Kumpulan Perangsang Selangor (KPS) reported an 88.3% YoY decline in its core net profit to RM3.0m in FY23 from RM25.3m in FY22. The Group’s weak performance is largely attributed to the slowdown across its business segments with the exception of the trading segment. Its core business, manufacturing suffered a 10.5% YoY drop mainly due to order slowdown exacerbated by the loss of revenue from a major client which has yet to be recouped. Recall, the Group has divested 50% stake in Kaiserkorp on Jan 10, 2024. We gather that the divestment would leave an approximate 10% earnings gap in the Group’s earnings moving forward. However, KPS has been optimising its operations coupled with diversified earnings which may mitigate the slump from the manufacturing segment in near term. Earnings from other segments as of FY23 represent approximately 17% of the Group’s profit at pre-tax level. Nonetheless, FY23 core net profit was below our and consensus estimates, accounting for only 33% and 34% of full-year forecast respectively. Hence, we revise our projected core net profit for FY24-FY26F downwards by 8% on average and ascribe 0.35x PBV in view of the disposal of Kaiserkorp, coupled with the weakening global consumption and electronic manufacturing outlook. We retain our Neutral call on KPS though with a marginally higher TP of RM0.79 (previously RM0.78) pegged at 0.35x PBV.

• PBT shrunk >50% YoY as the Group continues to face operational challenges in addition to the Group-wide manufacturing order slowdown influenced by the weakening global outlook. All subsidiaries within KPS’ manufacturing division recorded a slower momentum except for MDS Advance due to the expansion of high-tech production lines in Q1FY23 which resulted in high value orders – we note that MDS Advance fulfilled its first year profit guarantee obligation of RM7m per annum for FY23-FY24, generating RM9.6m in FY23.

• 1HFY24 prospects remain cloudy. Consumer electronics demand may remain subdued in the near term as spending is restrained by multiple factors i.e.: high interest rate. In addition to that, we gather that the Group has c. 10% earnings gap post the Kaiserkorp divestment dated 6 Jan 2024. However, KPS has been optimising its operations, coupled with diversified earnings, which may mitigate the slump from the manufacturing segment in near term. Earnings from other segments as of FY23 represent approximately 17% of the Group’s profit at pre-tax level i.e.: trading (Aqua-Flo SB) and infrastructure (KPS-HCM SB and SmartPipe Technology SB).

Source: PublicInvest Research - 27 Feb 2024