Overview. KPS’s 3Q21 revenue rose 19% yoy and 11% qoq to RM360m on stronger contributions from manufacturing business of RM319m (+23% yoy, +15% qoq), which represents 89% of KPS’s revenue (Table 2). Meanwhile, KPS core profit (exclude EI from Toyoplas’s gain on disposal of asset of RM10m) declined 20% yoy but rose 119% qoq to RM15m.

Key highlight: Toyoplas contribution remains solid in 3Q21 with revenue grew 22% yoy to RM154m mainly on higher sales from the industrial tools division. Similarly, King Koil Manufacturing West LLC (KKMW) reported 88% increase in yoy revenue to RM54m on stronger sales from new and existing customers as well as steady demand in the US. Meanwhile, CPI’s revenue grew 17% yoy to RM50m on better contribution from healthcare and communication & IT divisions. However, CBB revenue declined 15% to RM60m following movement restriction and operating at only 60% capacity.

Against estimates: Inline. KPS’s 9M21’s core profit had grown tremendously to RM32m, an increase of 375% yoy in tandem with stronger contribution from manufacturing business. Overall, KPS’s 9M21 was inline with our estimates at 66% of our full year forecast. We believe our 2021’s earnings forecast is achievable given strong 4Q21 financial performance expected on continuous strong orders from customers amid solid global demand for consumer electronics as well as better production capacity following the relaxation of restrictions on movement control orders nationwide

Dividend. A 2.0 sen single interim DPS was declared, which implies a 74% of dividend payout.

Our call. Maintain BUY call on the stock with TP of RM1.60, pegged at 18x PER and 2021 EPS of 8.9 sen. We believe the dip in KPS’s share price since 1Q21 financial performance is offering an attractive buying opportunity to investors given KPS’s bright business prospective within its manufacturing business with diversified customers and products portfolio to provide continuous strong earnings growth in the long term.

Source: BIMB Securities Research - 26 Nov 2021