All-time high FY22 core net profit of RM52m (+>100%) matched our expectation. Manufacturing is expected to grow on the back of existing demand from customers in E&E industry. In addition, Kobay is in the final stage of setting up a new plant to cater for solar aluminium frame production. Pharmaceutical division shall continue to work on widening its product range, along with cost control efforts to improve profitability and market competitiveness We strongly believe that Kobay is poised for a multi-year growth in earnings supported by the healthy pipeline of job orders. We reaffirm BUY call with unchanged TP of RM6.08.

Within expectation. 4QFY22 core net profit of RM13m (-14% QoQ, +79% YoY) lifted FY22’s to RM52m (+>100%) which matched expectation accounting for 101% of our full year forecast. FY22 one off items include amortization of deferred income on government grants (-RM263k), PPE disposal gain (-RM137k), fair value loss on financial instrument (+RM237k), forex gain (+RM283k) and fair value loss on other investment (+RM945k).

Dividend. Recommended first and final DPS of 3 sen (4QFY21: 2 sen) which is subject to shareholders’ approval at the forthcoming AGM. FY22 DPS 3 sen vs FY21’s 2 sen.

QoQ. Top line weakened by 5% to RM95m attributable to the decline in manufacturing (-5%), more than sufficient to offset the gains in property development (+76%) and pharmaceutical (+28%). In turn, core net profit fell by 14% to RM13m mainly due to lower EBITDA margin (-4.4ppt).

YoY. Revenue more than doubled thanks to (i) higher contributions from manufacturing (+45%) and property developments (+356%); and (ii) consolidation of pharmacy business. In turn, bottom line swelled by 79% although D&A was higher by 74%.

YTD. Apart from the consolidation of pharmacy business, turnover more than doubled to top RM354m driven by the expansions in both manufacturing (+72%) and property development (72%). In turn, core earnings gained 2.1x to RM52m.

Regional breakdown. For FY22, Malaysia remains the largest top line contributor with 78%, followed by Singapore, USA, China/Hong Kong and others with 8%, 5%, 7% and 3%, respectively.

Outlook. Kobay anticipates manufacturing division to deliver positive results for FY23. While maintaining the existing demand from customers in E&E industry, the division are in the final stage of preparation work for its venture into the manufacturing of aluminium frames for solar panels for renewable energy-related business, further expand the clientele exposure and ultimately elevate division’s performance. Property development segment is expected to recover gradually on the back of the completion of Langkawi Projects by end of 2022. In view of the escalating cost of building materials and increase in borrowing costs, Kobay will take measures to mitigate the impact and pace out new launches according to market demand. Pharmaceutical division shall continue to work on widening its product range, along with cost control efforts to improve profitability and market competitiveness.

Forecast. Unchanged. Reiterate BUY with unchanged TP of RM6.08. Due to its diverse business structure, we value Kobay with SOP valuation methodology: (i) manufacturing division is pegged to 25x of FY23 EPS; (ii) property development business is valued using FY21 net book value; and (iii) pharmaceutical business is appraised based on 20x of FY23 EPS.

Source: Hong Leong Investment Bank Research - 19 Aug 2022