| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
A leading electronics manufacturing services (EMS) provider is demonstrating resilience through strategic cost efficiencies and internal restructuring, positioning it for an improved outlook despite prevailing industry headwinds. Analysts have taken note of the company’s proactive measures, leading to a revised “BUY” recommendation and an increased target price of RM0.25.
Performance Review and Cost Efficiencies
While the broader consumer EMS industry navigates a downturn marked by global excess capacity and softer demand, the company has made significant strides in addressing its loss-making divisions. Recent reports highlight a notable narrowing of losses in the HT Press segment, which improved from RM4 million per quarter to RM2.4 million. Similarly, losses in the moulding division have substantially reduced to less than RM1 million per month, down from RM2 million, following a focused retrenchment exercise.
A key area of improvement has been the Philippines operations, where losses have significantly decreased from RM20.5 million in the prior quarter to RM9.1 million. This reduction is attributed to ongoing cost reduction efforts and increased sales volumes as the group progresses with setting up plastic injection and PCBA lines in the region. These internal restructuring initiatives underscore a commitment to operational leaness and competitiveness, prioritizing the safeguarding of customer relationships over aggressive margin expansion in the current market climate.
Challenges and Strategic Responses
The company acknowledges persistent challenges, including a cautious tone in the consumer EMS space due to brand owners maintaining low inventory levels and a weaker U.S. dollar. These factors contribute to softer utilization rates and competitive pressures, particularly from Chinese brands. Management has guided for a softer 2QFY26 sales performance as brand owners recalibrate stock levels post-year-end demand assessment.
However, the group’s strategic focus on internal efficiencies is designed to mitigate these external pressures. By enhancing cost controls and optimizing operations, the company aims to weather the soft demand environment more effectively. New product commercialization, including a beauty-care product already launched and a floor-care model set for December 2025, further diversifies revenue streams and reduces reliance on traditional segments.
Future Outlook and Investment Potential
The outlook for the company is increasingly positive, with expectations for the Philippines operations to achieve break-even by March 2026. This milestone, combined with ongoing internal restructuring, is anticipated to drive an earnings uplift in 2H26 as higher volumes and narrower losses contribute to profitability. Management maintains its RM4.2 billion FY26 sales target, coupled with a prudent net profit margin guidance of 2.5% to 3.0%, indicating a focus on sustainable growth.
Investors are encouraged by the company’s proactive management of its cost structure and its strategic positioning for future growth, particularly as global economic conditions improve and demand for consumer electronics potentially rebound. The current valuation, coupled with the positive internal developments, presents a compelling investment opportunity.
