QES reported 1QFY26 core net profit of RM3.6m (+201% YoY, -49% QoQ), at 18% of both our and consensus FY26F forecasts. Results are broadly in line given QES's H2-weighted earnings profile and seasonally softer Q1 from festive periods, with stronger quarters ahead supported by a 36% rise in contract liabilities.
Post-results engagement yielded constructive takeaways: orderbook rose 11% to RM122m as at end-April, with manufacturing semiconductor orders surging to RM20m (from RM5m in Feb); two MOUs with Chinese equipment partners were signed in May; and Glenmarie utilisation improved to 65-70%. Management guided a ~RM300m revenue trajectory for FY26.
We maintain FY26/27F core earnings forecasts of RM19.8m/RM22.2m on a conservative basis but acknowledge meaningful upside risk. Roll forward valuation to FY27F EPS and raise TP to RM0.54 (from RM0.48) on unchanged 20x PE. Downgrade to HOLD (from BUY) following the share price run-up to RM0.505, narrowing total upside to 8.3%.
Broadly in Line. QES reported 1QFY26 core net profit of RM3.6m, representing 18% of both our and consensus forecast. Although below the 25% quarterly run-rate, we deem results to be broadly in line given (i) QES's typical H2-weighted earnings profile (1QFY25 contributed just 9% of FY25 core NP) and (ii) Q1 being a seasonally softer quarter due to fewer working days from the Chinese New Year and Hari Raya festive periods. We also expect stronger earnings contribution in subsequent quarters, underpinned by the 36% increase in contract liabilities to RM23.2m, which reflects advance customer payments ahead of scheduled deliveries. Core results were arrived at after adjusting for gain on disposal of PPE (-RM0.2m), gain on short-term investments (-RM0.3m), inventories written back (-RM0.1m), unrealised forex loss (+RM0.4m), and net loss on impairment of financial instruments (+RM0.1m).
QoQ. Revenue and core net profit declined 23% and 49% QoQ to RM58.3m and RM3.6m respectively from the seasonally strong 4QFY25 (RM75.2m), with the decrease attributable to lower revenue from both Value Engineering (-RM14.1m) and Manufacturing (-RM2.8m). The QoQ softness is consistent with QES's lumpy revenue recognition pattern and fewer working days during the CNY and Hari Raya festive periods. Equipment revenue fell 21% to RM47.9m on lower product deliveries, while manufacturing eased 28% to RM7.1m as 4QFY25 had benefited from an outsized quantum of OIS deliveries to its key MedTech customer. Despite the revenue decline, GP margin held steady at 27.0% (4QFY25: 27.1%), suggesting a resilient product mix. PBT fell 40% to RM5.4m, in line with lower revenue and gross profit, though partially cushioned by lower foreign exchange losses. At the segment level, Equipment PBT declined 29% to RM7.7m, while Manufacturing losses widened to -RM1.5m from -RM0.6m in 4QFY25, reflecting normalisation of delivery volumes following the preceding quarter's elevated run-rate.
YoY. Revenue and core net profit surged 27% and 201% YoY to RM58.3m and RM3.6m respectively, driven by broad-based growth across both Value Engineering (+21%) and Manufacturing (+111%). Within Value Engineering, Equipment revenue rose 26% to RM47.9m, underpinned by stronger product deliveries and continued ASEAN momentum, particularly Thailand (+96%) and Singapore (+240%). Services and spare parts revenue dipped 8% to RM13.5m, though remains a resilient recurring income stream supported by the group's c.17.5k unit installed base. Manufacturing revenue more than doubled to RM7.1m on higher OIS and SMS deliveries to MedTech customers. GP margin expanded 260bp to 27.0% (1QFY25: 24.4%) on a favourable product mix, with Equipment gross margins sustaining at approximately 30% following a shift toward higher-specification products. At the segment level, Equipment PBT rose 44% to RM7.7m, while Manufacturing losses narrowed 61% to -RM1.5m (1QFY25: -RM3.9m), reflecting improving utilisation and MedTech traction. Materials & Engineering Solutions slipped into a PBT loss of -RM0.4m (1QFY25: breakeven) likely on lower project-based deliveries.
Balance Sheet. Net cash strengthened to RM64.1m (31 Dec 2025: RM52.4m), comprising RM103.4m cash and RM22.6m fixed deposits, net of RM61.9m borrowings. Receivables fell 19% to RM60.2m (efficient collections). Contract liabilities rose 36% to RM23.2m, signalling forward order visibility. Inventories increased 29% to RM40.2m, reflecting pre-staging for deliveries.
Cashflow. Cash rose RM12.7m to RM103.4m despite paying RM6.2m in dividends. The favourable cash generation was underpinned by a RM13.8m reduction in trade receivables and RM6.2m increase in contract liabilities from advance customer payments, partly offset by a RM9.0m inventory build-up ahead of scheduled deliveries. Net borrowings were broadly stable at RM61.9m (31 Dec 2025: RM60.6m).
Outlook. The near-term outlook has turned more constructive following our post-results engagement with management. Total group orderbook as at end-April 2026 stood at RM122m (Value Engineering: RM85m; Manufacturing: RM37m), up 11% from RM110m in February 2026. Notably, the Manufacturing orderbook composition has shifted materially, with semiconductor orders now at RM20m (vs RM5m in Feb 2026) and MedTech at RM17m - signalling that the long-awaited semiconductor equipment recovery is gaining traction. Two MOUs with Chinese equipment partners were signed in May 2026, a significant milestone for the China +1 collaboration strategy, though BKIP breakeven is now expected in FY27/28 as renovations to meet partners' specifications will require time. Glenmarie utilisation has improved to 65-70% (from ~60% in March), further corroborating the semiconductor recovery thesis. On Value Engineering, management is optimistic on improving semiconductor conditions and growing exposure to full automation projects, with good orders secured from ASEAN and India, the latter representing a new geographic growth vector. Management expressed comfort with a revenue trajectory of approximately RM300m for FY26, above our estimate of RM284.7m.
Forecasts. We make no changes to our FY26/27F core earnings forecasts of RM19.8m/RM22.2m. While management's commentary was constructive with a stronger orderbook of RM122m, revenue trajectory of ~RM300m, and signed China MOUs, we prefer to maintain a conservative stance given that (i) 1QFY26 core NP of RM3.6m came in below the 25% quarterly run-rate, reflecting some execution risk; and (ii) BKIP breakeven has been pushed out slightly to FY27/28, as renovations and build-up to meet China partners' specifications will require time. That said, we acknowledge meaningful upside risk to our forecasts, particularly if the semiconductor order recovery sustains (manufacturing semiconductor backlog surged to RM20m from RM5m in Feb), Glenmarie utilisation continues improving beyond 65-70%, and the China collaborations materialise on schedule.
Valuation. We roll forward our valuation basis to FY27F and raise our TP to RM0.54 (from RM0.48), based on an unchanged 20x PE multiple applied to FY27F EPS of 2.66 sen. The roll-forward is justified by improved earnings visibility following the orderbook recovery, signed China MOUs, and early signs of semiconductor upcycle. However, following the recent share price run-up to RM0.505 (from RM0.375 at the time of our prior report), we downgrade our recommendation to HOLD (from BUY), as total upside narrows to 8.3% (comprising 6.9% capital upside and 1.4% dividend yield). At current prices, the stock trades at 21.3x FY26F and 19.0x FY27F core PE. While we remain positive on QES's medium-term prospects underpinned by the China MOU signings, recovering semiconductor orderbook, and improving Glenmarie utilisation - we believe much of the near-term upside is now reflected in the share price. Re-rating catalyststhat could warrant a re-upgrade include Manufacturing turning profitable (FY27/28), strong Q2-2H26 recovery, initial China collaboration revenue (FY27), continued ASEAN and India order momentum, and further semiconductor upcycle-driven utilisation improvement.
Disclaimer
The report is for internal and private circulation only and shall not be reproduced either in part or otherwise without the prior written consent of Apex Securities Berhad. The opinions and information contained herein are based on available data believed to be reliable. It is not to be construed as an offer, invitation or solicitation to buy or sell the securities covered by this report.
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.
Apex Securities Berhad does not warrant the accuracy of anything stated herein in any manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against Apex Securities Berhad. Apex Securities Berhad may from time to time have an interest in the company mentioned by this report. This report may not be reproduced, copied or circulated without the prior written approval of Apex Securities Berhad.
| Currency | Buy Rates (RM) | Sell Rates (RM) |
|---|---|---|
| USD | 3.952620 | 3.984418 |
| EUR | 4.602737 | 4.607520 |
| CNY | 0.583458 | 0.584086 |
| HKD | 0.504699 | 0.508269 |
| SGD | 3.089871 | 3.111658 |