KUALA LUMPUR: KESM Industries Bhd
's is expected to see an improved utilisation rate for its automotive business following the certification of new test platforms for its customers.
Kenanga Research reported that KESM has completed RM145mil capex for new burn-in and test equipment, which are currently undergoing qualification.
These new test platforms will handle updated chips related to advanced driver-assistance system (ADAS) and tyre pressure monitoring system (TPMS) for electric vehicles.
According to Kenanga, KESM expects the utilisation rate to trend upwards to 705% in 2024 from the current 50-55% in 2QFY23.
However, KESM is still expected to face headwinds on the back of a 5% increase in electricity cost due to the increased tariff from 2023.
KESM also faces weakening loading volume for the burn-in and test business in the non-automotive segment, which contributed about 30% to group revenue.
Meanwhile, the group's depreciation is expected to rise from about RM9mil a quarter to RM10-11mil a quarter following the installation of the new equipment to its facility.
Kenanga said KESM's EMS business has been scaled down to a level that has no material bearing to its operations.
The group will absorb its current workforce of 1,900 workers, who will be able to cover the operations of the new test platform, although there will still be lingering unabsorbed overhead of RM2-3mil, due to the ongoing reskilling of workers from the EMS segments to the burn-in and test business.
"We now project a RM4.3mil net loss in FY23F (from a RM1.2mil net profit) and cut our FY24F net profit forecast by 22%.
"We also trim our TP toRM8.24 (previously RM8.26) based on an unchanged FY24F PBV of 1x," said Kenanga in a company update.
The research firm maintained its "market perform" recommendation on KESM, but remained cautious over the immediate term due to the potential risk of sub-optimal loading volume during the transition period.
It said positives include the group being a proxy to the promising prospects of automotive semiconductors as well as one of the largest independent burn-in and test providers in the country.
It also likes KESM's physical presence in China to rise on the government's ambitious plans for the semiconductor industry.
