| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
RHB Investment Bank has maintained its “Buy” recommendation for the company, despite its FY25 financial results significantly falling short of expectations. The bank, while cutting its FY26F and FY27F earnings forecasts, anticipates a strong earnings rebound in the coming fiscal year, projecting a 75% 3-year earnings CAGR. The target price remains at MYR0.78, indicating a 32% upside from the last traded price of MYR0.59.
Performance Review
The company’s core net profit for FY25 plummeted 73% year-on-year to MYR54 million, significantly undershooting both RHB’s and consensus forecasts. This underperformance was primarily attributed to lower-than-expected profit margins. Revenue for FY25 decreased 11% to MYR3.8 billion, a decline largely driven by disruptions from US reciprocal tariff actions which negatively impacted sales volumes. Consequently, gross profit margin (GPM) narrowed by 3.1 percentage points to 6.1%. This was exacerbated by reduced production utilisation rates, start-up costs at its Philippines operations, and an aggressive cost-down request from a key customer sharing the new tariff burden. The fourth quarter of FY25 saw revenue dip 6% quarter-on-quarter to MYR859 million, as key customers delayed order shipments ahead of a final tariff decision. This resulted in the company incurring gross losses and a core net loss of MYR16 million for the quarter.
Future Outlook
An immediate earnings rebound is expected in 1QFY26, propelled by a volume recovery due to favourable year-end seasonality and the launch of new products by key customers. This is anticipated to lead to higher capacity off-take and reduced losses for its 60%-owned subsidiary, HT Press, which recorded a MYR46 million loss in FY25. Losses from its Philippines operations, which amounted to MYR25 million in FY25, are also forecast to narrow, with breakeven targeted by March 2026. This recovery is supported by the commissioning of a second production line in December 2026 and increasing in-house parts production. Productivity levels are reportedly on track with expectations. Furthermore, the company stands to secure new orders as global brand owners seek to diversify production sources in response to US tariff movements.
Risks
Downside risks to the “Buy” recommendation include weaker-than-expected global consumer demand and potential operational hiccups with new production ventures.
