• Maintain HOLD (TP:RM0.72). Kumpulan Perangsang Selangor Berhad (KPS) reported a headline net profit of RM48.5mn in 1QFY24 mainly due to one-off gain from the disposal of a subsidiary i.e. Kaisercorp. Excluding this nonrecurring item, KPS posted a core loss of RM10.7mn in 1QFY24, which we deemed to be inline with our forecasts. We anticipate the group to return to profitability, particularly during 2HFY24 driven by new orders to be secured from new customers and recovering demand from existing clients amid an overall recovery from macroeconomic challenges. We make no changes on FY24-26F earnings assumption. Despite near-term headwinds, we remain optimistic about KPS due to its strengthened asset portfolio from strategic acquisitions of cash-generating companies and the disposal of non-core businesses. Maintain a HOLD call on KPS with unchanged TP of RM0.72.

• Key Highlight. 1Q24 revenue decline 14.5% QoQ, no thanks to uninspiring revenue performance from all its segment. Similarly, EBITDA margin declined by 5.9 ppts QoQ. Toyoplas’s revenue declined by 33% QoQ, due to customer overstocking in China which dropped the China utilization rate to 35% this quarter (vs. 65% in 4QFY23). Meanwhile, gross profit margin saw a modest uptick YoY driven by a more favourable sales mix, specifically the highermargin injection sales. As for CPI, revenue inched up by 6% QoQ, underpinned by increased demand in the CIT sector and other industries especially electronics, thus improving the utilization rate to 60% this quarter (vs. 55% in 4QFY23).

• Earnings Revision. Unchanged.

• Outlook. We foresee several short-term challenges currently affecting KPS's earnings, including (i) a slowdown in demand for consumer electronics, (ii) cost pressures from increased electricity tariffs and labour costs, and (iii) the recent departure of customers from its manufacturing subsidiary, Toyoplas Manufacturing (Malaysia) Sdn Bhd. Nonetheless, we maintain a sustainable long-term outlook for the group, relying on asset monetization and its strategic business plan to expand its presence in the EMS industry.

Source: BIMB Securities Research - 4 Jun 2024