KESM Industries Berhad (part 2)
KESM’s performance from 2020 to 2023 remained stagnant largely because its core business—a niche in burn-in and test services, particularly for automotive semiconductors—was hit by a perfect storm of headwinds that weren’t as severe for other semiconductor players. While many semiconductor companies benefited from soaring demand in areas like consumer electronics, data centres, and AI chips, KESM was more vulnerable to disruptions in the automotive sector. The pandemic, trade tensions, and supply chain challenges led to a downturn in global automotive production and a slowdown in chip demand from that sector.
Moreover, KESM faced significant cost pressures during this period—rising electricity tariffs, increased depreciation from hefty capital expenditures on new equipment, and overhead costs related to reskilling its workforce from EMS to testing operations. These factors squeezed margins and kept earnings subdued. Essentially, while broader semiconductor stocks thrived on booming demand in other high-growth areas, KESM’s specialized business model and its exposure to a volatile automotive market resulted in its performance remaining flat over those challenging years.
Here is the summary of automotive semiconductor in year 2020-2023
2020
Automotive sales plummeted due to the pandemic, and carmakers cancelled chip orders just as consumer electronics surged, causing semiconductor manufacturers to pivot production. This mismatch left automakers at the back of the queue, exposing their reliance on just-in-time inventories and limited chip suppliers.
2021
As vehicle demand rebounded faster than anticipated, chip shortages forced automakers like Volkswagen and Honda to idle plants, resulting in millions of lost units. Many features (e.g., heated seats) were dropped to conserve chips, and high-value or premium models were prioritized.
2022
Supply bottlenecks persisted, especially for older chips vital to engine and safety systems. Manufacturers sought greater control through vertical integration and direct supplier relationships. Governments also announced incentives to expand domestic semiconductor production, though new fabs take years to build.
2023
Production losses eased as capacity expanded and predictive inventory strategies improved. However, structural issues remain—mature-node chips continue to face underinvestment, and supply chains are still heavily concentrated in Asia. The industry’s response, including buffer stockpiling and diversification, underscores the ongoing critical role of semiconductors in modern vehicles.
From January 2024 to February 2025, stock price dropped by 50%
Several unfavourable factors appear to have contributed to the underperformance from January 2024 to the present, including a significant revenue decline observed in the first quarter of FY2025, where revenue dropped by 17% from RM63.5 million to RM52.8 million, signalling weakened demand; a sharp earnings reversal marked by a loss before tax of RM5.0 million, in contrast to a profit of RM1.8 million in the previous quarter; an 87% fall in other income due to the absence of realized foreign exchange gains and asset disposal gains; rising depreciation expenses from newly commissioned equipment coupled with higher electricity tariffs and operating costs that further squeezed margins; and persistent overhead costs related to the reskilling of workers transitioning from the EMS segment to the burn-in and test business. These factors have collectively driven the company’s stock price down by 50% since January 2024.
(2)Current trend of automotive semiconductor
Below is a consolidated overview of key developments in the automotive semiconductor space
Market Growth and Size
Near-Term Projections: The market is set to increase from about $60.59 billion in 2024 to $67.42 billion in 2025, reflecting a compound annual growth rate (CAGR) of roughly 11.3%. This growth is primarily driven by rising demand for electric/hybrid vehicles (EVs) and continued expansion in advanced automotive electronics.
Longer-Term Forecasts: Some industry analyses project that the automotive semiconductor market could reach $85–$106 billion by the late 2020s, underpinned by accelerating EV adoption, government support, and innovations in autonomous and connected vehicle technologies.
Recovery from Supply Chain Disruptions
Easing Constraints: Following a turbulent period from 2020–2023 marked by severe chip shortages, the supply chain has largely stabilized. Many automakers and semiconductor suppliers carried higher inventories into 2024, reducing immediate risks of production stoppages.
Possible Future Pressures: Despite the current easing, issues such as infrastructure costs, geopolitical uncertainties, and labor shortages could create new bottlenecks as early as 2025, especially for legacy nodes (e.g., 12 nm to 90 nm) that still dominate many automotive applications.
Key Growth Drivers
Electrification and Power Electronics: Adoption of silicon carbide (SiC) and gallium nitride (GaN) power devices has soared, helping improve EV range and efficiency. As EV uptake grows worldwide, demand for power semiconductors continues to expand rapidly.
Advanced Driver-Assistance Systems (ADAS) and Autonomy: Higher levels of autonomy and more sophisticated ADAS features drive the need for high-performance microcontrollers (MCUs), sensors, and domain controllers that rely on advanced nodes (5 nm–7 nm).
Connectivity and In-Vehicle Experience: Growing emphasis on infotainment, connectivity (including 5G), and AI-based driver assistance requires more chips per vehicle. Many new models now integrate centralized electronic/electrical (E/E) architectures, increasing semiconductor content significantly.
Continued Challenges and Risks
Node-Specific Constraints: Even as overall supply improves, certain mature process nodes remain under pressure because foundries prioritize higher-margin segments (like AI/data center). Automotive-grade validation is lengthy (18–24 months), slowing supply adjustments.
Geopolitical Tensions: Potential tariffs or export controls—particularly between the U.S. and China—may disrupt the global supply chain. In parallel, labor shortages in key manufacturing regions can impede timely capacity expansion.
Inventory and Capital Expenditures: Industry players have corrected overstock situations that arose from “panic buying” in 2022, but large swings in demand—especially if global light-vehicle production fluctuates—could lead to renewed mismatches in supply and demand.
Strategic Adaptations
Vertical Integration and Partnerships: Automakers like Tesla and BYD are developing in-house chip capabilities or acquiring stakes in semiconductor firms to secure supply. Others (e.g., GM and Ford) are forging joint ventures with foundries to manage node availability more directly.
Flexible Architectures: Suppliers such as Xilinx (adaptive SoCs) and Renesas (pin-compatible MCUs) are designing platforms that can more easily shift between process nodes or component suppliers, mitigating node-specific shortages.
Capacity Expansion: Multiple new 200 mm and 300 mm fabs are planned to come online by 2025, with a strong focus on automotive-grade chips. Government incentives (e.g., the U.S. CHIPS Act) continue to boost regional production.
Industries, Products, and Everyday Benefits
Industries Involved: Besides automotive manufacturing, this sector engages fabless chip designers, wafer foundries, equipment suppliers, and Tier-1 integrators—collectively shaping vehicle electronics.
Core Products:
Microcontrollers & Processors: Powering everything from engine control units to infotainment systems.
Power Devices (MOSFETs, IGBTs, SiC/GaN Transistors): Essential for electric powertrains, reducing energy losses and improving performance.
Sensors & Analog ICs: Enabling functions like collision avoidance, lane-keep assist, and real-time vehicle diagnostics.
Memory & Connectivity Chips: Storing and transmitting data for telematics, over-the-air updates, and advanced infotainment.
Daily Life Impact: These components help deliver safer cars (through ADAS), greener transportation (via efficient EV power electronics), and more convenience and connectivity (advanced infotainment, smartphone integration, 5G). As autonomous driving matures, the semiconductor content will continue expanding, promising lower accident rates, better traffic flow, and new mobility services.
Outlook
Sustained Expansion: Forecasts suggest the segment is on track to surpass $100 billion in annual revenues by the mid-to-late 2020s. Key factors include consumer demand for EVs, regulatory pressure for lower emissions, and a push toward fully autonomous vehicle.
Long-Term Considerations: Balancing advanced-node investments (needed for high-performance chips) with mature-node capacity (still crucial for cost-sensitive automotive parts) is vital. The industry must also watch for macroeconomic shifts and stay adaptable to rapid technology cycles.
Overall, the automotive semiconductor market is moving from crisis management to a period of controlled, robust growth. While supply chain bottlenecks have largely receded, vigilance is required in managing geopolitical, labour, and capacity-related risks. In everyday life, these semiconductors underpin safer, more efficient, and more connected vehicles, shaping the future of personal and commercial mobility.
(3)How the Market Growth Directly Benefits KESM
Rising Chip Content per Vehicle
Assumption: As vehicles incorporate more sensors (for ADAS), power components (for EV drivetrains), and connectivity modules (for infotainment/5G), each car will carry more semiconductors. A higher chip count means more demand for testing and burn-in services.
Benefit to KESM: Given that automotive-grade ICs need stringent reliability checks, each additional chip means an expanded revenue opportunity for service providers like KESM.
Increasing EV Adoption
Assumption: Electric and hybrid vehicles use more power modules (IGBTs, SiC, GaN) than conventional cars, and those power modules must be rigorously tested under thermal stress.
Benefit to KESM: Burn-in and test requirements for EV power modules are typically more demanding, leading to higher margins and increased test hours. As EV penetration grows, KESM’s specialized equipment, know-how, and capacity stand to be in greater demand.
Shift Toward Advanced, High-Reliability Nodes
Assumption: Many automotive semiconductors still rely on mature process nodes (e.g., 28–90nm), but even these “mature” nodes for automotive often involve rigorous qualification. As automakers move into more advanced chips for AI, domain controllers, etc., the testing requirements increase.
Benefit to KESM: Automotive-grade devices require longer testing times and more comprehensive validation, creating an ongoing revenue stream for specialized test service providers.
Supply Chain Recalibration
Assumption: After years of shortages, companies are rethinking their supply chains to avoid future disruptions. OEMs and Tier-1 suppliers may sign longer-term contracts or “take or pay” agreements with test houses to guarantee capacity.
Benefit to KESM: These multi-year engagements and secure supply lines could result in more stable utilization of KESM’s testing capacity and potential new expansions in the pipeline.
2. Potential Counterpoints & Assumptions to Question
Demand Volatility
If global auto production softens due to macroeconomic shocks or if EV adoption slows, the “guaranteed upswing” in semiconductor volumes may not materialize as strongly. KESM’s business, being heavily tied to volume, might face cyclical downturns if automakers cut output.
Geopolitical Tensions and Tariffs
A big portion of KESM’s revenue might involve cross-border logistics (chips going to/from China, the U.S., Europe). Heightened tariffs or new export restrictions could push semiconductor players to relocate or repatriate certain test operations—potentially bypassing current test houses in Southeast Asia.
Competition from IDMs and OSATs
Some large semiconductor manufacturers (IDMs) and Outsourced Semiconductor Assembly and Test (OSAT) providers have begun building out their own testing capacity closer to major end-customers (e.g., in the U.S. or Europe) or forging joint ventures with automakers. KESM must stay competitive in price, technology, and geographic convenience.
Technological Obsolescence
Burn-in methods and testing protocols will evolve with new device architectures. KESM needs to continually invest in state-of-the-art equipment (for instance, for advanced node SoCs or power modules using SiC/GaN). Any lapse in capital expenditure or technology expertise could quickly erode their competitive edge.
3. Testing the Logic Behind KESM’s Growth Prospects
Reliability as a Differentiator: Automotive semiconductors face stricter quality demands compared to consumer electronics. KESM’s specialized expertise in automotive reliability testing is a strong moat. The question is whether emerging test players or internal test lines at large semiconductor manufacturers could replicate these capabilities.
Cost vs. Mission-Critical Testing: Burn-in adds cost and time to a product’s cycle, but automotive manufacturers can’t afford quality failures. As electric and autonomous systems proliferate, the cost of a defective chip can be massive (recalls, safety incidents). Testing is therefore seen as indispensable, which should keep the burn-in and test segment robust.
However, if new chip designs or predictive analytics reduce the need for lengthy burn-in, that might compress the scope of the services KESM provides.
4. Alternative Perspectives
Strategic Partnership/Acquisition: KESM might become an attractive acquisition target for Tier-1 suppliers or even large OSATs wishing to bolster their automotive portfolio. That could lead to synergy or, alternatively, lead to a shift in control and strategic direction.
Diversification: If automotive remains strong, KESM might stick to its niche. But it could also leverage its expertise in high reliability testing to adjacent markets (e.g., aerospace, industrial IoT, or medical devices), which share similarly stringent standards.
6. Bottom Line
From a straightforward market perspective, the wave of automotive semiconductor growth—fuelled by EVs, ADAS, and connectivity—positions KESM Berhad to benefit through:
Higher chip volumes needing burn-in and test.
More advanced, safety-critical devices necessitating rigorous qualification.
Potential for stable or long-term contractual arrangements as automakers ensure future chip supply.
Yet, in the spirit of intellectual rigor:
Be cautious of macroeconomic or geopolitical shocks that can destabilize demand.
Keep an eye on technology shifts (e.g., new testing methodologies, reduced reliance on extended burn-in).
Track capacity expansions and localizing trends among bigger OSAT or IDM players that might compete directly with KESM or disrupt existing supply chains.
If KESM continues to invest in leading-edge testing capabilities and expands capacity strategically (perhaps co-locating near new manufacturing hubs or partnering with key Tier-1 automotive suppliers), it stands to capture substantial upside from the current and projected boom in automotive semiconductors. If not, it risks missing out in an increasingly competitive environment.
(4) Business characteristics
Strengths
• Longstanding Profitability and Shareholder Returns
KESM managed to remain profitable or quickly revert to profitability in most years, often paying consistent dividends. Even during downturns, it maintained dividend payouts, signalling financial discipline and a commitment to shareholders.
• Focused Automotive Semiconductor Expertise
The company established itself as a niche leader in burn-in and test services for automotive semiconductors, serving many of the world’s top automotive chip manufacturers. This specialization positions it strongly in a market where safety-critical chips require rigorous reliability testing.
• Robust Balance Sheet and Liquidity
KESM frequently reported healthy cash reserves and relatively low debt, allowing it to fund capital investments and weather cyclical downturns. Even in challenging times (e.g., the pandemic, trade wars), liquidity and prudent cost controls helped sustain operations.
• High Capital Investment and Technological Upgrades
The company regularly invests in advanced testing equipment (e.g., expanding pin counts, introducing proprietary “Test During Burn-In” processes, and integrating automation and AI tools). These ongoing upgrades enable it to handle complex semiconductor devices for emerging applications (ADAS, EVs, IoT, AI).
• Strategic Geographical and Customer Diversification
Over the years, KESM set up facilities in Malaysia and China to serve diverse global customers, including Fortune 500 semiconductor manufacturers. Its expansions often aimed at tapping new markets (e.g., Tianjin facility) and mitigating geographical risks.
• Strong Quality Culture and Automotive-Grade Reliability
Emphasis on “zero defect” and strict automotive standards (ISO, TS certifications) has earned KESM a reputation for high reliability. This aligns with the stringent demands of automotive and safety-critical devices.
Weaknesses
• High Dependence on the Automotive Segment
While automotive burn-in/test is a core strength; it also becomes a key vulnerability. Demand dips or slowdowns in global car production (e.g., the slump in Chinese car demand, pandemic-related disruptions) significantly affect KESM’s revenue.
• Exposure to Cyclical Semiconductor Industry
The semiconductor sector is volatile, with boom-bust cycles and rapid technological shifts. This raises the risk of underutilization of newly purchased equipment if market conditions or customer demands suddenly change.
• Rising Operating Costs, Margins Pressure
Labor cost hikes, increased minimum wages, and higher utility expenses—particularly in Malaysia and China—have squeezed margins. Maintaining profitability often hinges on boosting productivity or passing costs on to customers, which is not always feasible.
• Customer Concentration Risk
A significant portion of revenue comes from a small number of major automotive semiconductor players. If any key customer reduces orders or switches to another provider, KESM’s financials could face immediate strain.
• Capital-Intensive Nature and highly competitive
KESM must continually invest in sophisticated test technologies to keep pace with rapid chip innovation. Any mismatch between these large expenditures and actual market demand can hurt returns. The automotive semiconductor burn-in and test segment remains fiercely competitive. Top-tier automotive customers concentrate their business among a select group of qualified providers, leading to strong pricing pressures and ongoing requirements to invest in advanced testing capabilities.
• Exposure to Macroeconomic and Geopolitical Disruptions
Global trade tensions (U.S.–China), pandemics, currency fluctuations, and other geopolitical issues can disrupt supply chains and dampen semiconductor demand, directly impacting KESM’s volumes and profitability.
Overall, KESM’s strengths lie in its deep specialization in automotive burn-in/test, strong long-term financial discipline, and continuous investments in cutting-edge technology. However, its dependence on a cyclical automotive segment, coupled with high capital requirements, makes the company vulnerable to market downturns, rising costs, and shifting customer demands. These characteristics have defined KESM’s trajectory across multiple economic cycles.
(5) Financial analysis
Balance Sheet Quality
Even through the industry’s subdued cycles from 2018 to 2025, KESM managed to keep its net current assets robust, without any substantial reduction in its overall liquidity. Notably, the company funded most of its capital expenditures through internally generated cash, turning to debt only in select years (such as 2018, 2019, and 2023) rather than relying on continuous refinancing or new share issuance. This conservative approach reflects a strong balance sheet mentality: high net-net current assets relative to liabilities, adequate cash buffers, and no consistent pattern of diluting shareholders’ equity. Only in 2025 did net-net current assets slip below KESM’s market capitalization—a level previously seen in 2012–2013—yet this still underscores the company’s capacity to maintain healthy working capital balances over extended periods.
Earnings, Cash Flow Quality & Overall Business Traits
While revenue growth has been largely stagnant since 2020, the company’s gross profit margin has improved (from 84% to 92%), and operating cash flows generally exceed net income owing to large non-cash depreciation expenses. This means reported losses in tough years were often more “accounting losses” rather than true cash drains. Still, net income margins in stronger periods (2011–2017) varied widely, from 2% to around 13%, indicating a cyclical performance closely tied to semiconductor demand and capacity utilization. Moreover, a closer examination reveals that at times when the market seemed overly enthusiastic (e.g., 2015–2017), KESM’s “high good times” net income might have given an inflated impression of its long-term earnings potential. Overall, the business is capital intensive and highly dependent on volume demand in automotive semiconductors; yet KESM’s disciplined financing strategy, consistent CAPEX funding, and ability to preserve liquidity through downturns highlight a fundamentally resilient enterprise—even if actual returns are vulnerable to industry cycles.
Here are the factors which dragged down the EBIT margin
Rising Labor Costs
2014 – Management noted “sharp escalating labour and electricity costs” in both Malaysia and China.
2019 – Reports again emphasized labour-cost pressures, especially with minimum wage increases and competition for skilled workers.
2022 – Continuing mentions of wage inflation and the challenge of attracting and retaining skilled personnel.
Higher Utility (Electricity) Expenses
2014 – The company faced substantial increases in electricity costs, mentioned together with escalating labour costs.
2022 – Explicitly singled out “higher … utilities” among the reasons net profit slipped.
2023 – Utility costs again weighed on operating margins, adding pressure to the bottom line.
Depreciation From Capital-Intensive Expansion
2018 – Management cited “increased depreciation (from additional machinery and test equipment)” as a factor behind an 11% drop in net profit.
2019 – Ongoing major purchases of advanced burn-in/test systems continued adding to depreciation.
2022 – Further expansions (property, plant, and equipment upgrades) similarly drove depreciation costs higher.
Repairs, Maintenance, and Other Operating Expenses
2022 – The annual report explicitly called out “higher … repairs and maintenance” expenses.
2023 – Additional references to maintenance costs, alongside rising utility bills, contributed to margin pressure.
Raw Materials and Consumables (Especially in EMS)
2019 – The company reported a 34% jump in raw materials and consumables to support higher EMS demand, eroding profitability when EMS volumes later softened.
The company appears to operate at a breakeven level when revenue ranges between RM230 million and RM250 million (from 2020 to 2024). Moving forward, two key pathways could enhance its performance: (1) revenue growth driven by improved industry sentiment, or (2) increased operational efficiency through cost reductions.
(6) Valuation
The data suggest that market sentiment may be overly pessimistic rather than the company being fundamentally doomed. Here’s why:
Deep Valuation vs. Tangible Assets
The company’s share price is trading at a steep discount to its book value (P/B ~0.44), with a market capitalization (around RM152 million) that nearly equals its net cash (about RM148 million). This suggests that investors are pricing the company near its “cash floor,” implying scepticism about the business outlook despite its solid financial footing.
Focus on Automotive & Semiconductor Testing
The firm primarily operates in the automotive semiconductor test equipment industry. Its testing solutions help ensure the reliability and safety of electronic components used in cars—an area where quality standards are critical because failures can directly impact vehicle safety and performance. This focus brings stable, long-term customer relationships, as automotive clients typically stick with proven, reliable testing providers.
Cyclical Industry Dynamics
Demand for semiconductor-related services, especially in automotive, tends to be cyclical. The market often prices in near-term risks—such as slower auto sales or chip overcapacity—that can drag on revenue. However, a well-managed business in this space can capture significant upside when demand rebounds, especially as more vehicles adopt advanced driver-assistance systems (ADAS), electrification (EV), and other semiconductor-heavy technologies.
Strong Balance Sheet Cushion
The company carries a sizable net cash position relative to its total market value, while its debt appears minimal. This liquidity has helped the company remain near break-even or modestly profitable through various downturns, rather than incurring large, sustained losses. A robust balance sheet also allows for critical R&D investments in emerging fields like EV and AI chips, ensuring the company can stay technologically competitive.
Surviving Past Downcycles
Management has navigated multiple industry slumps over the last decade or so—such as the 2008–2009 global financial crisis and COVID-related slowdowns—without major equity dilution or crippling debt. This track record indicates operational resilience and the ability to protect shareholder value even in adverse market conditions.
Given all this, the current share price—having dropped significantly from RM7.70 down to RM3.45—likely reflects ongoing market pessimism about when the next meaningful upcycle will arrive, rather than a sign the company lacks viability. Should global automotive and semiconductor demand rebound, the company is positioned to scale up activity again, demonstrating its “staying power” in the interim.
Reasons against invest
Below are several key risk factors and concerns that might argue against an investment in this company—at least at the present time—based on both the document and the data you shared:
1. Cyclical and Stagnant Revenue
Cyclical Industry Exposure
The company’s fate is tied closely to the boom-bust cycles of the semiconductor sector, which can swing from rapid growth to deep slumps in short order. This volatility can cause wide fluctuations in earnings and share price.Stagnant Top-Line Trend
Revenue dropped from around RM300+ million to the mid-200s several years ago and has hovered near that level (circa RM240 million) since about 2020. Even if they are breaking even, no sustained top-line growth for multiple years signals that near-term catalysts may be missing.
2. Pricing Pressures & Competition
Ongoing Customer Cost-Down Requests
The document underscores that automotive semiconductor customers frequently pressure the company to cut prices, intensifying during cyclical troughs. This can erode margins unless the company offsets with productivity gains.Global Competition
Other semiconductor test houses can compete aggressively on price or technology. If new entrants develop similar automotive testing capabilities, the company’s niche could become less differentiated.
3. High Capital Expenditure Needs
Continuous Equipment Upgrades
Burn-in and test for advanced chips (especially for EVs and ADAS) demand regular, expensive equipment updates to remain relevant. This can suppress free cash flow, reduce dividends, or increase financial risks if the market downturn persists.Return on Investment Uncertainty
Big capital outlays only pay off if customer volume eventually ramps up. In a downturn, underutilized equipment becomes an added cost burden without generating enough revenue to justify the investment.
4. Automotive Concentration & Macro Risks
Reliance on Automotive Sector
The company leans heavily on automotive semiconductors. While EVs and ADAS may be a growth area, any cyclical or structural decline (e.g., economic downturns, supply chain crises, or slower-than-expected EV adoption) could materially reduce chip demand.Global Trade Tensions & Policy Shifts
The ongoing U.S.–China trade war, potential tariffs, and other geopolitical risks weigh heavily on automotive supply chains. If customers reduce production or move to different suppliers, the company could see a rapid drop in utilization.
5. Long Periods of Low/No Profit Growth
Recent Break-Even Earnings
Even though the firm has not reported massive losses in recent years, near break-even levels do little to increase shareholder returns or signal robust growth. Operating at modest profit (or near zero) during downcycles can persist for multiple quarters or even years.Share Price Underperformance
The company’s share price has significantly declined from RM7.70 to RM3.45 over several years, reflecting market concerns about its earnings trajectory and cyclical uncertainties. A low share price alone isn’t necessarily a reason to avoid investing, but it signals persistent market scepticism.
6. Uncertain Timing for the Next Upcycle
Lack of Clear Near-Term Catalysts
While the industry eventually rebounds, there’s no guarantee exactly when automotive semiconductor volumes will accelerate enough to meaningfully boost revenue. Protracted global economic softness or delayed EV adoption could push the next upcycle further out.
A conventional DCF valuation approach may be impractical for this company due to its inconsistent earnings pattern and heavy capital expenditure requirements. Instead, a more conservative method involves taking the average net income from 2011 to the latest twelve months of 2025—approximately RM11 million—and capitalizing it at an appropriate rate without assuming any growth. Given the company’s robust net cash of RM148 million, a conservative stance would include only half of that cash (RM70 million) in the valuation, acknowledging that a sizable portion of cash flow is likely to be reinvested in capital-intensive projects or held to maintain a strong balance sheet.
Under this framework, if the company’s net cash is disregarded, the current market cap of RM150 million equates to an implied return of roughly 7% on average earnings (RM11 million). When RM70 million of cash is factored in, the market cap effectively drops to RM80 million, suggesting an implied return of about 14% on those same earnings. Achieving RM11 million of net income requires only a 5% profit margin on annual revenues of around RM230 million—a margin the company has reached in past profitable years.
Taken together, the implied discount rates of 7% to 14%, combined with a liquid balance sheet and a moderate profit margin assumption, suggest a potentially attractive risk-reward profile for investors.
Bottom Line
If you believe in the semiconductor cycle’s eventual upswing—particularly in the automotive/EV chip space—this company’s strong balance sheet and historically resilient operations may position it to rebound. However, significant risks remain cyclical and stagnant revenues, cost pressure, heavy capital needs, narrow automotive dependence, and uncertain near-term catalysts. Together, these factors could keep the share price under pressure and limit upside until a clear and decisive industry recovery materializes.
