SKPRES: First-Quarter Earnings Miss Internal Forecasts Amid Tariff Headwinds; Buy Rating Maintained with Revised Target

A manufacturing company’s first-quarter net profit of RM27.2 million, while aligning with consensus expectations, fell short of internal forecasts by TA Securities. The variance was primarily attributed to softer demand from the US market following the imposition of reciprocal tariffs, compounded by start-up costs associated with new customer onboarding. Despite the challenges, TA Securities has maintained its “Buy” recommendation, albeit with a revised target price.

Performance Review

For the first quarter of fiscal year 2026 (IQFY26), the company recorded a net profit of RM27.2 million. This figure represented 17.3% of TA Securities’ full-year forecast and 23.0% of the market consensus, indicating a miss on the bank’s internal estimates. On a year-over-year (YoY) basis, net profit saw a 3.9% decline despite a 1.5% increase in revenue to RM513.0 million. Quarter-on-quarter (QoQ), net profit decreased by 10.0% with an 11.3% reduction in revenue, also at RM513.0 million. The weaker bottom line was mainly due to start-up costs for new customer onboarding, which led to a 0.4 percentage point decline in PBT margin, and reduced demand from the US market impacted by the reciprocal tariff.

Strategic Initiatives and Outlook

The group, which has approximately 20% of its revenue exposed to the US market where a 19% reciprocal tariff is currently in effect (borne by customers), is actively working to mitigate these impacts. Management is engaging with new customers to reduce reliance on a single major client and has begun onboarding a new European customer, primarily focused on consumer electronic products. Concurrently, the company is exploring various avenues to enhance cost efficiency, including the adoption of further automation and the installation of solar power systems. Due to the softer-than-expected results and lower sales assumptions from the US, TA Securities has revised down its earnings forecasts for FY26, FY27, and FY28 by 14.2%, 13.7%, and 13.4% respectively.

Analyst Recommendation

TA Securities has reaffirmed its “Buy” recommendation for the stock. However, following the revision of earnings forecasts, the target price has been adjusted downwards from RM1.46 to RM1.25. This revised target price is based on an unchanged 13x CY26 EPS. Key downside risks highlighted by the bank include lower-than-expected utilization rates and the potential sudden loss of a major customer.