KESM Industries Bhd’s 1QFY24 results met expectations, marking its second consecutive quarterly profit, driven by a higher loading volume from its burn-in and test services.
In its Results Note today (Nov 17), Kenanga Research said these could be early signs that its RM143 million investment is gradually paying off.
It maintains its forecasts and MARKET PERFORM call, with TP of RM7.06, with no adjustment to its TP based on 3-star ESG rating.
“This is based on an unchanged FY24F PBV of 0.85x, representing a c.20% discount to the average PBV of 1.1x of companies in the technology-related space that are loss-making or barely breaking even to reflect KESM’s low share liquidity,” Kenanga said.
The research house said KESM’s 1QFY24 core net profit of RM0.9 million versus net loss of RM1.5 million in 1QFY23 made up 34% of both our full-year forecast and the full-year consensus estimate.
“We consider the results within expectations given the volatility in its quarterly earnings. Year-on-year, KESM’s 1QFY24 revenue increased 20.4% on improved loading volume for its burn-in and test services.
“We believe there had been a gradual production ramp-up from its new equipment with a price tag of RM143 million over the past quarters,” it said.
Kenanga added while the sustained earnings are encouraging, signalling positive traction for the new investment, its caution persists.
“The reported earnings remained tepid in absolute terms, and the group had historically exhibited higher earnings volatility compared to its peers.
“We believe it would be prudent to keep a close eye on the next few quarterly earnings, more so during its transition to new chips for electric vehicles (EVs).”
The risks to Kenanga’s call include slower-than-expected ramp-up in volume for burn-in and test services, slower-than-expected adoption of new semiconductor modules in automobiles, and sudden decline in customer forecast.
