• KPS reported softer revenue growth in 1Q22 no thanks to China’s strict COVID-19 lockdown policies and supply chain disruption which hit its manufacturing segment. As a result, core earnings were down by 9% YoY on higher net opex, loss of an associate (SPRINT), and higher taxation.

• Despite a bumpy start, we remain upbeat on KPS as earnings are set to catch-up in 2H. Additionally, we foresee continuous demand for consumer electronics globally to benefit KPS’s manufacturing segment in the long term given its large exposure within E&E space.

• We maintain our BUY call on KPS with a TP of RM1.37, pegged at 12x PER to 2023F EPS of 11.4 sen. We assign a discount on PER valuation due to KPS smaller market cap size.

A bumpy Start

KPS reported softer revenue growth in 1Q22 as its manufacturing segment was affected by China’s strict COVID-19 lockdown policies and supply chain disruption which spread into consumer electronics products. As a result, core earnings were down by 9% YoY on higher net opex, loss of an associate (SPRINT), and higher taxation. 1Q22’s revenue came in line with our estimates though core earnings trailed at 16% of our full year forecast. Hence, we revised our FY22-24F revenue forecast after imputing a higher COGS assumption due to supply chain disruption.

Earnings were Driven by Robust Outlook…

We foresee solid demand for consumer electronics globally to benefit KPS’s manufacturing segment in the long term given its large exposure within the E&E products. We forecast KPS’s core earnings to grow at a 3- year CAGR of 24% to RM79m in 2024F on stronger contribution from manufacturing segment powered by global economic recovery and higher consumer spending. Earnings growth will also be pushed by additional projects from “D” customer after the termination of the contract from its supplier.

Maintain a BUY call with TP of RM1.37

We maintain our BUY call on KPS with a target price (TP) of RM1.37, pegged at 12x PER to FY23 EPS of 11.4 sen as we rolled our valuation to FY23.

Source: BIMB Securities Research - 4 Jul 2022