations, and the greater role it is playing in the supply chain of a global consumer appliances giant.
The manufacturing division produces plastic-based EMS products in the communications, IT, and consumer electronic segments, as well as industrial and automotive components along with integrated printing and packaging. The trading division specialises in sewage and water treatment consumables and the worldwide licensing of the King Koil brand mattresses.
Kenanga expects a continual order uptrend for electronic products due to the growing pace of digital transformation worldwide. The US-China trade tension and the desire by MNCs for greater supply chain resilience are also favouring manufacturers in South East Asia such as Malaysia but also Vietnam and Indonesia where KPS operates. The latest statistic showed that Malaysia’s Industrial Production Index (IPI) grew 12.5% YoY in July driven by the manufacturing sector of which E&E products contributed 17.3%.
Furthermore, as the region progresses towards post COVID-19 norms, the utilisation levels of its various plants have risen from around 50% to 60%. Plant expansion is also expected to boost prospective earnings. A new 130,000 sg ft plant in Bac Giang Province Vietnam is due to start in 4QFY22. It is four times the size of Toyoplas’ existing plant in Bac Ninh Province. Importantly, it will not only accommodate customers’ shifting some products away from China to Vietnam but will also increase Toyoplas’ capacity and enable it to optimise cost and improve margins. Another key subsidiary, CPI, is also expected to commence operation of a new Penang EMS facility by 4QFY22. It will add 30% more capacity to support sustainable topline growth in the coming years.
Kenanga likes KPS for its diversified portfolio of products, catering to both the industrial and consumer electronics space, long-term growth underpinned by expansion in its overseas operations, and the greater role it is playing in the supply chain of a global consumer appliances giant (that will raise its profile as a contract manufacturer in the international market).
Target price at RM0.77 based on FY23F PER of 10x.
