| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
The latest financial report indicates a disappointing start to the fiscal year, with the company reporting a core net loss of RM0.3 million for its first quarter of FY26. This figure significantly underperformed both internal forecasts and consensus expectations for a net profit, signalling a weaker than anticipated operational performance.
Performance Review
The core net loss for IQFY26, while a slight improvement from the RM0.8 million loss in the immediate preceding quarter (6QFY25) primarily due to lower tax, was largely attributable to weaker-than-expected revenue and core operating margins. Revenue saw a 14% quarter-on-quarter decline following the completion of certain large-scale solar (LSS) projects in the prior quarter, which impacted billing cycles. Core EBITDA margins also contracted, falling to 4.5% from 5.1% QoQ.
Compared to the same period in the previous year (3QFY25, December 2024), revenue showed a 21% year-on-year improvement driven by higher project billings. However, this growth was overshadowed by significantly weaker operating margins, with core EBITDA margins falling by 1.4 percentage points YoY. This suggests reduced profitability from ongoing projects. Additionally, the company’s bottom line was negatively impacted by higher finance costs stemming from increased net debt, further eroding earnings.
Future Outlook and Challenges
The company’s order book stood at RM76.5 million as of end-December 2025, which analysts note represents only a fraction of its FY24 revenue. This highlights the critical need for the company to secure new Engineering, Procurement, Construction, and Commissioning (EPCC) wins, particularly from the upcoming LSS5 and LSS5+ programs, to regain earnings momentum and improve future profitability.
To strengthen its balance sheet and enhance bidding capabilities for new projects, the group has proposed a private placement to raise up to RM19 million. This initiative is expected to reduce net gearing from 137% at end-1QFY26 to an estimated 118% post-placement, which could improve financial flexibility. However, proposed acquisitions of 100MW LSS4 solar assets, involving an estimated total acquisition cost of RM55 million for one acquisition and additional funding of RM50-120 million for another, could further strain the balance sheet, posing a significant challenge.
Investment Bank’s View
Following the significant underperformance, TA Securities has revised down its FY26F-28F net profit forecasts by 25%-51%. Concurrently, the target price has been trimmed to RM0.29 from RM0.35 previously, inclusive of a 3% ESG premium. The valuation remains based on a historical mean PER of 18x. The firm maintains its SELL recommendation, advising caution given the current financial headwinds and subdued outlook.
