Quick take: KESM shares up despite missing earnings expectations

KUALA LUMPUR: KESM INDUSTRIES BHD posted financial results that came in below expectations, but still saw the group’s share climb over 3% in early trade Wednesday.

The chip-testing company added 3.1%, or 25 sen to RM8.31, making it one of the top gainers on Bursa Malaysia.

KESM’s net profit nearly quadrupled to RM1.86mil in its second quarter ended Jan 31, 2020 (2QFY20), from RM474,000 a year ago.

Revenue, however, fell 16.05% to RM68.08mil against RM81.11mil a year earlier.

Its net profit for the first half of FY20 doubled to RM6.39mil from RM3.12mil in the same corresponding period. Revenue in the first half was down 13.64% to RM140.47mil, from RM162.66mil previously.

Affin Hwang Capital Research said KESM’s first-half results were below expectations.

“The recovery that we were anticipating has likely been pushed back due to the weak external environment. Covid-19 is likely to negatively impact earnings while the recent oil crisis could also push back consumption spending on automotive.

“We cut FY20-22E EPS by 21-45% to reflect a delayed recovery but believe that KESM is well-positioned to benefit from the next upturn. Its strong net cash position and management also appeal,” the research house said.

Affin has maintained its “hold” on KESM with an unchanged 12-month target price of RM8.21.

CGS-CIMB Research said KESM’s 1HFY20 core net profit missed expectations at 36%/28% of the house/consensus’ estimates due to weaker-than-expected demand following Covid-19 outbreak.

“We cut our FY20-22F EPS by 3-21% to account for lower utilisation in view of tepid demand and supply disruption from an extended Covid-19 outbreak.

“Maintain ‘reduce’ with a lower RM6.50 target price, still based on 12.8x CY21F P/E,” it said.

Source: TheStar