KESM to increase auto microchip testing

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KUALA LUMPUR (Jan 15): KESM Industries Bhd will increase testing services for microchips used in autonomous or self-driving vehicles, capitalising on encouraging prospects of the global auto electronics segment.

Speaking to reporters after KESM's (fundamental score: 2.35; valuation score: 2.4), annual general meeting and extraordinary general meeting here today, executive chairman and chief executive officer Samuel Lim Syn Soo said the firm expected automotive microchip demand to pick up, in the years to come.

According to Lim, self-driving cars are expected to hit the world market within the next decade. "As such, the demand of these microchips are expected to follow suit, to grow significantly over the next few years," he said.

KESM has three semiconductor testing plants, of which one each is located in Selangor and Penang.

In China, KESM has a plant in Tianjin. Collectively, Lim said these plants were 70% to 80% utilised.

On capital expenditure (capex), Lim said KESM would invest more money into its business to maintain its competitiveness.

He said KESM's capex for currrent financial year ending July 31, 2015, might exceed the RM60 million average over the last five years.

"I can't provide you with an exact figure, but the average capex for the past five years was about RM60 million, and it will be more this financial year," he said.

From a broader viewpoint, Lim said the global semiconductor market had been positive, after recording 13% growth over the past three years.

He expects the trend to continue, although demand growth for microchips used in mobile devices and personal computers was expected to be flattish.

On the weakening ringgit against US dollar, Lim said KESM conducted its business in the ringgit, hence, it was not highly exposed to foreign exchange fluctuation.

KESM's US dollar-denominated debt is however worth noting, as a weaker ringgit will expand its US dollar loan in ringgit terms.

According to notes accompanying KESM's latest financials, its borrowings as at Oct 31, 2014 amounted to RM65.74 million. Of that amount, a RM12.43 million portion was denominated in US dollars.

At 3.07pm, shares of KESM traded unchanged at RM2.40, on thin trade of 2,000 units.

(Note : The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)