KPS’s 1QFY24 RM10 Million Loss Does Not Deter Prospects

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Kumpulan Peransang Selangor Berhad (KPS) 1QFY24 results disappointed with a core net loss of RM10m, against Kenanga Investment Bank (Kenanga) full-year net profit forecast of RM21m, and the full-year consensus net profit estimate of RM20m.

However, they maintained their TP of RM0.45 as they roll forward their valuation base to FY25F on an unchanged 10x which is in line with the average forward PER of the manufacturing sector.

Kenanga maintains their TP as they liked KPS for: (i) the long-term growth prospects of the consumer electronics players, which are KPS’s main customers, (ii) its diverse portfolio of manufacturing operations, and (iii) the greater role it is playing in the supply chain of Customer D, a renowned privately-owned innovator of high-tech consumer electronic appliances.

The key variance against Kenanga forecast came largely from sluggish orders amidst soft global demand for consumer electronics products.

YoY, its 1QFY24 revenue fell 5% weighed down by: (i) on sluggish orders amidst soft global demand for consumer electronics products and the inability of its Indonesia operation to find replacement after losing customer T recently, and (ii) lower licensing income (-26%) following the disposal of a 50% equity stake in Kaiserkorp. It core net loss widened to RM10.4m (from a net loss of only RM1.3m a year ago), also weighed down by higher labour and electricity costs and the loss of operating scale.

QoQ, similarly, Kenanga said KPS 1QFY24 core net loss widened on lower sales but higher input cost.

Kenanga said KPS’s average plant utilisation stands at only about 45% currently, significantly below its optimum level of 70%. They believe the situation is unlikely to improve significantly over the immediate term given the sluggish demand for consumer electronics products globally.

Kenanga said there is no sign that KPS is close to securing a replacement after the loss of Customer T. Not helping either is elevated labour and energy costs. They believe there is a more realistic chance that KPS will see a pick-up in orders towards the later part of the year, underpinned by restocking and new product launches by its customers. Meanwhile, its newly-acquired precision metal component manufacturer MDS Advance Sdn Bhd (MDS) will add high-margin product offerings to its product portfolio.

Kenanga cut their FY24-25F earnings forecasts by 50% and 5%, respectively, to reflect softer demand and higher cost.

However, over the immediate term, it will not be spared the significant slowdown in the global consumer electronics industry, and it is also struggling to contain the rising cost.

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