4QFY21 CNL of RM1.5m (-298% QoQ; +55% YoY) further depressed FY21 CNP to RM4.0m (vs. RM0.1m FY20), which came in below our, but above consensus, expectation, accounting for only 57%/158% of respective estimates. Our CNP excluded RM3.3m worth of gain from investment which we deem as non-core. The group suffered impacts from the movement control order, and reduced loading volume due to wafer shortage, resulting in its utilisation rate dipping below 30%. We anticipate a slow recovery for KESM owing to its lesser role in the automotive supply chain. Maintain MARKET PERFORM with a lower TP of RM11.40.

Below expectations. 4QFY21 CNL of RM1.5m (-298% QoQ; +55% YoY) further depressed FY21 CNP to RM4.0m (vs RM0.1m FY20), which came in below our, but above consensus, expectation, accounting for only 57%/158% of respective estimates. We have stripped off RM3.3m worth of gain from investment securities which we deem to be non-core to the group’s business operation.

Results’ highlight. QoQ, 4QFY21 dipped into the red with CNL of RM1.5m as the group continued to suffer the challenges posed by the Covid-19 pandemic. In addition to the movement control order, the group also experienced a reduction in loading volume from customers due to insufficient wafer supplies. This led to a 5.1% decrease in revenue to RM58.0m. YoY, 4QFY21 revenue rose 26% to RM58.0m as the group experienced improved demand for burn-in and test services. As a result, CNL improved to RM1.5m (vs. CNL of RM3.3m). Cumulatively, FY21 revenue edged 3% higher to RM248.3m when compared to FY20 while CNP climbed to RM4.0m (vs. CNP of RM0.1m in FY21).

Struggling to ride the automotive wave. The group continues to exhibit lagging performance compared to its automotive peers which have reported stellar earnings, in tandem with the surge in demand for automotive semiconductor components. We believe this is due to the fact that KESM is likely involved in less important automotive chips.

Anticipating a very gradual recovery. KESM’s utilisation rate for the period in review dipped below 30% due to the sporadic relaxation or tightening of the movement control order. We anticipate a very gradual recovery for KESM instead of an exuberant one seen in other companies. Over the longer term, the group remains optimistic to benefit from the automotive semiconductor boom as it is expected to be a multi-year growth trend. As the group increases its vaccination rate among its workforce coupled with the easing on movement restrictions, KESM should be able to achieve an improved utilisation rate in FY22.

Reduce FY22E CNP by 24% to RM14.0m and introduce FY23E CNP of RM21.0m.

Maintain MARKET PERFORM with a lower Target Price of RM11.40 (previously RM12.00) based on CY22E PER of 27.8x, at 3-year mean.

Risks to our call include: (i) faster-than-expected ramp-up in volume for burn-in and test services, (ii) faster-than-expected adoption of new semiconductor modules in automobiles, and (iii) sudden surge in customer’s forecast.

Source: Kenanga Research - 22 Sept 2021