Kenanga Research expects earnings recovery for KESM in FY21 and FY22 on stronger car sales

Kenanga Research expects earnings recovery for KESM in FY21 and FY22 on stronger car sales
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KUALA LUMPUR (Sept 23): Kenanga Research is maintaining its "market perform" rating on KESM Industries Bhd and raising its target price to RM8.60 from RM7.40 previously, as it expects a gradual earnings recovery in the financial year ending July 31, 2021 (FY21) and FY22 on the back of better car sales.

In a note today, its analyst Samuel Tan said the global automotive space has shown encouraging signs of recovery in car sales after emerging from coronavirus-led lockdowns, especially in China and Europe markets.

As such, it is anticipating the group to have a better earnings prospect for FY21, projecting it to post an annual core net profit of RM18.5 million — significantly stronger earnings compared to its just-concluded FY20’s net profit of RM96,000.

It also expects the core net profit to further grow to RM24.8 million for FY22.

Yesterday, the burn-in and test provider saw its net loss widen to RM3.28 million in the fourth quarter ended July 31, 2020 (4QFY20), from RM3.02 million in the previous quarter.

On a yearly basis, KESM fell into the red, from posting a net profit of RM2.29 million in 4QFY19.

It posted a revenue of RM46.26 million in 4QFY20, which is down by 14.71% quarter-on-quarter from RM54.24 million and lower by 34.76% year-on-year from RM70.91 million.

For the entire FY20, its net profit slumped 98.47% to RM96,000 from RM6.28 million, while revenue fell 21.6% to RM240.98 million versus RM307.37 million.

Kenanga Research said the FY20 core net profit of about RM100,000 came in below its and consensus’ expectations, accounting for merely 1.8% and 2.4% of the full-year earnings estimates.

It said the sharp decline was due to the Covid-19 lockdown which led to lower production volume.

This was further exacerbated by the group’s high degree of operating leverage.

KESM is a top loser on the local bourse this morning after the stock fell as much as 4.28% or 36 sen to its intra-day low of RM8.05.

At 11.19am, the counter pared some of its loss and traded down 3.57% or 30 sen at RM8.11, with a market capitalisation of RM348.85 million. Some 29,100 shares were transacted.

This year, the stock hit its peak at RM12 on Jan 24, before plunging to as low as RM5.13 on March 19. Since then, the stock has recovered 58%.

Read also:
KESM posts RM3.3m net loss in 4Q on lower revenue

Lam Jian Wyn