Kumpulan Perangsang Selangor’s (KPS) reported a stronger core net profit of RM8.8m for 2QFY24, compared to a core net loss of RM4.8m in 1QFY24, primarily due to better performance from its manufacturing business. The cumulative core net profit for 1HFY24 stood at RM4.0m, which was below our and consensus estimates, accounting for only 26.2% and 27.2% of full-year estimates, respectively. However, we maintain our estimates, expecting improved performance in coming quarters driven by gradual demand recovery in consumer electronics and improved cost structure as the Group streamlined its operations in China. We retain our Neutral call on KPS with an unchanged TP of RM0.78.

• 2QFY24 revenue rose by 10.0% YoY to RM280.7, driven by higher revenue in both the manufacturing and trading segments. The manufacturing business saw a 7.4% YoY increase to RM225.4m, mainly attributed to increased orders from key customers in the consumer electronics division. On the Trading business, revenue improved by 24.0% YoY to RM53.4m due to higher sales of water chemicals and water meters. However, this was partly offset by lower revenue from property investment, which saw revenue falling by 7.0% YoY to RM2.0, led by lower contribution of rental income at Plaza Perangsang and the absence of rental income from Wisma SAP which was disposed recently in March 2024.

• 2QFY24 core net profit improved to RM8.8m, compared to a core net loss of RM4.8m in 1QFY24. The improvement was mainly due to stronger contribution from both the manufacturing and Trading segments. Profit before tax (PBT) for key contributor, manufacturing business increased to RM19.8m (+83.4% YoY, 102.7% QoQ) on higher revenue and improved cost structure as the Group streamlined its operations in China. This was further boosted by better contribution from Trading business with higher PBT of RM4.3m (+73.8% YoY, +76.0% QoQ), in line with higher sales and better margin. Blended PBT margin improved to 5.5% from 1.9% in 2QFY23.

• Subdued outlook. Persistently high core inflation, sluggish demand recovery and on-going market uncertainty, stemming from geopolitical tensions continue to weigh on global growth and dampened demand for consumer electronics. To address this, KPS is focusing on optimising operational efficiency and diversifying its revenue streams, which could help offset the downturn in the manufacturing sector and support its long-term growth and profitability.

Source: PublicInvest Research - 28 Aug 2024