KUALA LUMPUR: Public Investment Bank (Public IB) Research expects a positive impact on Kumpulan Perangsang Selangor Bhd's (KPS) bottom line with the newly secured contract sum of RM162.181 million to supply water treatment chemicals to Pengurusan Air Selangor Sdn Bhd.
KPS's 51 per cent-owned Aqua-Flo Sdn Bhd has entered into a framework agreement with Air Selangor to supply and deliver the water chemicals.
The agreement is set to be in effect from the first quarter of the financial year 2024 (1QFY24) to 4QFY25 (a span of two years), with a total contract value of RM162.2 million.
The research house projects that the contract would increase KPS' bottom line by six to seven per cent per year on average over the contracted period of two years, assuming a mid-single-digit margin based on certain levels of purchase orders each year.
"Air Selangor is not obliged to honour the estimated contract sum of RM162.2 million, as the actual quantities to be supplied are based on purchase orders issued over the two-year contracted period.
"That aside, prices for the respective chemicals to be supplied are fixed and not subject to any changes, variations, or cost escalations. Besides, Aqua-Flo is liable to remit 5.0 per cent of the estimated contract sum to Air Selangor as a performance bond," it said.
Public IB has raised its earnings for KPS by 7.4 per cent on average in FY24–25 due to the adjustments made to its earnings forecasts," it said.
It said that, post-adjustments, the earnings contribution from Aqua-Flo represents about 30 per cent of KPS' total earnings in FY24–25F.
"As such, we ascribe a price-to-book value ratio multiple of 0.35 (average) to reflect the ameliorated earnings outlook as business risk is fairly diversified with Aqua-Flo despite the slowdown within its manufacturing segment," the research house said.
Meanwhile, Public IB believes the weakness in electronics demand could persist into 1HFY24 as the global economic outlook continues to deteriorate as a result of slower spending and increased geopolitical tension.
"All said, we maintain our neutral rating on the group with a revised target price of 78 sen," it said.