• Maintain HOLD (TP: RM0.72). Kumpulan Perangsang Selangor Berhad (KPS) reported a headline net profit of RM55.8mn for 1HFY24. Excluding the one-off gain from the disposal of a subsidiary (Kaisercorp) reported in 1QFY24 and other non-recurring items, KPS posted a core loss of RM7.4mn in 1HFY24, which we deem to be in line with our forecasts. We anticipate the group to return to profitability, particularly in 2HFY24 driven by new orders from new customers and recovering demand from existing clients amid an overall recovery from macroeconomic challenges. We make no changes on FY24-26F earnings assumptions. Despite near-term headwinds, we remain optimistic about KPS due to its strengthened asset portfolio from strategic acquisitions of cash-generating companies and the disposal of non-core businesses. Maintain a HOLD call on KPS with unchanged TP of RM0.72.

• Key Highlight. 2QFY24 revenue improved by 20% QoQ and 10% YoY, driven by the stellar performance of the Manufacturing and Trading segments, supported by the recovery in consumer demand, new projects and customers as well as an improved cost structure. Similarly, EBITDA margin escalated by 4.1 ppts QoQ. Toyoplas’s plant utilization rates in various regions have improved QoQ, including China at 77% (vs 1Q24: 36%), Malaysia at 65% (vs 1Q24: 44%), Indonesia at 23% (vs 1Q24: 22%) and Vietnam at 31% (vs 1Q24: 17%). Meanwhile, the CPI plant utilization rate was maintained at 60% 2QFY24. As for MDS, utilization rate was slightly decline to 58% from 64%, in 1QFY24, leading to a -21% QoQ revenue decline due to persistent inventory overstock issues at the customer’s end in the Medical division.

• Earnings Revision. Unchanged.

• Outlook. We foresee several short-term challenges currently affecting KPS's earnings, including a slowdown in demand for consumer electronics and elevated operating costs. However, these issues should be mitigated by prioritizing business development efforts, expanding the customer base, exploring new revenue streams, improving operational efficiency, and streamlining and restructuring non-performing operations. Overall, we maintain a sustainable long-term outlook for the group, relying on asset monetization and its strategic business plan to expand its presence in the EMS industry.

Source: BIMB Securities Research - 28 Aug 2024