QES Group Berhad - Stabilisation in 2QFY25, but Downgrade warranted on cautious outlook
Fri, 22-Aug-2025 08:05 am
by Jayden Tan • Apex Research

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QES (0196)

Target Price (RM)

0.42

Recommendation

Hold

  • 2QFY25 CNP came in at RM4.4m, bringing 1HFY25 CNP to RM5.3m. While 6MFY25 CNP of RM5.3m accounts for only 37% of our full-year forecast, we deem the results to be within expectations as we expect stronger quarters ahead.

  • CNP fell 30.4% YoY due to weaker manufacturing mix; QoQ, CNP rebounded 383.7% driven by delivery recovery and stronger segment contributions.

  • No change to FY25–26F earnings. Expect 3Q–4QFY25 to mirror 2Q performance.

  • Following the recent recovery in share price, downgrade to HOLD (from BUY) with an unchanged TP of RM0.42 based on 15x FY26F EPS. 

 

Results in line with expectations. QES delivered a 2QFY25 core net profit (CNP) of RM4.4m, in line with our expectations. While 6MFY25 CNP of RM5.3m accounts for only 37% of our full-year forecast, we deem the results to be within expectations as we expect stronger quarters ahead.

 

YoY. CNP fell 30.4% despite a 13.8% increase in revenue, mainly due to a less favourable product mix, with lower contributions from the higher margin manufacturing segment. Segmentally, distribution revenue rose 21.5% while manufacturing declined 7.7%.

 

QoQ. CNP rebounded sharply by 383.7%, on the back of a 69.1% revenue surge, driven by the fulfilment of delayed deliveries and improved market activity post-1Q. Distribution and manufacturing revenues rose 70.5% and 153%, respectively.

 

Outlook. QES’s performance in 2QFY25 showed signs of stabilisation, but we remain cautious on the near-term outlook. Structural challenges persist, including intensified pricing competition in China, margin pressure from underutilised capacity at both the Glenmarie and newly completed Batu Kawan plants, and subdued customer capex amid an uncertain macroeconomic backdrop. The potential of Trump tariffs on semiconductors adds further downside risk. Latest orderbook as at 31 July 2025 declined to RM86m (Distribution: RM75m; Manufacturing: RM11m) from RM106m (Distribution RM 93mil; Manufacturing RM 13 mil) in the previous quarter.

 

Earnings Revision. We maintain our earnings forecasts, anticipating 3Q and 4QFY25 results to mirror the performance of 2QFY25.

 

Valuation. Following the recent recovery in share price, we downgrade our call to HOLD from BUY, with an unchanged target price of RM0.42, based on 15x FY26F PER and no ESG premium. The downgrade reflects our view that the stock is now fairly valued. A re-rating would require stronger contributions from the manufacturing segment and greater clarity on US trade policy.

 

Risks. Key downside risks include slower-than-expected revenue ramp-up at the Batu Kawan plant, continued pricing pressure from Chinese peers, execution challenges in overseas markets, and renewed uncertainties surrounding US semiconductor trade policies.

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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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