Kronologi Asia Berhad - Cease Coverage
Wed, 25-Sep-2024 06:48 am
by Jayden Tan • Apex Research

Counter

KRONO (0176)

Target Price (RM)

N/A

Recommendation

Not Rated

Summary

  • We are ceasing coverage on Kronologi due to the reallocation of internal resources. As a result, we will no longer be updating our financial forecasts, especially after the company's performance has fallen below our expectations. Consequently, we are reclassifying our recommendation from HOLD to NOT RATED and our last target price was at RM0.44. Investors are advised not to rely on our previous earnings forecasts and recommendations when making investment decisions.

 

Investment Highlights

  • Results review. Kronologi's 2QFY25 net profit reported RM1.6m which increased by 12.8% qoq, primarily driven by a RM1.0m tax gain from the reversal of deferred tax liabilities. However, yoy performance saw a 46.6% decline in core net profit, which offset 4.7% yoy revenue growth, due to a more competitive business environment and a shift towards lower-margin product mix. Revenue for the quarter rose by 4.7% yoy and 44.3% qoq to RM83.3m.

     

  • Profit missed expectations. In 1HFY25, core net profit came in at RM3.1m, representing only 13% of our full-year forecast, despite revenue meeting expectations. The shortfall was largely driven by a lower-than-expected contribution from the EDM As-A-Service (AAS) division, which typically delivers higher margins. Additionally, the EDM Infrastructure Technology division reported weaker margins due to intense competition and higher operating costs, including depreciation from the newly established premises and solution center.

     

  • Outlook. While we remain optimistic over Kronologi's longer-term prospects, premised to the growing demand for AI development and the need for enterprises to expand data storage capacity, we highlighted several near-term challenges. As a system integrator, Kronologi faces stiff competition, which could pressure margins. Additionally, the uneven recovery across markets, including China’s ongoing economic uncertainties and slower customer spending, could dampen short-term growth. The Group also faces hurdles in scaling its EDM As-A-Service (AAS) division, which is critical for providing a sustainable income stream and is seen as the main growth driver.

     

  • Valuation. We are ceasing coverage on Kronologi due to the reallocation of internal resources. As a result, we will no longer be updating our financial forecasts, especially after the company's performance has fallen below our expectations. Consequently, we are reclassifying our recommendation from HOLD to NOT RATED. Investors are advised not to rely on our previous earnings forecasts and recommendations when making investment decisions. 

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Disclaimer

The report is for internal and private circulation only and shall not be reproduced either in part or otherwise without the prior written consent of Apex Securities Berhad. The opinions and information contained herein are based on available data believed to be reliable. It is not to be construed as an offer, invitation or solicitation to buy or sell the securities covered by this report.

Opinions, estimates and projections in this report constitute the current judgment of the author. They do not necessarily reflect the opinion of Apex Securities Berhad and are subject to change without notice. Apex Securities Berhad has no obligation to update, modify or amend this report or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate.

Apex Securities Berhad does not warrant the accuracy of anything stated herein in any manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against Apex Securities Berhad. Apex Securities Berhad may from time to time have an interest in the company mentioned by this report. This report may not be reproduced, copied or circulated without the prior written approval of Apex Securities Berhad.

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