• Maintain HOLD (TP:RM0.77). KPS’s 9MFY23 core profit of RM10.5mn was above our and consensus expectations, accounting for 84.9% and 91.3% of the full year forecast, respectively. The higher-than-expected earnings were spur by better contribution from Licensing segment. Revenue and PBT improved by 10.4% QoQ and 45.8% QoQ respectively, thanks to encouraging earnings from Manufacturing and Licensing segments. We increase our FY23F earnings by 11.3% to RM13.8mn by adjusting margin assumptions but maintained FY24-25F earnings forecast. Overall, despite the various nearterm headwinds faced by KPS, we remain optimistic due to its strengthened portfolio of assets resulting from strategic acquisitions of cash-generating companies and the disposal of non-core businesses. Maintain a HOLD call on KPS with unchanged TP of RM0.77. This implied FY24 PER of 20.3x and FY24F P/B of 0.4x.

• Key Highlight. Toyoplas’s performance improved QoQ, thanks to increased revenue in Malaysia and Vietnam. Nonetheless, YoY performance still lagged due to softer demand and the departure of a key customer. Additionally, CPI's performance was dragged down by weakened global demand and excess inventory at customers’ end. It's noted that the utilization rate for CPI was maintained at the 63% level.

• Earnings Revision. In view higher-than-expected earnings, we increase our FY23F earnings forecast by 11.3% to RM13.8mn by adjusting margin assumptions but maintained the FY24-25F earnings forecast.

• Outlook. We foresee several challenges affecting KPS’s earnings currently, namely: (i) a slowdown in demand for consumer electronics products, (ii) costs pressures stemming from the hike in electricity tariffs and an increase in labour costs, and (iii) the recent departure of customers from KPS’s manufacturing subsidiary; Toyoplas Manufacturing (Malaysia) Sdn Bhd, and King Koil Manufacturing West LLC. Nonetheless, we maintain a sustainable outlook for the group in the long run, banking on monetising its assets and aligning with its strategic business plan to further expand its presence in the EMS industry.

Source: BIMB Securities Research - 28 Nov 2023