Kumpulan Perangsang Selangor (KPS) has reported a return to profitability in its second quarter of FY24, yet challenges persist. Despite achieving a core net profit in 2QFY24, the company's overall performance remains subdued, largely reflecting ongoing weak demand in the consumer electronics sector and a potentially uneven recovery. The company's results were in line with projections, showing a core net loss of RM6 million for 1HFY24, consistent with the full-year forecast of RM11 million and the consensus estimate of RM15 million.
The firm has maintained its forecast and target price of RM0.45, with an UNDERPERFORM call. This stance reflects the expectation of a gradual recovery, with a more meaningful improvement anticipated in FY25. The recovery is expected to be driven by restocking and new product launches by KPS's customers, although current conditions suggest that a significant rebound is not imminent.
In terms of revenue, KPS experienced a 6% decline in 1HFY24 compared to the previous year. This drop was attributed to reduced contributions from both the manufacturing and licensing segments. Specifically, the manufacturing segment saw a 7% decline due to decreased orders in its medical and semiconductor product lines, amid high inventory levels. Additionally, the licensing segment faced a significant 64% decrease following the disposal of a 50% equity stake in Kaiserkorp.
Quarter-on-quarter, KPS displayed signs of improvement in 2QFY24. This recovery was largely driven by increased demand in the consumer electronics segment, along with higher sales of water meters and chemicals within its trading segment. Despite these gains, the company's average plant utilisation remains low at about 50%, which is well below the optimal level of 70%.
Looking ahead, the outlook for KPS appears cautious. The sluggish global demand for consumer electronics products and elevated labour and energy costs are expected to continue impacting the company. Although there are prospects for an uptick in orders later in the year due to restocking and new product launches, the immediate term remains challenging. Additionally, the recent acquisition of precision metal component manufacturer MDS Advance Sdn Bhd (MDS) is anticipated to introduce high-margin product offerings, potentially benefiting the company's product portfolio.
Source: Kenanga
Title: Back to Black But Uneven Recovery