QES Group Berhad - Stellar QoQ from fulfilling previously delayed orders
Fri, 28-Feb-2025 07:52 am
by Jayden Tan • Apex Research

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QES (0196)

Target Price (RM)

0.540

Recommendation

Buy

Summary

  • QES reported FY24 core net profit of RM18.8m (+2.3% yoy, excluding forex impact), in line with expectations, meeting 96% of both our and consensus forecasts. 4QFY24 CNP surged +110% yoy (+14.9% qoq), driven by higher machine deliveries as delayed orders were fulfilled. 

  • Slashing FY25F earnings by -31% to factor in weaker sales expectations amid ongoing Trump tariff uncertainties and China market challenges. FY26F remains unchanged.

  • Maintain BUY with a lower TP of RM0.54 (from RM0.77), adjusting PER to 18x (-1 std dev from 3-yr mean) to reflect weaker near-term outlook but attractive risk-reward after recent share price pullback.

 

Results within expectations. FY24 core net profit (CNP) stood at RM18.8m, up 2.3% yoy after excluding forex impact, meeting 96% of both our and the Street’s forecasts.

 

YoY. Excluding forex impact and related tax effects, 4QFY24 CNP surged by 110% yoy to RM5.3m, driven by stronger demand in both the distribution and manufacturing segments, thanks to higher machine deliveries supported by improved economic environment. Quarterly revenue climbed 39.3% yoy to RM86.8m.

 

QoQ. CNP increased 14.9% qoq, primarily due to the delivery of machines that were delayed in the prior quarter. Revenue also rose 48.7% qoq.

 

Dividend. QES declared a second dividend of 0.3 sen/share for FY24, payable on 28 Mar 2025.

 

Outlook. Although 4Q performance was solid, the uptick was mainly derived from fulfilling previously delayed orders. We remain cautious about near-term prospects, given geopolitical uncertainties particularly Trump’s tariff threats and weak global automotive sales that could dampen customers’ investment appetite. This caution is reflected in a softer orderbook of RM87m (Distribution: RM78m; Manufacturing: RM9m), down from RM108m last quarter. Additionally, the completion of Plant 2 in Batu Kawan will likely raise operating costs ahead of revenue generation, while intense competition in China continues to pose challenges for the Group’s expansion there.

 

Earnings Revision. We slashed our FY25F CNP forecast by 31% to reflect lower sales expectations, driven by subdued customer spending amid ongoing tariff uncertainties and challenges in the China market. Meanwhile, FY26F remains unchanged, assuming a more favorable investment environment and contributions from the ramp-up of Plant 2 in Batu Kawan.

 

Valuation. Despite our significant downgrade in earnings, we maintain a BUY recommendation on QES. The recent share price weakness, largely impacted by the broader market sentiment, offers a more attractive risk-reward proposition. We lower our target price to RM0.54 (from RM0.77), based on 18x PER—equivalent to -1 standard deviation from QES’s three-year mean PER.

 

Risk. Failure to restoring China operation, ongoing Trump’s tariff threats.

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Market Mover
Settlement Rates
Currency Buy Rates (RM) Sell Rates (RM)
USD 4.438795 4.472568
EUR 4.812854 4.816325
CNY 0.611771 0.612291
HKD 0.570562 0.574463
SGD 3.306949 3.329359