• Overview. Kumpulan Perangsang Selangor (KPS) 3Q22’s core  earnings fell by 11% YoY to RM12.9mn despite reporting a moderate  growth in revenue of 6% to RM382.8mn. This was primarily due to higher share of losses from associates. Notwithstanding that, EBITDA  margin climbed by 0.6-ppts to 12.2% from 11.6% in 3Q21 thanks to better product mix and higher average selling price from King Koil  Manufacturing West (KKMW) and Century Bond Bhd (CBB).

• Key Highlight: While the Manufacturing business reporting a flattish  growth in revenue (+1.3% YoY) (Table 3) amid continuous supply  chain disruption and moderate demand for electronics products due  to global inflationary pressure and China’s zero-COVID policy, the  Trading and Licensing businesses’ revenue jumped by 42% YoY and  14.2% YoY respectively.

• Against Estimates: Below. Though KPS’s 9M22 revenue was broadly  in line with our estimates at 71%, core earnings of RM23.3mn trailed  our forecast at 53%, however. As mentioned, the lower-thanexpected core earnings were dragged by unfavourable contribution  by share of associates.

• Earnings Revision. We cut 2022-2024 earnings forecast by 15%-26% as we revisit our assumption on the share of profit from associates,  with no change to revenue forecast.

• Dividend. A total 6.5 sen DPS (single-tier interim DPS of 2.0 sen and  4.5 sen single-tier special DPS of 4.5 sen – following the proceeds  from the disposal of 20% shares in SPRINT Holdings) was declared,  which implies a 250% of dividend payout.

• Outlook. We remain optimistic on KPS’s long-term prospects driven  by resilient business performance within the manufacturing business  and E&E-related segment across all its subsidiaries.

• Our Call. Maintain a BUY call on the stock with a lower TP of RM0.85 (from RM1.04), pegged at a PER of 10x to 2023 EPS of 8.5 sen. We  foresee the easing in China’s zero-COVID policy in 2023 to provide an  upside catalyst to our earnings forecast.

Source: BIMB Securities Research - 29 Nov 2022