KESM rises 4.10% on firm earnings, positive outlook

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KUALA LUMPUR (March 9): Chip testing company KESM Industries Bhd rose 4.10% at mid-morning today after the company said strong demand for its services pushed up its net profit by 12% to RM11.18 million for the second financial quarter ended Jan 31, 2018 (2QFY18) from RM9.98 million a year ago.

At 10.20am, KESM rose 80 sen to RM20.30 with 59,800 shares traded.

Quarterly revenue grew 10% year-on-year (y-o-y) to RM91.47 million, from RM83.12 million.

For the first half of FY18 (1HFY18), KESM’s net profit rose 13% y-o-y to RM22.55 million from RM19.99 million, while revenue grew 12% y-o-y to RM182.18 million from RM163.23 million.

KESM executive chairman and chief executive officer Sam Lim said changes in the car industry have created strong demand for automative semiconductors, and this benefited KESM, having its focus on this market.

Meanwhile, CIMB IB Research maintained its “Add” rating on KESM at RM19.16 with an unchanged target price of RM22 and said it expects stronger earnings performance for KESM in 2HFY18F, driven by higher volume loading following the improving supply chain situation at its customers and resilient demand for semiconductor components in automotive applications.

In a note March 8, the research house said in the past five years, KESM’s 2H earnings accounted for 51-74% of its earnings.

“Management expects capex in FY18 to normalise to RM70 million-80 million versus RM140 million in FY17.

“It also expects higher volume demand from smaller automotive semiconductor manufacturers following its new design wins.

“Maintain Add rating and target price of RM22.00, still based on 13.5x CY19F P/E. Stronger earnings delivery and higher dividend payouts are potential catalysts,” it said.