Quick take: KESM shares down on earnings and global trade concerns

  • Stock on the Move
  • Friday, 20 Sep 2019

KUALA LUMPUR: Shares in KESM INDUSTRIES BHD fell 2% in Friday’s early session after the company showed its vulnerability to global trade disruptions in its latest quarterly results.

The burn-in and test service provider fell 2.07%, or 15 sen to RM7.10. It is currently trading at a PE ratio of 50 times. The counter has fallen some 57.79% for the past one year.

KESM’s net profit slumped 79.8% to RM2.29mil for the fourth quarter ended July 31,2019 from RM11.32mil reported for the same period of the previous year, due to lower demand for burn-in, testing and electronic manufacturing services.

Revenue for the period stood at RM70.90mil, 16.8% lower from RM85.27mil posted a year ago.

The group has proposed to declare a final dividend of 6 sen per share for the quarter under review.

KESM’s full-year net profit also plunged 84% to RM6.28mil from RM39.34mil a year ago, on the back of a 12.1% decline in revenue to RM307.38mil from RM349.78mil.

CGS-CIMB Research said KESM’s FY7/19 core net profit came in 18% above the house’s estimates due to lower-than-expected depreciation, but was 9% below Bloomberg consensus estimates.

The research house said its core EPS plunged 82% year-on-year in FY19 due to lower test and burn-in demand, and weakness in automotive market attributable to escalating trade tensions.

CGS-CIMB has upgraded KESM to “hold” from “reduce” with a higher target price of RM7.80.

The research house noted that the stock has fallen 26% from its year-to-date high in March and by 65% since 2018 due to its poor earnings delivery and negative sentiment on the semiconductor industry amid escalatingUS-China trade tensions.

“In spite of the challenging operating environment in the past 24 months, KESM remains profitable.

“We think KESM is poised for an earnings recovery in FY20F, driven by improvement in utilisation and better cost control, ” it said.

“The stock trades at 1x CY20F P/BV, supported by healthy net cashof RM143mil or RM3.32 per share, ” it added.

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