KOBAY Technology Bhd’s 1QFY23 revenue of RM89m (-6% QoQ, +35% YoY) yielded a core net profit (CNP) of RM11m (-18% QoQ, +15% YoY), accounting for 17% of our full-year forecast. Although this came in rather light, we deem this to be in line as it was impacted by high set-up cost from the new renewable-energy (RE) manufacturing plant which has yet to generate revenue. Its 1QFY23 one-off items include amortisation of deferred income on government grants (-RM34k), PPE disposal gain (-RM81k) and foreign-exchange loss (+RM488k).
Dividend. None (1QFY22: None).
QoQ. Top line weakened by 6% to RM89m attributable to the decline in manufacturing (-10%), more than sufficient to offset the gain in pharmaceutical (+2%), while property development was flat. Manufacturing division experienced softer new orders, and oil and gas business segment underperformed. In turn, CNP fell by 18% to RM11m mainly due to high set-up cost from the new manufacturing plant.
YoY. Revenue surged 35% thanks to higher contributions from three major business segments. Manufacturing gained 27% to RM58m driven by the demand from semi-conductor and electric and electronic (E&E) industries. Property development performance rose 236% to RM10m largely arising from construction progress for current ongoing project. Pharmaceutical and healthcare products division grew 24% to RM21m as 1QFY22 only captured two-month contribution upon completion of the acquisition in August 2021.
Regional breakdown. For 1QFY23, Malaysia remains the largest top-line contributor with 76% (1QFY22: 80%), followed by Singapore, the US and others with 12%, 6% and 7% (1QFY22: 6%, 9% and 6%) respectively.
Outlook. Kobay anticipates manufacturing growth momentum will be slower compared to FY22 in view of the weaker global growth. In view of the escalating cost of building materials and increase in borrowing costs, Kobay will take measures to mitigate the impact and pace out new launches according to market demand. Pharmaceutical shall continue to work on widening its product range, along with cost control efforts to improve profitability and market competitiveness.
Reiterate ‘Buy’ with unchanged TP of RM4.94. Due to its diverse business structure, we value Kobay with a SOP valuation methodolog y: (i) manufacturing division is pegged to 25x of FY23 EPS; (ii) property development business is valued using FY21 net book value; and (iii) pharmaceutical business is appraised based on 20x of FY23 EPS.
▶ Recommendation: Buy Target Price: RM4.94
by Hong Leong Investment Bank Bhd (Nov 17)