PETALING JAYA: KESM Industries Bhd is expected to record steady earnings contributions in the second half of 2021, as rising electronics sensor applications within the automotive sector is expected to drive semiconductor demand.
CGS-CIMB in a report yesterday said it was cautiously optimistic about KESM’s prospects for the second half of this year.
“Although the group is seeing progressive demand recovery in production volume in the current quarter, chip shortages within the automotive semiconductor sector are affecting its volume loadings, due to delays in wafer deliveries to its customers.
“The group has indicated that while its customers are proactively procuring their wafer supplies, this supply hiccup could delay the recovery in the group’s operations in the near term.”
Nevertheless, the research house believes that the long-term trend towards electrification and rising electronics sensors application in the automotive sector will drive automotive semiconductor demand and bode well for KESM.
CGS-CIMB noted that KESM derives over 70% of its revenue from the automotive semiconductor segment.
“Meanwhile, industry research group IHS Markit expects the global automotive semiconductor revenue to grow by 18% year-on-year in 2021, fuelled by an increase in average semiconductor content value per car on the back of stronger electric vehicle (EV) sales and a recovery in global automotive demand.
“Overall, we believe industry demand recovery will accelerate in line with the global economic recovery in 2021.”
KESM provides semiconductor burn-in services and assembles electronic components.
Separately, Kenanga Research said KESM’s core net profit for the second quarter of its current financial year rose 87% to RM3.5mil, while revenue remained flat at RM68mil.
“Cumulatively, the first-half 2021 core net profit declined 26% to RM4.7mil on an 8% dip in revenue, mainly due to negative impact from the Covid-19 lockdown in the previous quarter.
“Quarter-on-quarter, core net profit for the second quarter of its current financial year rose 186% to RM3.5mil as loading volume for burn-in and testing services gradually inched upwards.
“Meanwhile, demand for electronic manufacturing services also saw marginal improvement. As a result, revenue increased 11% to RM68mil from RM61mil.”
Additionally, Kenanga Research said it expects more meaningful contributions to be seen in early 2022 for KESM.
“With revenue inching steadily upwards, net profit improvement is expected to climb at a quicker pace, owing to the group’s high degree of operating leverage.
“The group has also recently announced that it will be investing RM10mil for a 50,000-square-feet plant in Melaka to cater to higher order forecasts from its automotive customers.”
The research house said the decision to locate the new plant in Melaka was to ease logistical time and cost as a couple of its customers are situated in the area.
“Overall, macro demand for automotive is still on an upward trajectory as China’s car sales remain strong, while Europe’s vehicle sales are showing encouraging numbers.
“More importantly, the focus from this year onwards will be largely premised on EVs, which we believe will translate into higher demand for burn-in services, in tandem with the increase in semiconductor content in EVs compared to internal combustion engines.”