• Kumpulan Perangsang Selangor (KPS) 1HFY23’s core profit of RM5.6mn (YoY: -36%) was below our and consensus estimates which accounting only 32.9% and 22% of the full year forecast. This was primary due to subdued consumer demand and the cessation of major customers, as well as absence of one-off upfront payment made by an existing customer for the renewal of long-term licensing agreement. We foresee KPS business performance in 2HFY23 to remain subdued amid challenging global outlook and weaker demand. Maintain a HOLD call with lower TP of RM0.63. Our valuation implies a 0.32x PBV (historical low 5-year avg. PBV) to FY24F BVPS of RM1.96. Note that our valuation is justified taking into consideration KPS earnings volatility.

• Below expectations. KPS’s 6MFY23 core profit of RM5.6mn was lagged our and consensus’ expectations, accounting for only 32.2% and 22% of the full year forecast.

• QoQ. Revenue escalated 9.6% QoQ while PBT margin inched up 1.5pts, thanks to improve segment from manufacturing sector amidst improving utilisation rates in view of significant order from customers. On top of that, lower material price, particularly resin has pushed EBITDA margin up by 1.7ppts.

• YoY. Core profit soared 452.8% YoY despite disappointing revenue which decline 7.4% YoY. The uninspiring revenue was dented by subdued contribution from Toyoplas albeit absence of an Indonesia’s key customers as well as lesser consumer demand. Moreover, PBT margin decline 2.9% YoY, no thanks to higher input costs.

• YTD. As for 1HFY23, revenue and PBT decline 11.9% YoY and 49.7% YoY respectively, no thanks to marginal decline in manufacturing (-13% YoY), licensing (-37% YoY), despite marginal increase in trading (+5% YoY). It was anticipated that KPS performance was weighed by challenging operational headwind couple with cessation of key customers and therefore, weighed overall earnings.

• Outlook. All in all, we anticipate KPS to poses challenging near-term prospect due to lower contribution from the manufacturing segment amidst softer demand for consumer electronics and higher operating costs arising from the hike in electricity tariffs and an increase in labour costs. We foresee performance in 2HFY23 to remain subdued amid challenging global outlook and weaker demand.

• Forecast. We cut our FY23-25F earnings forecast by 10.7-29.4% to RM12-33.9mn, as we revised lower our revenue and margin assumption.

• Our call. Maintain a HOLD call with lower TP of RM0.63 (vs. RM0.65 previously) as we roll our valuation to FY24. Our valuation is based on 0.32x PBV (historical low 5-year average PBV) and FY24F BVPS of RM1.96. Note that our valuation is justified after taking into consideration KPS earnings volatility.

Source: BIMB Securities Research - 29 Aug 2023