KESM Industries Berhad (KESM - 9334) is primarily involved in semiconductor testing and burn in services. KESM history can be traced back to 1978, engaging in specialized electronic manufacturing activities. To date, KESM continue to expand it's services to MNC companies, offering extended services such as "Burn In" services to the semiconductor industry.
With the market moving towards a higher reliance on technology, KESM Test (M) Sdn Bhd is now a wholly owned subsidiary to the group. As KESM continue to put focus on semiconductor testing in the automotive sector, what lies ahead for KESM ?
A quick look at KESM technical chart had indicated a strong long term uptrend that had started from April 2015. For most of the time, KESM had been trading within the long term top resistant line and bottom support line, except for the period of September 2015 when equity market had saw a strong global sell down. However, KESM proved resilient, bouncing back quickly into the trading range within 2 months.
With the fundamental and technical intact, KESM will be looking to power itself towards the RM 6 range ahead of the next quarterly release due in February 2016. Currently at the range of RM 5.30, KESM is sitting on the long term support line, which indicates a good buying period.
Testing Brighter, Burning Higher
The
advancement of IT and it's application towards the lifestyle of human
being will only continue to increase. Specialized equipment and tools
are being invented to replace human workforce and to reduce human error.
The reliance of all these highly specified equipment continue to
increase, and is largely used in our daily living activities, such as
automobiles.When IT gadget such as mobile phone starts to get smarter, they called it Smart Phone. Putting this to the automobile scene, it is an era of the boom of Smart Cars. Luxury brands from Europe such as BMW, Mercedes and Audi that are producing Smart Car had been followed closely from Eastern counterparts, Japan/Korea.
These factors had created a booming demand in the semiconductor industry.
As of the latest quarter, KESM had saw a steep increase in the net profit, with an increase of RM 5.307 million to RM 8.066 million at the back of a total revenue of RM 70.179 million.
The steep increase of net profit had also contributed 30 cents increase in the NTA, totaling RM 6.35 as of Q1 of FYE 2016 for KESM.
The previous quarter (Q4 FYE 2015) had saw similar great performance, with a quarterly EPS of 24.30 cents.
- Reduce human workforce due to more automation
- Streamlined operation eliminates wastage and redundancy
- Stronger USD to reflect greater forex gain
- Increase demand in semiconductor testing (automotive sector)
- Value added service such as "Burn In" to enhance revenue
To sum up, KESM had raked a total EPS of RM 0.431 for the past 2 quarters. Pricing the future growth in KESM, it is fair to value KESM with PER x 14, putting up a valuation of RM 6.03 for the performance of the past 2 quarter.
It is expected that KESM will continue to see better revenue in the coming quarterly release due in February 2016, with revenue above RM 70 million and an EPS of approximate 20 cents. This will put a huge boost towards the share price of KESM, putting a possible valuation of RM 8.80 in the coming days.
We expect KESM to reflect a a total revenue at the range of RM 70 mil to RM 75mil each for the next 2 quarters due to regular contract from MNC companies.
Ringing on Bonus Issue
Currently, KESM had a outstanding share base of 43.014 million shares at a Par Value of RM 1.00. With most of the stakes controlled by Singaporean based Sunright Limited (48.41%), the floating market share is very limited for KESM.
Albeit sitting on a huge cash pile, and strong growing net profit, KESM had been giving out 3 cents dividend back to shareholder. According to close sources, KESM is mulling on a corporate exercise between bonus issue and/or share split to reward shareholder and to enhance the liquidity of the shares in the public market.
The recent company that had underwent bonus issue is VS Industry. VS had saw it's share price putting up more than 4 folds from RM 1.50 to RM 6.50 before the 1 to 4 bonus issue took place.
Conclusion
KESM will be very attractive to be invested currently based on
- Exposure to the growing semiconductor industry especially in automotive sector
- Stronger USD to boost forex gain
- KESM can be valued at RM 6.03 based on PER x14 for previous 2 performing quarter
- Streamlined operation, reducing head count and apply more automation process
- Consistent growing revenue from regular contracts from MNC
- Possible Bonus Issue in 2016
- Currently trading at long term support line of RM 5.30
- Trading at 17% discount from NTA of RM 6.35
KESM will be looking to hit a total EPS of RM 0.75 for FYE 2016. At a skeptical PER x12, KESM is easily valued at RM 9.00
Shooting high with KESM ? You decide
Bone's short term TP : RM 6.00
Long Term : RM 9.00
Cheers and have a nice day
Regards
Bone
KESM (9334) - KESM - Burning Higher
http://bonescythe.blogspot.my/2016/01/kesm-burning-higher.html
KESM, KESM (9334), 9334, EN9334, KLSE:9334, Investing, Bonescythe Stock Watch,
