QES Group Berhad
Tue, 19-Nov-2024 07:04 am
by Jayden Tan • Apex Research

Counter

QES (0196)

Target Price (RM)

0.77

Recommendation

Buy

Summary

  • QES’s 3QFY24 net profit stood at RM1.2m (-71.4% yoy, -80.6% qoq), impacted by RM4.4mforex losses. Excluding forex losses, CNP at RM5.7m (+31.8% yoy, -10.7% qoq), brings 9MFY24 CNP at RM14.6m (-7.9% yoy) met expectations at 74% of our forecast and 66% of consensus expectations.

  • We anticipate flattish performance in 4QFY24, but a strong recovery is expected in FY25, driven by industry-wide led recovery.

  • We maintain our BUY recommendation with lower target price of RM0.77 by pegging PE multiple of 18.0x to FY25F EPS of 4.3 sen.

 

Results Review

 

  • Results review. 3QFY24 net profit at RM1.2m, (-71.4% yoy, -80.6% qoq), was impacted by forex losses of RM4.4m. Excluding forex impact, core net profit (CNP) rose +31.8% yoy, -10.7% qoq to RM5.7m. Revenue for the quarter at RM58.4m (+7.8% yoy, -14.2% qoq). A dividend of 0.25 sen per share for the quarter was declared.

 

  • CNP meet expectation. QES’s 9M24 CNP stood at RM14.6m (-7.9% yoy), accounting for 74% of our full-year forecast and 66% of the street’s estimates.

 

  • Operations Highlights. In 3QFY24, the Equipment Distribution segment reported a PBT of RM5.1m, representing a 30% yoy growth but a 19.5% qoq decline due to lower sales. The Manufacturing segment underperformed, posting a PBT of -RM1.0m, dragged by reduced deliveries of inspection systems and AMS machines. Current order book remains stagnant at RM108m (Distribution: RM89m, Manufacturing: RM19m), compared to RM111m in 2Q24.

 

  • Industry Highlights. Despite the recovery in global semiconductor demand and improved sales, uncertainty persists in the industry, primarily due to customers' hesitancy in making significant CAPEX. This caution continues to cloud the outlook.

 

  • Outlook. We anticipate a flattish performance in 4QFY24, constrained by lacklustre orderbook and ongoing challenges in the manufacturing division, although forex gains may be recognised following the normalisation of the MYR against the USD and EUR post-3Q. Looking ahead to FY25, we anticipate a strong recovery for QES, supported by greater confidence in CAPEX spending as global central bank monetary policies become clearer and the global economy continues to recover. However, QES still faces challenges, including uncertainties from prolonged geopolitical tensions and intense competition from local players in China, necessitating the adoption of alternative strategies to effectively penetrate the market.

 

  • Valuation. Kept our forecast unchanged and maintained our BUY recommendation on QES with a lower the target price to RM0.77 (from RM0.855 previously) after revising our valuation to 18x PER (from 20x PER), which represents -1 standard deviation from its 3-year PER mean. This adjustment reflects challenges in one of its anticipated high-growth markets, China, as well as external headwinds.

  • Risk. Longer than anticipate on recovery of the industry. 

Read more details in:

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.

Market Mover
Settlement Rates
Currency Buy Rates (RM) Sell Rates (RM)
USD 4.455268 4.488135
EUR 4.716585 4.723137
CNY 0.616518 0.616862
HKD 0.572409 0.576643
SGD 3.318330 3.343262