• Downgraded to HOLD (TP:RM0.72). Kumpulan Perangsang Selangor Berhad (KPS) turned red during FY23, registering a core LATAMI of RM4.1mn, which is substantially below our in-house and market forecast. The lower-than-expected deviation was due to disappointing performance from Manufacturing segment. 4Q23 revenue and PBT decline 17.9% QoQ and 107.9% QoQ respectively, no thanks to subdued performance from Toyoplas and CPI Manufacturing. We cut our FY24-25F earnings by 10%-10.3% to RM18mn-26mn respectively, as we attuned margin assumptions and introduced FY26F earnings forecast with 19% YoY growth. Despite the various near-term headwinds faced by KPS, we remain optimistic due to its strengthened portfolio of assets resulting from strategic acquisitions of cash-generating companies and the disposal of non-core businesses. We foresee KPS to faces challenges including a slowdown in consumer electronics demand, increased electricity and labor costs, effect of customer departures from Toyoplas. Despite these issues, we maintain a positive long-term outlook, relying on asset monetisation and strategic expansion in the EMS industry. Downgraded to a HOLD call from TRADING BUY on KPS with lower TP of RM0.72 (RM1.25 previously).

• Key Highlight. Toyoplas’s and CPI Manufacturing revenue decline 26% YoY and 7% YOY respectively, during FY23 due to softening consumer demand. Besides, the disappointing performance of Toyoplas resulted from the cessation of a key assembly customer, although there were new projects came in Malaysia and China. As for CPI Manufacturing, utilisation rate declined to 63% level compared to 68% in FY22.

• Earnings Revision. We cut our FY24-25F earnings by 10%-10.3% to RM18mn-26mn by adjusting margin assumptions and introduced FY26F earnings forecast with 19% YoY growth.

• Outlook. We foresee several challenges affecting KPS’s earnings currently, namely: (i) a slowdown in demand for consumer electronics products, (ii) costs pressures stemming from the hike in electricity tariffs as well as an increase in labour costs, and (iii) the recent departure of customers from KPS’s manufacturing subsidiary; Toyoplas Manufacturing (Malaysia) Sdn Bhd. Nonetheless, we maintain a sustainable outlook for the group in the long run, banking on monetising its assets and aligning with its strategic business plan to further expand its presence in the EMS industry.

Source: BIMB Securities Research - 27 Feb 2024