QES Group Berhad - 1Q misses expectations on soft demand and delivery pushbacks
Mon, 26-May-2025 05:41 pm
by Jayden Tan • Apex Research

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QES (0196)

Target Price (RM)

0.42

Recommendation

Buy

  • QES reported 1QFY25 core net profit of RM0.9m (-63.5% yoy, -82.7% qoq), significantly below expectations, accounting for only 4% of our and consensus full-year forecasts, due to delivery pushbacks in both distribution and manufacturing segments.

  • Slashed FY25F/FY26F earnings by 42%, factoring in subdued customer spending, margin pressure from Batu Kawan plant cost overhang, and prolonged macro/tariff uncertainties.

  • Maintained BUY with a lower TP of RM0.42 (from RM0.54), based on 15x PER on FY26F EPS, reflecting sector-wide de-rating and cautious near-term outlook.

 

Results below expectations. 1QFY25 core net profit (CNP) came in only at RM0.9m, significantly below expectations, accounting for only 4% of both our in-house and consensus full-year forecasts. The shortfall was mainly due to lower revenue contributions from both the distribution and manufacturing segments, stemming from customer-requested delivery pushbacks during the quarter.

 

YoY. CNP declined 63.5% yoy, primarily dragged by sluggish deliveries in the manufacturing segment, where revenue fell 39% yoy, resulting in a loss before tax of RM3.9m. Overall, Group revenue dropped 19% yoy.

 

QoQ. CNP plunged 82.7% qoq, largely due to a high base in the previous quarter, which benefited from the fulfilment of delayed orders, while the current quarter saw sluggish revenue as customers postponed deliveries amid market uncertainties. Revenue dropped 47.3% qoq.

 

Outlook. The weak performance in 1QFY25 reflects the broader market slowdown in the industry, with low utilisation rates and postponed capacity expansion from customers amid tariff-related uncertainties. The manufacturing segment’s loss further underscores the impact of ongoing geopolitical and macroeconomic headwinds. As at 30 Apr 2025, total orderbook stood at RM106m (Distribution: RM93m; Manufacturing: RM13m), slightly higher than RM87m in the previous quarter, though still lacklustre. We are also cautious of the cost overhang from the completion of the Batu Kawan plant, which may raise operating costs ahead of meaningful revenue contributions, especially in a soft market environment. Moreover, growing competition from Chinese EV players may intensify challenges for QES’s automotive-related business. Although a sequential improvement is anticipated in 2QFY25, driven by the low base effect, we maintain a cautious outlook given the fragile macroeconomic backdrop, uncertain tariff landscape, and sluggish recovery in downstream consumer markets.

 

Earnings Revision. We have trimmed both our FY25F and FY26F earnings forecasts by 42%, reflecting subdued customer spending, uncertain demand outlook, and pressures from the China operation.

 

Valuation. Maintained BUY recommendation but with lower TP at RM0.42 (from RM0.54), based on a 15x PER applied to FY26F earnings, rolled over from FY25F. The assigned valuation reflects a sector-wide de-rating and sits at -1 standard deviation from QES’s three-year mean PER, with 0% ESG premium, in line with its three-star ESG rating.

 

Risk. Key risks include failure to restore momentum in China operations and continued uncertainty from Trump-era tariff threats.

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