Overview. KPS’s 2Q21 revenue rose 46% yoy and 5% qoq to RM324m on higher contributions from manufacturing business due to strong orders from customers amid solid demand for electronics products globally. Meanwhile, KPS turned a core profit of RM7m from a loss of RM13m in 2Q20. However, core profit decreased 36% qoq on rising raw material price (resin and paper) and freight costs which saw gross profit margin contracting 0.7ppt to 17.7% from 18.4%.

Key highlight: Despite the strong growth in the manufacturing business at RM277m (+55% yoy, +4% qoq) in 2Q21, management highlighted that some of its customers producing automotive and consumer electronics products were affected by global chip shortage. This resulted in deferment in some of customers’ orders. However, given KPS’s diversified customers and products’ portfolio, (multimedia & communication, industrial, and healthcare) continuous orders from customers for other products were eventually able to reduce the impact on slower orders within automotive and consumer electronics.

Against estimates: Below. Overall, 1H21 revenue of RM632m made up 47% of our full year forecast. However, core profit trailed our estimate at 36%. The lower core profit against our estimate was underpinned by higher costs following an increase in raw material price and freight cost. We made no change to earnings forecast at this juncture pending analyst briefing on 3 Sep 2021, Friday.

Outlook. We remain sanguine on KPS’s long term business prospects owing to continuous strong global demand for electronics products on better consumer spending as well as recovery in the overall supply chain to provide upside to KPS’s earnings.

Our call. Maintain our BUY call on the stock with TP of RM1.60, valuing the stock at 18x PER on 2021 EPS of 8.9 sen.

Source: BIMB Securities Research - 30 Aug 2021