KESM Industries Berhad (KESM - 9334) which core principal activities are burn-in services for semiconductor devices had continue to display strong sets of financial result despite the current volatile economy outlook.
While
the current semiconductor industry outlook might had saw a slight
contraction in 2015 due to overwhelming production in electronic
equipment segments such as communication and computing segments, the
semiconductor demand in the automotive industry continue to show higher
demand in high quality products that see 0 tolerance in defects.
The application of semiconductor in the automotive industry will continue to increase due to demand in safety features, application in ECU, drivetrains and etc.
Fundamental Outlook
KESM had delivered 2Q FYE 2016 in consistent with their growth, with 10% increased in revenue compared to the previous year quarter. The increase is due to the demand of burn-in services being offered by KESM.
As of 2Q FYE 2016, the cumulative EPS is 36 cents, while NTA increase to RM 6.40 per share. Albeit the current volatile global economy outlook, the management is confident on the demand of semiconductor in automotive industry, however, will exercise prudent decision in capex and expansion.
Based on the consistency of the financial result displayed in 2Q FYE 2016, KESM fundamentally supported trading range will be looking at RM 4.50 to RM 5.00 accordingly.
While currency volatility still exist, KESM shall be able to deliver a projected EPS of RM 0.65 for FYE 2016 (Projection of RM 0.15 for the next 2 quarters), putting up a valuation of RM 6.50 based on PER x10, which will also reflect it's value of NTA at RM 6.40 a share.
The high volatility of KESM is due to the smaller outstanding share base of 43 million shares, hence resorting to unforgiving sell down by retailers despite the excellent fundamental that KESM had displayed. Sources had been informed that the management are looking at possible bonus issue in order to enhance the liquidity of the share, as well as open up opportunity for fund houses to participate in the growth of the company.
Conclusion
KESM will be a good company to be invested in at the current price based on
- Largest independent burn-in service provider in Malaysia
- Focus shifting to automotive industry continue to see growing demand due to higher application of semiconductor in automobile with zero tolerance in field failure rate
- Projected EPS of FYE 2016 at 65 cents, value at RM 6.50 based on PER x 10.
- Net cash company with NTA at RM 6.40 a share
- Possible corporate exercise of Bonus Issue to reward existing shareholder as well as enhance liquidity of the shares.
Bone's TP : RM 6.00
http://bonescythe.blogspot.my/2016/03/kesm-rose-among-thorns.html
