QES recorded 3Q25 core profit of RM3.0m (-49% QoQ, -41% YoY), bringing its 9MFY25’s sum to RM10.2m (-25% YoY) – falling short of both our (71%) and street’s (68%) forecasts. The shortfall was driven by higher-than-expected overheads, which resulted in a margin miss.
CNP declined 41% YoY/25% YTD, mainly due to (i) lower gross profit margin stemming from cost pressure and increased competition, and (ii) wider losses in the Manufacturing division amid subdued plant utilisation and higher operating expenses for the new Batu Kawan plant.
Following the change in covering analyst, we have revamped our model and reintroduced with FY25F/26F forecasts of RM13.3m/17.4m (adjustment of -8%/-24% vs previous forecasts). We also introduce FY27F earnings at RM18.2m.
Keep HOLD rating with an unchanged TP of RM0.42, based on a revised PE multiple of 20x FY26F EPS (from 15x).
Earnings miss. QES recorded disappointing 3Q25 core net profit of RM3.0m (-49% QoQ, -41% YoY), bringing its 9MFY25’s sum to RM10.2m (-25% YoY) – falling short of both our (71%) and street’s (68%) FY25F forecasts. 3Q25 results were arrived after excluding net EIs of RM0.7m, comprising gain on PPE disposal (RM0.6m), gain on short-term investments (RM0.3m), net forex loss (-RM0.1m), among others. The earnings shortfall was driven by higher-than-expected overheads, which resulted in a notable margin miss.
QoQ. Core earnings slumped 49%, dragged by weaker Group revenue (-11%; lower equipment distribution sales as the fulfilment of delayed deliveries in 2Q25 created a high base). Additionally, QES saw net margin compression (-330bps QoQ) no thanks to mounting losses in the Manufacturing division as overhead costs crept in for the new Batu Kawan plant ahead of its operational commencement at end-September.
YoY/YTD. Revenue improved (+17% YoY, +5% YTD) on the back of higher contributions from the Equipment distribution segment. However, core net profit declined 41% YoY/25% YTD, mainly due to (i) lower gross profit margin stemming from cost pressure and increased competition, and (ii) wider losses in the Manufacturing division amid subdued plant utilisation and higher operating expenses for the new Batu Kawan plant.
Outlook. The Manufacturing segment still inked red as overhead costs continue to creep in for the new Batu Kawan plant, which obtained its CCC and commercial operations at end-Sep. Although plant utilisation rate remains subdued, we expect this segment to gradually improve in the coming quarters on the back of ongoing demand recovery for semiconductor back-end equipment. We understand management is exploring opportunities to penetrate into the vast (though competitive) Chinese market via collaboration with local partners. The Group’s outstanding orderbook remained stable at RM86m (flattish vs end-Jul), comprising RM71m for equipment distribution and RM15m from manufacturing division.
Earnings Revision. Following the change in covering analyst, we have revamped our financial model and reintroduced FY25F/26F earnings of RM13.3m/17.4m, representing an adjustment of -8%/-24% against our previous forecasts. The revisions primarily reflect the weaker-than-expected 3Q25 performance, which prompted a recalibration of margin assumptions and operating cost run-rates. We also introduce our FY27F earnings of RM18.2m.
Valuation. Post earnings adjustments, we maintain our HOLD rating with an unchanged TP of RM0.42, based on a revised PE multiple of 20x FY26F EPS (from 15x) and no ESG premium. The ascribed multiple represents +0.5SD above its 5-year mean and a discount to the average FY26F PE of 30x among ATE peers (MI, ViTrox, Pentamaster and Greatech).
Risks. Slower-than-expected utilisation ramp at the Batu Kawan plant, rising competition within the ATE space, and uncertainties surrounding US semiconductor trade policies.
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| Currency | Buy Rates (RM) | Sell Rates (RM) |
|---|---|---|
| USD | 4.146720 | 4.179672 |
| EUR | 4.822170 | 4.827051 |
| CNY | 0.584978 | 0.585561 |
| HKD | 0.532842 | 0.536581 |
| SGD | 3.184457 | 3.206868 |