Kumpulan Perangsang Selangor (KPS) reported a headline core profit of RM73.7m in FY22, representing an increase of 31.2% YoY. However, after adjusting for the SPRINT disposal gain of RM128.7m and one-off impairments, full-year FY22 core net profit declined 55.1% mainly due to weaker performance in its core businesses, manufacturing, trading and property investment segments. Cumulatively, FY22 core net profit was slightly below our and consensus estimates, accounting for 92.9% and 78.8% of full-year forecast respectively. We trim our projected core net profit for FY23-FY24F by 18.5% on average to account for demand slowdown as well as lower-than-expected purchase order from Customer D, which is a substitute to Customer A. We maintain our Neutral call on KPS though with a lower SOP TP of RM0.74 (previously RM0.80) as we roll over our valuations to the next financial year.

• FY22 revenue flattish. KPS registered a marginal revenue growth of 2.4% YoY in FY22, supported by performance of trading & licensing segments. Both segments grew more than 30% YoY on the back of higher sale of water chemicals & water meter and licensing revenue from international licensee. On the flip side, the manufacturing business slumped 1.4% YoY due to the cessation of Customer A.

• PBT (profit before tax) expanded 37.4% YoY. Earnings at pre-tax level expanded on the back of higher share of profit from associates, namely Sistem Penyuraian Trafik KL Barat Holdings SB by RM126.9m arising from the gain on disposal of SPRINT. Besides, pre-tax earnings were also buoyed by the licensing division as the division improved 85.9% YoY due to one off revenue on upfront payment for the renewal of long-term licensing agreement.

• Sluggish earnings going forward. While we have cut our earnings assumptions to reflect the lower-than-expected revenue contribution from Customer D, we are hopeful that the recent acquisition of MDS Advance will fill up the earnings gap by FY24. It is notable that the Group has taken proactive steps in implementing cost control measures – KPS is restructuring Toyoplus group in China, Indonesia and Vietnam via streamlining of operations.

Source: PublicInvest Research - 28 Feb 2023