KUALA LUMPUR (Dec 12): CIMB IB Research has maintained “Hold” on KESM Industries Bhd at RM8.47 with a lower target price of RM9 (from RM11) and said it expects weak demand in 2QFY19F due to ongoing inventory adjustment from KESM’s customers, but expects stronger demand recovery in 2HFY19F.

In a note Dec 11, the research house cut its FY19-21F EPS by 7-8% to reflect lower utilisation and sales growth assumptions in China, which is directly impacted by trade war.

“In spite of the tepid near-term outlook, management is cautiously optimistic for a stronger 2HFY19 following healthy order visibility from its customers for Feb 2019.

“Nevertheless, it depends on the US-China trade war situation given that KESM’s operation in China has felt the reduction in chip testing volume,” it said.

Apart from that, CIMB Research said it still expects stronger  demand and adoption of electric vehicles to drive semiconductor component demand, which bodes well for KESM.

“Retain Hold with a lower RM9 target price (12.8x CY20F P/E). We prefer Malaysian Pacific Industries Bhd, “ it said.