We recently conducted a post-results site visit to QES Group's Shah Alam (Glenmarie) facility, gathering updates on utilisation, orderbook, and strategic initiatives.
Key takeaways: orderbook recovered to RM110m with Manufacturing dominated by MedTech OIS orders (~RM23m); Glenmarie at ~60% utilisation (peak ~90%) with early semiconductor recovery signs; Batu Kawan at ~30% utilisation; and China partnerships underway expected to absorb ~40% of BKIP capacity with expected FY27 revenue contribution.
We maintain our BUY recommendation with an unchanged target price of RM0.48 based on 20.0x PER applied to FY26F EPS of 2.37 sen along with three-star ESG rating.
We came away from our site visit to QES Group’s Shah Alam (Glenmarie) facility with a more constructive view of its prospects.
Results Recap. FY25 revenue remained relatively stable at RM266.8m (-1.0% YoY), as steady growth in Equipment Distribution (+12.2%) was offset by a sharp decline in Manufacturing AHS deliveries (-27.7% yoy). Core net profit (CNP) was RM17.2m (-6.6% YoY), significantly beating expectations, coming in at 129% of our estimates and 114% of consensus due to a record 4Q. 4QFY25 CNP surged to RM7.0m (+132% QoQ, +46% YoY), driven by a superior product mix in Equipment and narrowing Manufacturing losses (-RM0.6m). FY25 GP margin remained stable at 25.0%, though Manufacturing PBT fell to a loss of RM8.1m (FY24: RM2.9m PBT) following the commissioning of the Batu Kawan facility. The near-term outlook is becoming increasingly constructive, supported by robust equipment sales, continuous growth in MedTech-related manufacturing deliveries and narrowing losses from the Batu Kawan facility.
Orderbook. Total group orderbook as of February 2026 stands at RM110m (Value Engineering: RM82m; Manufacturing: RM28m), recovering from the RM86m trough recorded in July 2025, with conversion timelines of 2–4 months and 3–4 months respectively. Critically, ~RM23m of the Manufacturing orderbook relates to MedTech SMS orders, with only ~ RM5m from semiconductor equipment: a marked shift from FY24 when AHS semiconductor orders dominated. Management expects MedTech momentum to continue following a recent customer qualification. The OIS series also acts as a natural cyclical hedge, with customers pivoting to lower-cost OIS products during semiconductor downturns. Any recovery in the bulkier AMS (advanced wafer metrology) series would represent further upside to our estimates.
Plant Utilisation.Shah Alam (Glenmarie) is running at ~60% utilisation, down from a peak of ~90%, driven by declining semiconductor IC demand. As the facility has no MedTech exposure, Glenmarie’s recovery is closely tied to the semiconductor upcycle - management noted early signs of order recovery, which is encouraging. Batu Kawan (BKIP) is at ~30% utilisation and expected to remain loss-making through FY26, representing the primary drag on Manufacturing earnings. The two plants serve clearly differentiated profiles with Glenmarie leveraged to the semi recovery and BKIP purpose-built for MedTech automated inspection, both plants should deliver meaningful operating leverage as utilisation improves.
China Collaboration Strategy. Management is in active discussions with Chinese equipment companies for project-based manufacturing collaborations, a “China Plus One” strategy leveraging QES's ASEAN footprint to bring Chinese equipment technology into Southeast Asian semiconductor markets. One partner is particularly noteworthy, specialising in advanced packaging equipment, a higher-specification and faster-growing segment driven by AI chip demand. A successful collaboration would represent a meaningful step-up in QES's product positioning. The collaborations start at smaller scales before scaling up. Once materialised, management expects these projects to utilise approximately 40% of BKIP's capacity, which would be transformative for utilisation and a key catalyst toward Manufacturing profitability. Revenue contribution is expected in FY27, and we treat this as upside optionality not modelled in our base case.
Value Engineering Division. The Value Engineering division (formerly Distribution) remains the earnings backbone of QES. FY25 revenue grew 3.9% YoY to RM236.2m, with ASEAN revenues surging 28.7% to RM159.2m (59.7% of group revenue, up from 45.8%), reducing reliance on the Malaysia semiconductor market which fell 28.3% YoY. ASEAN growth was broad-based: Philippines +97.6%, Thailand +33.6%, Singapore +30.7%, and Indonesia +20.0%. Within the division, QS Instruments (QSI) focuses on test, inspection and measurement equipment for segments like automotive, metal, and palm oil industries remains a standout performer, holding approximately 70% domestic market share across all three sectors. The segment generates high-quality recurring income from maintenance and spare parts providing counter-cyclical resilience. Group-wide, equipment gross margin expanded to approximately 30% in 4QFY25 on a favourable mix shift, with recurring income at approximately RM61.7m (c.23% of group revenue), underpinned by over 17,480 installed units (c.7,000 active) — expected to surpass 18,000 by end-FY26. The 'Value Engineering' rebrand reflects management's intent to deepen customised automation solutions, supportive of further margin expansion.
Forex and Logistics. Approximately 30% of FY25 group revenue (~RM80m) was USD-denominated. Based on USD/MYR 3.95, management's sensitivity analysis suggests FY26 revenue of approximately RM292–300m, broadly consistent with our FY26F estimate of RM284.7m and underpinning our FY26F PATMI forecast of RM19.8m. On FX risk, QES benefits from natural hedging as a portion of its cost base is also USD-denominated, with the finance team managing residual exposure through financial instruments. Separately, not all customer orders are on FOB terms, and negotiations are underway to revise shipping arrangements given elevated geopolitical risks from the Iran conflict and Red Sea freight uncertainty.
Earnings maintained. We make no changes to our earnings forecasts following the site visit, having already raised our FY26/27F CNP estimates 14%/22% to RM19.8m/RM22.2m in our post-results note dated 27 February 2026. The site visit takeaways are broadly consistent with our existing assumptions, and we remain comfortable with our FY26F CNP margin estimate of 7.0% and FY27F of 7.5%.
Valuation & Recommendation. We maintain our BUY recommendation and unchanged target price of RM0.48, based on 20x FY26F EPS of 2.37 sen with no ESG premium. The ascribed multiple represents +0.5 standard deviations above QES's five-year mean PER, at a discount to the average FY26F PE of 34.7x among ATE peers (MI, ViTrox, Pentamaster, Greatech), which we believe is appropriate given QES's smaller scale and still-developing Manufacturing franchise. At current prices, the stock trades at 17.0x FY26F and 13.9x FY27F earnings, with total upside of 30% including a 2.0% dividend yield. Re-rating catalysts over the next 12–18 months include Manufacturing turning profitable, initial China collaboration revenue deliveries in FY27, and continued ASEAN Value Engineering momentum.
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