KESM Industries' latest results below expectations,says Affin Hwang

NST Thu, Mar 09, 2023 11:39am - 1 year View Original


KUALA LUMPUR: KESM Industries Bhd's core loss of RM5 million in the first half of its financial year 2023 (1HFY23) comes in below expectations, Affin Hwang Capital said. 

The firm said the RM5 million core loss was a reverse of a profit of RM4 million a year ago.

Despite a decline in depreciation, as a result of some of its assets being fully depreciated, Affin Hwang said weaker revenue and a fall in earnings before interest, taxes, depreciation, and amortisation (Ebitda) margin pushed the company into a loss. 

"Apart from its EMS business which had been scaled down, the weak burn-in and test segment also impacted its top line. 

"Lockdowns in China possibly continued to hamper its Tianjin operations, but overall supply chain disruptions are likely to have contributed to its weak burn-in segment," it added. 

While core losses narrowed in the second quarter (Q2), Affin Hwang said this nevertheless represented the fourth consecutive quarter of core losses for KESM.

It said the company's Q2 Ebitda margins had improved, possibly signalling that the worse might have been over in Q1. 

"That said, Ebitda margins are still a fraction of the 36 per cent it recorded during its peak production years. 

"As such, the new product introductions by its customer, both for the automotive and data centre segments, appear to be slow to kick off, which we suspect could be constrained by wafer shortages," it said. 

Affin Hwang Capital downgraded KESM to "Sell" with a lower target price of RM6.58.

"Given the ongoing inventory imbalance, results could potentially remain subdued at least for another quarter or two. We cut our FY23-FY25 earnings per share to reflect the earnings disappointment and to build in a delayed recovery in earnings," it said.

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