QES Group Berhad - Performance in line
Thu, 22-Aug-2024 07:33 am
by Jayden Tan • Apex Research

Counter

QES (0196)

Target Price (RM)

0.855

Recommendation

Buy

Summary

  • 2QFY24 core net profit at RM6.4m fell -7.4% yoy to RM6.4m, bringing 1HFY24 core net profit to RM8.9m came in line with our expectations.

  • Looking ahead, anticipate better performance in 2H24, with a more substantial recovery expected in 2025, driven by industry-wide recovery.

  • We maintain our BUY recommendation with unchanged target price of RM0.855 by pegging PE multiple of 20.0x to FY25F EPS of 4.3 sen.

     

Results Review

  • Results review. 2QFY24 net profit fell -7.4% yoy but more than doubled qoq, surging 153.9% to RM6.4m. The stronger qoq performance was primarily driven by the fulfilment of orders with lengthy delivery lead times for distribution machines and increased contributions from the higher-margin manufacturing segment. Revenue for the quarter grew 1.6% yoy and 20.5% qoq to RM56.4m.

  • Meet expectation. QES’s 1HFY24 core net profit at RM8.9m accounts 45% of our full-year forecast. We reckon the performance aligns with our expectations, as we anticipate a stronger 2H24, supported by a solid order book and improving industry outlook.

  • Operations Highlights. In 2QFY24, the Equipment Distribution segment reported profit before tax (PBT) of RM6.4m, reflecting -15.5% yoy but a significant increase of 78.8% qoq. The Manufacturing segment PBT stood at RM1.3m, recovering from a loss of -RM0.9m in the previous quarter. Current order book stands at RM111.0m (Distribution: RM85.0m, Manufacturing: RM26.0m), vs 1Q24: RM108.0m.

  • Industry Highlights. Despite the recovery in global semiconductor demand and improved sales, uncertainty lingers within the industry, primarily due to customers' hesitancy in committing significant CAPEX investments, especially in China. The prevailing cautiousness continues to cloud outlook.

  • Outlook. The solid orderbook supports our FY24F forecast, with anticipated improvements in 2H24. However, we remain cautious over the potential meaningful recovery and growth, due to ongoing industry uncertainties. Looking ahead to FY25F, we expect stronger recovery and growth for QES, particularly post-commencement of the Batu Kawan plant in 1Q25. Growth is likely to be bolstered by stronger recovery within the industry, which could instill greater confidence in CAPEX spending and the global economy recovers.

  • Valuation. We maintained our earnings forecasts, and introduced FY26F core net profit forecast of RM40.6m, reflecting potential 14% yoy growth. Growth is expected to be driven by expansion in the manufacturing division and increased contributions from semiconductor frontend machines, which offer better margins. We reiterate our BUY recommendation on QES with an unchanged target price of RM 0.855.

  • Risk. Longer than anticipate on recovery of the industry. Further strengthening of Ringgit could negatively impact QES's ability to meet profit forecasts.

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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.

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Market Mover
Settlement Rates
Currency Buy Rates (RM) Sell Rates (RM)
USD 4.226942 4.260444
EUR 4.723982 4.728876
CNY 0.598324 0.598990
HKD 0.542537 0.546362
SGD 3.269503 3.292710