Thursday 28 Mar 2024
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KUALA LUMPUR (March 13): KESM Industries Bhd shares tumbled 15.16% this morning after its net profit in the quarter ended Jan 31, 2019 (2QFY19) plunged 95.76% to RM474,000 from RM11.18 million a year ago, hit by lower margin and as customers intituted higher inventory control measures in light of the US-China trade war uncertainties.

At 9am, KESM fell RM1.42 to RM8 with 18,400 shares traded.

Quarterly revenue fell 11.33% to RM81.11 million, versus RM91.47 million the year before, as lower demand for burn-in and testing services offset increased rendering of electronic manufacturing services.

For the first six months ended Jan 31, 2019 (1HFY19), net profit sank 86.19% to RM3.12 milion, from RM22.55 million previously. Half-year revenue fell 10.71% to RM162.66 million, from RM182.18 million.

Affin Hwang Investment Bank Bhd analyst Kevin Low said the research firm cut its KESM FY19 earnings per share forecast by 23% after lowering its KESM margin assumption and reduced the target price on the stock to RM9.15 from RM10.15 previously. Low said Affin Hwang maintained its "Hold" call for KESM shares.

In a note today, he said the automotive industry's inventory correction due to weak demand has impacted KESM's average selling prices, hence profit margins. He said KESM's management had earlier guided that the weakness would continue till January this year.

Low said: "Judging by recent news on the automotive semiconductor company, Renesas Electronics Corp, which has plans to halt production at six plants in Japan for up to 2 months this year, the inventory imbalance may be far from over.

"(On KESM) The risk reward is balanced given the 45% fall in the stock price in the past 6 months while longer-term prospects remain favorable given its captive burn-in and test segment for the automotive industry. Key risks include a loss/gain of customers and a reduction/gain in outsourcing opportunities as customers increase/lower their in-house burn-in and test function."

 

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