QES: Strategic Initiatives and Order Book Strength Underpin Positive Outlook, Analyst Reiterates Buy Rating

Despite a decline in core earnings for the first nine months of the financial year 2025 (9MFY25), a prominent investment bank has maintained a positive outlook, citing robust revenue growth, strategic expansions, and a solid order book. The analyst has reiterated a Buy recommendation with a target price of RM0.25, implying a potential upside of 25.0% from the last traded price of RM0.20.

Performance Review

For 9MFY25, core earnings registered RM10.3 million, a 26.4% year-on-year (YoY) decrease, falling short of both the analyst’s and consensus full-year expectations, achieving only 67% and 69% respectively. This underperformance was primarily attributed to wider losses in the manufacturing segment, which totaled RM7.5 million compared to RM0.5 million in 9MFY24.

However, the third quarter of FY25 (3QFY25) demonstrated strong top-line momentum, with revenue climbing 17% YoY to RM68.5 million from RM58.3 million. This growth was fueled by robust sales contributions from both the distribution (+17.5% YoY) and manufacturing (+16.8% YoY) segments. Key international markets such as Vietnam (+15.8%), Thailand (+46%), Philippines (+171%), and Singapore (+384%) posted significant sales increases. In contrast, Malaysia experienced a 28.3% decline in sales, comprising 32.6% of the total group sales. The core profit for 3QFY25 itself stood at RM3.2 million, down from RM5.0 million YoY, as manufacturing segment losses widened from RM1.0 million to RM1.9 million, largely due to RM1.7 million in start-up costs for the new Batu Kawan plant. The Group maintains a healthy balance sheet, sitting in a net cash position of RM65.3 million, having demonstrated positive cash flow throughout the year.

Strategic Outlook

Despite the 9MFY25 earnings shortfall, the investment bank holds an optimistic view for the final quarter, anticipating a stronger performance that aligns with existing full-year forecasts. This optimism is underpinned by a solid outstanding order book of RM86 million as of October 2025, with distribution and manufacturing segments accounting for 83% and 17% respectively.

The new two-storey plant in Batu Kawan is now operational and slated for further expansion of manufacturing equipment by year-end. This expansion is strategically timed to capture increasing orders from the semiconductor and medical technology start-up sectors. The product portfolio will mirror that of the Shah Alam plant, focusing on the Northern region and export markets including China, India, and Europe. To enhance cost efficiency at the new facility, management plans to localize raw material sourcing within Penang.