Results

• Kronologi Asia Berhad posted RM106.1m of revenue in  4QFY23 which grew 21.1% qoq and 6.6% yoy. The better  revenue performance was mainly boosted by higher  revenue contribution from EDM As-A-Service.

• Record profit due to lower administrative cost. Kronologi’s  4Q23 net profit stood at RM12.4m after rising +71.4% qoq and  +91.7% yoy. Nonetheless, the higher profit is mainly due to  lower administrative cost which dropped significantly in the  quarter to RM0.9m (-87.4% qoq and -86.9% yoy) with the  combination of unrealised forex gain with RM 3.5m and OPEX  efficiency.

• Performance exceed expectation. The 4Q23 results beat our  expectation with full year FY23 net earnings of RM25m  accounting for 134% of our earnings forecast due to the lower  admin cost than expected.

• EDM Infrastructure Technology (IT) remains top  contributor. EDM IT segment posted RM84.7m of revenue  (+17% qoq/-1% yoy) and RM13.2m of PAT (+104% qoq/ +147% yoy) in 4Q23. The segment still continued to dominate  the Group’s total revenue contribution, which amounts to 80% of  total revenue in the quarter and remaining made up by EDM AAS  segment.

• EDM As-A-Service (AAS) segment performing as well. The  segment registered RM21.5m in revenue (+41% qoq and +57%  yoy) and RM1.2m in PAT (-34% qoq and -21% yoy) during the  quarter. In the quarter, the AAS segment recorded lower margin  qoq and yoy mainly due to higher tax.

• Geographical segment. Majority of the Group revenue was  recognised from Singapore in the quarter (32% of total revenue)  (+39% qoq and +65% yoy), followed by Philippines (28% of total  revenue) (+53% qoq but -29% yoy) and China (24% of total  revenue) (-22% qoq and -5% yoy).

Comments/Outlook

• Reopening of China’s economy to favour Krono. China’s  government has eased Covid-19 restrictions from Jan 23 and this  is expected to bring positive impact to the business activity of  Quantum China Limited (Krono’s China subsidiary). In addition,  we understand that Krono is engaging with some corporate giants in China. Hence, we are optimistic on Krono’s China operation to  grow further moving forward support by the reopening of China’s  economic.

• Riding on the firm Asia economy. IMF has forecasted Asia’s  economy to grow at an average of 4.3% in 2023 thanks to an  accelerating pace of growth, which will be a "bright spot" in an  otherwise bleak global economic landscape. As Kronologi exclusively serves the Asian market, it is anticipated that the  Group will capitalize on the region's economic growth to be wellpositioned during the expected global economic downturn.

• Forex risk lingers. Investors need to be reminded that 4Q23  performance was mainly boosted by the unrealised forex gain, as  the Group is highly exposed to forex fluctuation mainly USD, RMB  and Peso. Hence, the forex fluctuation is a non-negligible risk for  the Group.

• Robust balance sheet in a downturn economic. During the  quarter, the company has registered RM106.5m of cash (3Q23:  RM116.6m), with debt ratio of less than 0.3x. With a robust  balance sheet, the Group is able to minimize the risks during any  economy uncertainties worldwide. 

Earnings Outlook

• We keep our FY24F profit forecast on RM 23m. Meantime, we  introduce our FY25F net earnings forecast at RM27.8m  (+21% yoy) on the back of expected strong economic growth  in Asia and higher contribution from AAS segment with better  margin.

Valuation / Recommendation

• We maintain our BUY call with a higher target price of  RM0.67 (RM 0.56 previously) as we rollover our valuation to  FY25F. Our valuation is pegged at 17x (which is -0.5 stdv based  on its 3-year mean of PER).

• Our target price is rendering a 26% upside from the current share price of RM 0.53.

• We favour the stock for: Krono gaining traction in sustainable income; Promising industry outlook driven by digitalized data  era; Robust balance sheet minimize risk amidst downturn  economic.  

Source: JF Apex Securities Research - 30 Mar 2023