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.
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....