EXSIMHB: Strong Start to Fiscal Year, Earnings Beat Expectations, Target Price Upgraded

A recent investment bank research report indicates a robust start to the new financial year, with core net profit exceeding expectations, driven by strong operational performance and strategic segment contributions. The bank has maintained its “BUY” recommendation, upgrading its target price to RM0.30 from RM0.22 previously, reflecting an optimistic future outlook.

Performance Review

The company delivered a core net profit of RM8.4 million for IQFY26, representing 31.1% of the full-year estimate. This performance marks a significant turnaround, as the group swung from a loss in the prior year to profitability, largely attributable to the commencement of earnings contribution from the interior fit-out segment, which was absent in the prior-year base. Analysts view these results as broadly in line with expectations, as earnings from the interior fit-out segment are anticipated to normalise in the coming quarters with peak-phase projects nearing completion and newly secured jobs still in early execution.

On a quarter-on-quarter basis, revenue contracted 22.9%, primarily due to the completion of several projects that were at their peak execution phase in the prior quarter, with newly secured contracts still in their initial stages. Consequently, core Profit Before Tax (PBT) and core net profit declined by 31.5% and 26.7% respectively. This was further impacted by a weaker gross profit margin, influenced by higher input costs and lower revenue.

Future Outlook and Investment Thesis

The design and fit-out division is expected to remain the group’s primary earnings contributor, bolstered by a substantial unbilled order book of RM155.4 million. This order book represents 1.1 times its FY24 interior fit-out revenue coverage, enhancing revenue visibility given the segment’s relatively short project cycle of 9-12 months. The investment bank remains optimistic about prospects for new interior fit-out orders, supported by a healthy pipeline of internal contracts from the EXSIM Group’s planned property launches (valued at RM5 billion in Gross Development Value for CY25) and external jobs from third-party clients.

Furthermore, the steady expansion of the Mana Mana brand in the hospitality management and operations segment, coupled with the recovery of the tourism sector to pre-pandemic levels, is expected to strengthen the company’s near-term earnings visibility for its hospitality segment.

The upward revision of the target price to RM0.30 (from RM0.22, adjusted for a right issuance) is based on a rolling forward of the valuation base year to CY27, applying a 15x P/E for the design and fit-out segment and 18x P/E for the hospitality division. Key reasons for the positive sentiment include the company’s strategic position as a beneficiary of EXSIM Group’s development pipeline, its hybrid hospitality strategy ensuring earnings visibility, and the potential for future value unlock through a hospitality REIT. Downside risks include slower-than-expected new job replenishment and a weakening tourism sector outlook.