by NURUL SUHAIDI / graphic TMR

ELECTRONICS manufacturer KESM Industries Bhd has a good chance of returning to profitability in view of the improving automotive semiconductor supply chain situation in its coming financial year.

CGS-CIMB Research said it was ‘cautiously optimistic’ for the turnaround.

“Moreover, the group remains confident that demand for burn-in and test services for automotive chips going into infotainment, powertrain and advanced driving systems will continue to rise, driven by the automotive industry’s transition into electric vehicles and autonomous vehicles,’ it said in research note with a ‘hold’ call on the counter, with a reduced target price of RM7.30.

CGS-CIMB Research noted that the company missed the house target with a wider than expected core net loss in 4QFY7/22.

KESM remains in the red due to the net loss of RM3.1 million in 4QFY22 against RM1.4 million last year.

KESM also incurred a higher operating expenditure, mainly related to repair and maintenance expenses in the quarter. Other expenses rose 18.4% on a quarterly basis.

The narrowing core net loss is mainly due to decline in electronics manufacturing service (EMS) sales, though this was partially offset by higher burn-in and testing sales.

KESM also suffered higher staff costs due to the realignment of resources for burn-in and test services and severance compensation following the scaling down of the EMS division.

On the other hand, other expenses also rose 22% year-on-year due to higher repair and maintenance expenses of RM6.5 million, utility cost of RM2.4 million, and management fees of RM1.5 million in support of the increase in burn-in and testing services.

“As such, we maintain a ‘Hold’ with a lower RM7.30 TP and keep our ‘Hold’ rating on the stock based on a lower 0.85x P/BV (vs. 0.9x previously), as we update our target multiple to reflect the weaker sentiment in the tech sector.”

KESM is the largest independent burn-in and test services provider in Malaysia, serving the world’s leading semiconductor manufacturers. KESM Group also provides electronic manufacturing services primarily to original equipment manufacturers, original design manufacturers “ODM” in the computing, industrial, communications and consumer markets.