D: Automotive LED Maker Misses H1 Estimates, But Strong H2 Rebound Expected
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 |
| Last Traded | RM0.20 |
| Recommendation |
A leading automotive LED maker recently reported a significant miss on its first-half earnings, with core profit for 1HFY25 plunging 69.8% year-on-year to RM4.5 million. This figure fell short of market expectations, accounting for only 8.5% to 9% of street forecasts. The company’s second-quarter performance saw core net profit decline sharply from RM14.9 million to RM4.5 million, while revenue decreased 8.1% year-on-year to RM244.2 million, as gross margins narrowed from 19.6% to 15.7%.
Performance Review and Challenges
The dismal financial results were primarily attributed to a broad-based slowdown in global car production, a persistent inventory overhang, and a deceleration in electric vehicle (EV) sales momentum, coupled with unstable pricing across the industry. These factors led to delays in new vehicle launches by end-customers and slower replenishment of LED inventory by automakers. Capacity utilisation in 2QFY25 was softer, registering between 65% and 70%, though it has since improved to above 80%.
Despite the challenging environment, the company demonstrated a focus on cost efficiency. Capital expenditure during 1HFY25 was significantly reduced by 75% year-on-year, reflecting ongoing cost optimisation initiatives.
Future Outlook and Growth Drivers
Looking ahead, management remains optimistic, anticipating a strong performance in the second half of the year. This positive outlook is underpinned by expectations of robust order replenishment, particularly for its SpicePlus 2520 Rear Combination Lighting and Smart LED products. Orders from a key German client have shown signs of recovery across all regions, and capacity utilisation is projected to approach maximum levels by 4QFY25, driven by recovering demand in key markets such as China and Europe.
Furthermore, the company’s Plant 2, which houses Dominant Electronics, has nearly reached full utilisation following the onboarding of two new customers from Japan and Malaysia. With stringent capital expenditure management and continued cost optimisation, the company expects strong operating cash flow to exceed RM150 million, which should help reduce its gearing level from 0.25x to 0.1x. The impact of US tariffs on the group’s sales is also deemed minimal, as the US market constitutes only 3% of total group sales.
Investment Recommendation
In light of the anticipated recovery and attractive upside potential, TA Securities has maintained a BUY recommendation for the stock, setting a target price (TP) of RM0.25. This target price represents an upside potential of 25.0% from the last traded price of RM0.20.
