by S BIRRUNTHA / graphic by TMR
CGS-CIMB Research is cautiously optimistic that KESM Industries Bhd (KESMI) will be able to return to profitability in its upcoming financial year of 2022 (FY22), driven by the improving automotive semiconductor supply chain situation.
CGS-CIMB analyst Mohd Shanaz Noor Azam stated KESMI had minimal operation disruption following higher Covid-19 vaccination rates among the group’s staff and it has to date achieved a vaccination rate of over 90%.
He noted that the group remains confident that demand for burn-in and test services for automotive chips going into infotainment, powertrain and advanced driving system applications will continue to rise, driven by higher electronics content value growth in automotive.
“We raise our FY22-FY23F earnings per share by 4% to 9%. We keep our ‘Hold’ recommendation on KESMI with a higher target price of RM12.20, as the research house rolls over its valuation to the end of FY22,” he wrote in a research note yesterday.
KESMI valuation was pegged to 1.4x price-to-book value, which is in line with its five-year historical mean.
CGS-CIMB prefers Inari Amertron Bhd and Malaysian Pacific Industries Bhd for exposure to the Malaysian outsourced semiconductor assembly and test sector.
Moving forward, the faster-than-expected inventory replenishment in the automotive semiconductor market will become a key upside risk, while softening global demand for automotive and prolonged supply chain disruptions due to the Covid-19 outbreak are identified as downside risks to KESMI.
KESMI saw its net loss narrow to RM654,000 for the fourth quarter ended July 31, 2021 (4Q21) from RM3.28 million in the same quarter a year ago.
The independent burn-in and test service provider posted a 25% increase in revenue to RM58.05 million from RM46.26 million previously.
For the full-year ended July 31, 2021 (FY21), KESMI’s net profit came in at RM7.34 million while revenue rose 3% year-on-year to RM248.26 million, underpinned by higher orders for electronic manufacturing services, which offset the effects of lower sales from burn-in and test services.
Despite making a loss for the quarter, KESMI has proposed a dividend of six sen per share, bringing its full-year payout to nine sen per share, up from 7.5 sen per share for FY20.
KESMI executive chairman and CEO Sam Lim said the group’s performance this year showed its resilience in managing and navigating through a difficult and challenging environment.
“We worked together with much determination to meet our customers’ requirements in spite of several spates of constraints caused by the pandemic lockdowns and Movement Control Orders.
“Overall, demand for KESM’s services continued to strengthen as our core technology remains a critical quality process for world’s leading semiconductor manufacturers in the automotive, 5G network, Internet of Things and computing markets,” he noted.
Moving into FY22, Lim said the group remains confident as demands for “burn-in and test” for infotainment, power train and advanced driving assistance systems devices are steadily increasing for use in hybrid and electric vehicles.
According to a market research report, the automotive semiconductor market is expected to reach US$81.4 billion (RM341 billion) by 2027, growing at a compound annual growth rate of 8.5% from 2020 to 2027.
Rising production of electric vehicles, high production volumes of automobiles and growing advanced safety and security needs are anticipated to drive the growth.