QES: Company Sets Stage for Future Turnaround with Key Deals and Operational Efficiencies

Despite a “below par” performance in the third quarter of fiscal year 2025 (3QFY25) primarily due to a slowdown in local semiconductor activities, the company is strategically positioning itself for a significant turnaround with key deals and initiatives set to bolster future growth. The investment bank maintains its “Neutral” rating with an unchanged target price of RM0.40, anticipating improved asset utilization and new revenue streams.

Performance Review

The company experienced a slump in its manufacturing sales during 9MFY25, driven by weaker momentum in the local semiconductor sector, particularly within front-end wafer fabrication and test handling segments. Analysis of revenue breakdown by division reveals that automotive sales surprisingly leapfrogged semiconductor to become the largest contributor, accounting for 35.9% of total sales. The semiconductor segment itself saw a notable decline to 34.6%, with E&E comprising 18%. A significant contributor to the manufacturing segment’s dip was the Automated Wafer Handling (AHS) series, which suffered a steep decline due to the absence of three exceptional orders from Kulim in 2024.

Strategic Growth Initiatives

Management is actively pursuing several avenues to reverse the trend and capitalize on future opportunities. On a positive note, the company is nearing the conclusion of two significant deals with China-based equipment makers. These partnerships involve advanced packaging and X-ray products, which are expected to significantly improve the utilisation rate of the new Batu Kawan plant, leading to enhanced operational efficiencies. Furthermore, the Group’s Med-Tech project is gaining traction, having already secured an order for three units of its Smart Manufacturing Solutions (SMS) series from a US-based pharmaceutical company. Management anticipates securing another 10 orders by the first half of 2026, with the total sales from these 10 units potentially contributing over 30% to the group’s bottom line.

The Batu Kawan plant is envisioned to play a crucial role, not only housing Med-Tech equipment manufacturing but also manufacturing equipment for Chinese partners on an OEM basis. This strategy is expected to generate recurring income, underpinning long-term stability and growth. The company also signals its openness to mergers and acquisitions over the next five years to achieve a substantial sales target of RM500 million by the end of 2030.

Outlook and Recommendation

For the fourth quarter of fiscal year 2025 (4QFY25), management projects a solid performance, buoyed by a robust outstanding order book. However, the weakening USD/MYR exchange rate presents a potential headwind, given that a majority of its proceeds are US Dollar-denominated. PublicInvest Research maintains a Neutral rating on the company, with an unchanged target price of RM0.40.