KPS has been awarded, by Air Selangor, a RM162m contract for the supply of various water treatment chemicals. The contract will contribute 7% to both KPS’s top line and net profit in FY24. We maintain our forecasts as we perceive this contract win as part of the normal course of business. We also keep our TP of RM0.51 and UNDERPERFORM call.

KPS, via a 51%-owned unit Aqua-Flo Sdn Bhd, has been awarded a RM162m contract by Air Selangor for the supply of various water treatment chemicals from Jan 2024 to Dec 2025. Based on our estimates, the contract will contribute 7% to both KPS’s top line and net profit in FY24 (assuming a net profit margin of 4%-5%). We are maintaining our numbers as we perceive this contract win as part of the normal course of business of KPS (which has been implicitly assumed in our forecasts).

Forecasts. Maintained.

We also maintain our TP of RM0.51 based on 10x FY23F PER, which is in line with the average forward PER of the manufacturing sector. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4).

We like KPS for: (i) the strong growth prospects of the consumer electronics industry which is the main client of its products and services, (ii) its long-term growth underpinned by expansion at its overseas operations, and (iii) the greater role it is playing in the supply chain of a renowned privately-owned innovator of high-tech consumer electronic appliances. Maintain UNDERPERFORM.

Risks to our call include: (i) a stronger-than-expected recovery in the consumer electronics sector, (ii) easing of input costs, and (iii) consistent renewal of contracts by key clients.

Source: Kenanga Research - 22 Nov 2023