Hey there, fellow investors and market watchers! KESM Industries Berhad, a name synonymous with semiconductor burn-in and testing services, has just released its unaudited third-quarter results for the financial period ended 30 April 2025 (3QFY2025). As a key player in the crucial backend of the semiconductor supply chain, their performance often offers a pulse check on the broader tech industry, especially the automotive segment.
This report paints a picture of a company navigating a challenging environment, marked by softer demand for automotive chips. While the Group recorded a loss for the quarter, there are signs of strategic cost management and a noteworthy quarter-on-quarter improvement. Let’s dive into the numbers and see what KESM’s latest report tells us.
Navigating Headwinds: A Closer Look at KESM’s Q3 Performance
The semiconductor industry, particularly the automotive sector, has been facing a period of adjustment. KESM’s latest quarterly report reflects these challenges, but also highlights their efforts in cost optimisation.
Financial Performance: A Mixed Bag
For the third quarter ended 30 April 2025, KESM saw a dip in its top line compared to the same period last year, primarily due to weaker demand in its core automotive chip processing business. However, the company has been proactive in managing its expenses.
Current Quarter (3QFY2025)
Revenue: RM52.8 million
(Loss) Before Tax: RM(0.3) million
(Loss) Net of Tax: RM(0.9) million
Basic (Loss) Per Share: (2.1) sen
Preceding Year Corresponding Quarter (3QFY2024)
Revenue: RM61.2 million
Profit Before Tax: RM1.2 million
Profit Net of Tax: RM0.1 million
Basic Earnings Per Share: 0.3 sen
Looking at the quarter-on-quarter performance, KESM reported a loss before tax of RM0.3 million in 3QFY2025, a significant improvement from the RM3.1 million loss recorded in the preceding quarter (2QFY2025). This reduction in losses was largely driven by higher revenue and a net gain from the disposal of machinery and test equipment, totaling RM2.9 million.
Year-to-Date Performance: A Broader View
Over the nine months ended 30 April 2025, the Group’s revenue was RM157.0 million, a 16% decrease compared to RM186.5 million in the same period last year. This was again primarily attributed to the softer demand for processing automotive chips.
Current Year to Date (YTD FY2025)
Revenue: RM157.0 million
(Loss) Before Tax: RM(8.4) million
(Loss) Net of Tax: RM(8.4) million
Basic (Loss) Per Share: (19.5) sen
Preceding Year Corresponding Period (YTD FY2024)
Revenue: RM186.5 million
Profit Before Tax: RM3.5 million
Profit Net of Tax: RM1.2 million
Basic Earnings Per Share: 2.7 sen
The Group’s cost management efforts are evident in the year-to-date figures. Employee benefits expense decreased by 12% (RM9.0 million) due to reduced labour, aligning with operational requirements. Depreciation of property, plant and equipment was also lower by 7% (RM2.6 million) as some assets were fully depreciated. Other expenses saw an 8% reduction (RM5.6 million), mainly from cuts in utilities, repairs, maintenance, recruitment, and management fees. However, these savings were partially offset by a net fair value loss on investment securities of RM3.5 million and a net foreign exchange loss of RM0.7 million.
Financial Health: A Stable Position
Despite the operational challenges, KESM’s balance sheet remains robust. As at 30 April 2025, total assets stood at RM420.6 million, with total equity at RM339.1 million. The net assets per share were RM7.88.
A notable highlight is the significant reduction in total loans and borrowings, which decreased by 40% or RM29.3 million, from RM73.3 million as at 31 July 2024 to RM43.9 million. This was primarily due to substantial repayments of bank loans and lease liabilities, strengthening the company’s financial flexibility.
Cash and short-term deposits decreased by 9% to RM211.8 million, reflecting net cash outflows mainly from loan repayments. However, cash flows from operating activities remained positive at RM23.0 million for the year-to-date, demonstrating the company’s ability to generate cash from its core business.
Industry Outlook and KESM’s Prospects
The global economic landscape remains a key factor. The International Monetary Fund (IMF) has revised its 2025 global economic growth outlook downwards from 3.3% to 2.8%, citing escalating trade tensions and policy uncertainty. This macro-environment naturally impacts industries reliant on global trade and stability.
However, the semiconductor industry itself presents a more optimistic picture. Worldwide semiconductor revenue in 2024 reached USD655.9 billion, a significant 21.0% increase from 2023. This growth was largely propelled by strong demand for graphics processing units (GPUs) and artificial intelligence (AI) processors, especially in data center applications, alongside a sharp rebound in memory chip prices. The industry is projected to grow further to USD705 billion in 2025, fueled by continued expansion in memory and AI semiconductors.
KESM acknowledges the ongoing geopolitical tensions and tariffs that are reshaping global supply chains, leading to rapid inventory adjustments and irregular order patterns. Despite the volatility in the automotive segment, the Group remains optimistic about sustained demand in data centers and AI applications. This strategic focus on high-growth areas within the semiconductor space could be a key driver for future performance.
Dividends: A Return to Shareholders
While no dividend was declared for the current reporting quarter or the preceding year’s corresponding quarter, KESM did announce an interim tax-exempt dividend of 7.5 sen per ordinary share for FY2024, which was paid on 29 October 2024. This demonstrates the company’s commitment to returning value to shareholders, even in a challenging operational period.
Summary and
KESM Industries Berhad’s latest quarterly report reflects a challenging period for the semiconductor industry, particularly in the automotive segment. The Group reported a loss for both the quarter and year-to-date, primarily due to weaker demand for automotive chips. However, the company has demonstrated strong cost management capabilities, leading to reduced operating expenses and a notable improvement in profitability from the preceding quarter.
Financially, KESM maintains a healthy balance sheet, with a significant reduction in borrowings and positive cash flow from operations. This strong financial position provides a buffer against market volatility and supports future investments.
Looking ahead, while global economic uncertainties persist, the broader semiconductor market, especially driven by AI and data center demand, shows promising growth. KESM’s focus on these high-growth areas positions it to potentially capitalise on future opportunities. The company’s ability to adapt and manage costs effectively in a dynamic environment will be crucial for its recovery and sustained performance.
Key points to consider from this report include:
- Automotive Sector Headwinds: Continued soft demand for automotive chips remains a primary challenge, impacting revenue.
- Effective Cost Management: The Group’s success in reducing employee benefits, depreciation, and other expenses is a positive sign of operational efficiency.
- Strong Balance Sheet: Significant reduction in loans and borrowings enhances financial stability and flexibility.
- Strategic Focus on AI & Data Centers: KESM’s optimism in these high-growth segments offers a potential pathway for future revenue diversification and growth.
- Quarter-on-Quarter Improvement: The substantial reduction in loss before tax from the previous quarter indicates a positive trend in operational recovery.
So, what are your thoughts on KESM’s latest performance? Do you think the company can maintain its cost management discipline and successfully pivot towards the growth opportunities in AI and data centers? Share your insights and let’s discuss in the comments below!
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