This article first appeared in The Edge Financial Daily on January 9, 2020

KUALA LUMPUR: After a disappointing performance for its previous financial year, KESM Industries Bhd said the worst is over for the group as the automotive semiconductor industry has bottomed out.

Sales and orders have been picking up and as such “a more progressive growth” in earnings is projected for the financial year ending July 31, 2020 (FY20), said KESM executive chairman and chief executive officer Sam Lim.

There was in fact a major improvement in the group’s financial performance for the first quarter (1QFY20) when its net profit soared 71.45% to RM4.53 million or 10.53 sen a share, from RM2.64 million or 6.14 sen a share a year earlier, thanks to lower expenses and other higher incomes.

This was despite a 11.24% decline in revenue to RM72.39 million from RM81.56 million owing to lower demand for the group’s burn-in, testing and electronic manufacturing services.

For FY19, KESM’s net profit plunged 84% to RM6.28 million, from RM39.34 million for FY18, as revenue dropped to RM307.38 million from RM349.78 million.

Speaking to reporters after KESM’s annual general meeting yesterday, Lim attributed the decline in FY19 earnings to the impact of the US-China trade war, lower demand for cars in China as well as the anaemic health of the semiconductor industry.

He said KESM has “well positioned” itself to cater to the demand for the next generation of electric and autonomous cars. He said the group serves five out of the top 10 automotive semiconductor manufacturers in the world, indicating its reliability.

Commenting on prospects for the automotive semiconductor industry, he said much depends on how fast the growth of change, in particular the 5G network, comes into play.

“We see more electric cars on the road today, and more will be coming in the next 10 years,” said Lim.

“[With] the 5G network expansion, this will have an influence on self-driving cars… making them smarter, faster and safer.”

Moving forward, Lim noted the strategy is to deliver consistent quality, adding that KESM wants to present the sense of reliability to its customers.

KESM’s share price closed six sen or 0.64% lower at RM9.25 yesterday, with a market capitalisation of RM397.88 million.