Highlights

KESM Industries - Gradual Improvement

Date: 19/11/2020

Source  :  AffinHwang
Stock  :  KESM       Price Target  :  10.15      |      Price Call  :  HOLD
        Last Price  :  16.82      |      Upside/Downside  :  -6.67 (39.66%)
 


  • Performance turnaround as revenue improves
  • Results accounted for 6% of street and our full-year expectations, but we deem the results as inline, expecting further sequential recovery
  • Maintain Hold but with a higher TP of RM10.15

Returns to black in 1QFY21

KESM reported a better 1QFY21, showing a marked turnaround qoq after the losses in 4QFY20. While core net profit of RM0.7m is still a far cry from its heydays, the results signal some improvements in the sector that are filtering down to the company. Revenue jumped 32% qoq albeit from a low base, contributing to the better overall performance. Nevertheless, we estimate that nearly a third of the revenue gains likely came from its low-margin EMS business and hence contributed to the weaker EBITDA margin which fell 1ppt qoq. Notably, with an estimated 15% of revenue coming from the EMS segment, overall EBITDA margins at 24% is also the lowest in recent times. While KESM has seen such unfavourable revenue mix in the past, this is likely to have been masked by the higher revenue from its more profitable burn-in and test segment.

6% of full-year expectations but deemed inline

While 1QFY21 core profits only accounted for 6% of street and our full-year forecasts, we deem the results as inline in view of expectations of further sequential earnings recovery ahead.

Maintain Hold

KESM’s stock price has performed well over the past month, in tandem with most recovery plays. With improving sentiments, we think that valuations may continue to overshoot near-term fundamentals. Stock is currently trading at a P/B of 1.2x, slightly above its 5-year historical mean of 1.18x, but has traded up to 2.5x (or close to +2SD above its historical mean) in the recent 2 years. As we move closer towards a vaccine, stock valuations could possibly remain elevated and trade between these levels, even before a stronger earnings recovery. Maintain our Hold rating as we like the company for its exposure to the electric and autonomous vehicles semiconductor market. Target price is raised to RM10.15 based on its mean CY21E P/B (previously at RM8.60 based on 1x its CY21E Book value). Key downside/upside risks include a loss/gain of customers and a reduction/gain in outsourcing opportunities.

Source: Affin Hwang Research - 19 Nov 2020

Share this
Labels: KESM

Related Stocks

Chart Stock Name Last Change Volume 
KESM 16.82 -0.06 (0.36%) 34,400 

  Be the first to like this.
 


APPS
I3 Messenger
Individual or Group chat with anyone on I3investor
MQ Trader
View candlestick stock charts with Technical indicators
MQ Affiliate
Be rewarded by being an MQ Affiliate
 
 

564  409  601  26 

ActiveGainersLosers
Top 10 Active Counters
 NameLastChange 
 TRIVE-OR 0.0050.00 
 QES 0.38+0.04 
 KSTAR 0.21-0.045 
 DNEX 0.26+0.005 
 BIOHLDG 0.30+0.04 
 DYNACIA 0.120.00 
 LAMBO 0.030.00 
 MCLEAN 0.325+0.095 
 AT 0.180.00 
 VSOLAR 0.040.00 

FEATURED POSTS

1. The Equity Market Index Benchmark in Malaysia CMS
2. Trading Scenarios of Derivatives Bursa Derivatives Education Series
3. Derivatives 101 Bursa Derivatives Education Series
4. Why Trade FKLI? Bursa Derivatives Education Series
5. MQ Trader - Introduction to MQ Trader Affiliate Program MQ Trader Announcement!

TOP ARTICLES

1. STEEL Industry - HOT ! ! The Huat Project
2. Malaysia Electronics Industry 5G TECH MANUFACTURING
3. SUPERMAX - HEAVILY SELL OFF ACTIVITIES(RUN) RISE OF TITAN
4. SILTERRA SAGA : GPACKET NOT BIDDER,COUNTING SECONDS FOR DNEX Official Opinion by Tuan Capital
5. Tenaga Nasional - MCO impact not as severe as 2QFY20 AmInvest Research Reports
6. Daily technical highlights – (SCIB, KGB) Kenanga Research & Investment
7. Mplus Market Pulse - 22 Jan 2021 M+ Online Research Articles
8. A BEARISH outlook for Covid-19. GENERAL
PARTNERS & BROKERS