• Downgrade to SELL (TP: RM0.53). KPS reported a headline PATAMI of RM59.7mn for 9MFY24. Excluding the forex loss of RM6.9mn and other nonrecurring items, KPS posted a core PATAMI of RM2.8mn in 9MFY24, which we deem as below ours and consensus’ forecasts. The lower-than-expected results was due to lower sales from both Manufacturing and Trading segments. The group declared single tier interim dividend of 1 sen per share during this quarter, making 22% of our FY24F dividend assumption of 4.5sen per share. We foresee KPS's short-term hurdles, including weaker demand for consumer electronics and higher operating costs. Downgrade to a SELL call from HOLD on KPS at lower SOP-derived TP of RM0.53 (from RM0.72).

• Key Highlight. Revenue declined by 1.8% QoQ primarily due to weaker sales in the Trading segment which saw a significant drop of 18.9% QoQ despite a modest 3.1% QoQ increase in the Manufacturing segment. Meanwhile, PBT fell sharply by 38.8% QoQ due to margin erosion across both the Manufacturing and Trading segments. For the subsidiaries companies, CBB showed a downturn due to aggressive price competition in the packaging sector. Also, MDS experienced a sales decline due to ongoing overstocking issues among healthcare customers. On a positive note, Toyaplas saw increased plant utilization rates across various regions: China (83%), Malaysia (55%), Indonesia (26%) and Vietnam (42%). However, CPI experienced a slight dip in plant utilization, which decreased to 60%.

• Earnings Revision. We cut FY24/25/26F earnings forecast by 44%/34%/16% to RM10mn/RM17mn/RM26mn to account for lower sales volume and subdued margin.

• Outlook. We foresee KPS's short-term hurdles, including weaker demand for consumer electronics and higher operating costs. However, in the long run we remain positive about KPS’s growth prospects, supported by asset monetization and its expansion strategy within the EMS sector.

Source: BIMB Securities Research - 29 Nov 2024