KUALA LUMPUR: Kenanga Research remains cautious about KESM Industries Bhd's immediate-term outlook as it still faces the potential risk of sub-optimal loading volume during the transition period.
The research house said KESM's new test platforms for its automotive customers are currently undergoing qualification.
The research firm said that KESM will handle new chips for electric vehicles (EVs) upon commissioning, raising its overall utilisation rate from 50 per cent to 70 per cent by 2024.
However, KESM still needs help with higher electricity costs on increased tariffs from 2023 and weakening loading volume for its non-automotive burn-in and test business.
Meanwhile, KESM's depreciation is expected to increase from RM9 million per quarter to RM10−11 million per quarter as the new equipment has been fitted into its facility.
"We now project a RM4.3 million net loss in the financial year 2023 (FY23) for KESM from a RM1.2 million net profit and cut our FY24 net profit forecast by 22 per cent," it said.
KESM indicated that its electronics manufacturing services (EMS) business had been scaled down to a level with no material bearing on its overall operation.
Kenanga Research said the company would maintain its current workforce of 1,900 workers who can cover the operations of its new test platform.
"However, there will still be lingering unabsorbed overhead of circa RM2−3 million due to the ongoing reskilling of workers from the electronic manufacturing services (EMS) segment to the burn-in and test business.
"We remain cautious in the immediate term as KESM still faces the potential risk of sub-optimal loading volume during the transition period.
"Maintain 'Market Perform' with a lower target price of RM8.24 from RM8.26 previously," it added.