Background

KESM is involved in the provision of semiconductor burn-in services, assembly of electronic components & testing of semiconductor integrated circuits. KESM's financial performance tends to mirror that of the semiconductor sector. In line with the healthy recovery in the performance of semiconductor sector, we can expect the same to happen to KESM.

Recent Financial Results

KESM's financial performance has rebounded in the past 3 quarters. In its latest quarterly results, i.e. QE31/1/2010, KESM's net profit increased by 36% q-o-q or nearly 3-fold to RM2.6 million. Turnover has also increased significantly by 18% q-o-q or 42% y-o-y to RM56 million.


Table: KESM's last 10 quarterly results



Chart 1: KESM's last 20 quarterly results

Valuation

Based on its latest quarterly results, KESM's annualized EPS would be about 24 sen. KESM (closed at RM2.58 today) is now trading at a PER of 11 times. At this multiple, KESM's upside is limited (say, 10-20%).

Technical Outlook

KESM is now testing its long-term downtrend line resistance at RM2.58-60. A bullish breakout above this level could see the stock challenging its 2008 high of RM2.80.


Chart 2: KESM's weekly chart as at Apr 5, 2010 (Source: Tradesignum)

Conclusion

KESM could be a good stock for medium-term investment due to the recovery in the semiconductor sector. It has a reasonable valuation but further upside could only happen if the stock can surpass the long-term downtrend line resistance at RM2.58-60.