Stock With Momentum: KESM Industries

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This article first appeared in The Edge Financial Daily, on October 5, 2015.

KESM Industries Bhd (+ve)

SHARES of KESM (Fundamental: 2.5/3 Valuation: 2/3) rose 1.6% to a 5-year high of RM4.50 last Friday. The stock has gained some 44% since it first triggered our momentum alert on April 21.

KESM is engaged in specialised electronic manufacturing activities, primarily the provision of burn-in (process of stressing semiconductors to weed out potentially weak circuits) services, focusing on the automotive market. Export to China accounted for 23% of sales in 2014.

Last month, KESM announced its 4QFYJul2015 results. For FY2015, revenue grew 3% to RM263.1 million, thanks to higher demand for burn-in and testing services. However, net profit increased an outsized 56% to RM17.0 million, boosted by forex gains of RM1.9 million and lower raw materials used due to lower electronic manufacturing services sales.

The stock trades at a trailing 12-month P/E of 11.2 times and 0.7 times book. At end-July, it had net cash of RM25.3 million, or 13% of its market capitalisation.