• Overview. KPS’s 1Q22 revenue grew 7% yoy to RM329m on higher contribution across all segments (Table 2). However, core profit fell 9% yoy to RM9.5m dragged by the loss of an associate; SPRINT, and higher taxation. Meanwhile, on a qoq basis, despite recorded lower revenue, KPS EBITDA grew 27% yoy to RM44m while EBITDA margin expanded 300bps to 13.3% from 10.3% primarily on higher and favourable sales mix from King Koil Manufacturing West (KKMW). Still, core profit dropped 45% qoq on higher tax expenses.

• Key highlight: Toyoplas sales plunged 15% yoy to RM107m (representing 40% of manufacturing sales) (Table 3) primarily due to the lockdown in China which affected its production in the Shanghai plant. In contrast, KKMW recorded the strongest revenue growth in 1Q22 (+50% yoy) on higher sales from existing and new customers, followed by CPI (+6% yoy), and CBB (+1%).

• Against estimates: Below. 1Q22’s core profit was below our estimate. Nonetheless, we make no change to our estimate at this juncture pending further details from analyst briefing on 1 June 2022.

• Outlook. We foresee the supply chain disruption, China’s ‘Zero-COVID’ policy, and the Russia-Ukraine war to continue hitting KPS’s manufacturing segment. However, we remain positive on KPS’s long term prospects owing to its diversified customers and products portfolio to cushion the impact of the supply chain disruption while providing sustainable earnings growth in the long run.

• Our call. Maintain BUY call on the stock with TP of RM1.60, pegged at 16.3x PER and 2022 EPS of 9.8 sen.

Source: BIMB Securities Research - 30 May 2022