• Overview. 1Q21’s core profit surged 623% yoy to RM10.5m from RM1.4m in tandem with strong growth in revenue. This is primarily attributable to manufacturing segment which offset higher cost of goods sold following a rise in raw material price. On qoq basis, core earnings fell 69% on lower manufacturing revenue contribution due to seasonal factor.

• Key highlights. 1Q21’s revenue for manufacturing segment grew 44% yoy to RM267m from RM186m (Table 2) with the largest contribution coming from Toyoplas, followed by CBB, CPI, and King Koil Manufacturing West (KKMW) (Table 3). However, trading segment revenue was down 19% yoy to RM26.6m on lower sales of water chemicals due to dry season. Meanwhile, licensing segment revenue declined 23% yoy to RM9.4m underpinned by lower licensing revenue from international licensees.

• Against estimates: inline. 1Q21’s core profit was inline with our estimate at 22%.

• Outlook. We expect the increase in consumer spending following recovery in global economy amid accelerated vaccination programme to drive demand for electronics products across all sectors (i.e. consumer electronics, telecommunication & IT, healthcare, industrial tools, automotive, etc.) would provide strong earnings growth to KPS in the long run.

• Our call. Maintain BUY call on KPS at TP of RM1.60, valuing the stock at 18x PER on 2021 EPS of 8.9 sen. We believe the current weakening in KPS’s share price offers a good buying opportunity as long-term growth potential remains attractive underpinned by its high exposure to E&E segment.

Source: BIMB Securities Research - 28 May 2021