PETALING JAYA: Kumpulan Perangsang Selangor Bhd
’s (KPS) proposed stake divestment in Kaiserkorp Corp Sdn Bhd could turn out to be an earnings-dilutive exercise.
This is unless the company reinvests the cash proceeds from the sale in businesses with high returns, said Kenanga Research.
In a report yesterday, the brokerage said the disposal of a 50% stake in KaiserKorp would erode its net profit forecast for KPS by 21% for the financial year ending Dec 31, 2024.
“The loss of net profit contribution to the tune of RM12mil per annum from Kaiserkorp is only partially cushioned by RM5.2mil net interest income from the additional cash.
“For this reason, we are at best only neutral on the deal,” Kenanga Research explained.
It maintained its “underperform” call on KPS, with a lower target price of 45 sen, as compared to 51 sen previously.
The downward revision in its target price for KPS reflected the brokerage’s 21% cut in 2024 earnings forecast for the company in view of the deal.
KPS on Tuesday announced it was divesting a 50% equity stake in Kaiserkorp to AI Dream (HK) Ltd for RM265.5mil cash, reducing its stake in the maker of bedding products to 10% from 60%.
The disposal was expected to be completed by March 2024.
It was revealed that KPS would realise RM117.4mil in gains from the disposal, translating to 21.8 sen per share.
The group had earmarked RM24.2mil for a special dividend, translating to 4.5 sen per share.
“The exercise will boost KPS’ net cash of RM20mil as at end-September 2023 to RM194.5mil, after reflecting the deconsolidation of RM65.9mil cash sitting in Kaiserkorp, related disposal expenses, and the special dividend payout,” Kenanga Research noted.
The brokerage said it liked KPS for the strong growth prospects of the consumer electronics industry, which is the main client of the group’s products and services; its long-term growth, underpinned by expansion at its overseas operations; and the greater role it is playing in the supply chain of a renowned privately-owned innovator of high-tech consumer electronic appliances.
“However, over the immediate term, it will not be spared the significant slowdown in the global consumer electronics industry, and it is also struggling to contain the rising costs,” Kenanga Research said.
