QES: Positive Outlook and Strong Order Book Drive Earnings Forecast Upgrade

A recent investment bank report highlights a significantly improved outlook for a leading automated test equipment (ATE) provider, prompting an upgrade to its earnings forecasts and a “BUY” recommendation. Despite a modest dip in sales for the fiscal year 2025, the company is poised for a robust turnaround, driven by strategic initiatives and a strong order book, particularly within the medical technology sector.

FY25 Performance Review

In fiscal year 2025, the group experienced a slight 1% year-on-year decline in sales, reaching RM266.8 million. This downturn was primarily attributed to weaker momentum in the manufacturing segment, which saw a 27.7% year-on-year decrease, as local semiconductor activities slowed. Analysis of sales by industry revealed that the automotive segment emerged as the largest contributor, accounting for 33.9% of group sales, while the semiconductor segment followed at 33.2%. A significant factor in the manufacturing division’s underperformance was the Automated Wafer Handling System (AHS) equipment, which saw sales slump by 78% due to a lack of bulky deliveries compared to the previous year. Conversely, other product series, including Automated Optical Inspection Systems (AOI), Semiconductor Optical Inspection Systems (OIS), Advanced Metrology Systems (AMS), and Smart Manufacturing Solutions (SMS), demonstrated strong growth, with sales up by 95%, 82%, 52%, and 71%, respectively.

Strategic Growth and Future Outlook

Despite the new Batu Kawan plant registering a loss of RM2.2 million in FY25, management is increasingly confident of an earlier-than-expected turnaround. This optimism is fueled by securing lucrative medical technology orders from a US-based medical device company, specializing in glucose reading, valued at RM18 million and potentially increasing to RM25-28 million. These med-tech sales are expected to contribute approximately 20-25% to this year’s earnings. The bulk of these orders (8-10 units) are slated for delivery by mid-2026 to operations in the US, Chile, and Ireland. Furthermore, the company is in discussions with 4-5 foreign equipment makers focusing on advanced packaging and X-ray products. Should these collaborations materialize alongside the med-tech orders, the Batu Kawan plant could achieve full capacity utilization.

The company has set an ambitious sales target of RM300 million for the current year. This target is strongly supported by a robust order book of RM108 million as of January 2026, comprising RM84 million from Value Engineering and RM24 million from Manufacturing. The manufacturing segment alone is projected to generate RM55-60 million, a substantial increase from FY25’s RM31 million. Additionally, a capital expenditure of RM12-17 million has been earmarked for the realignment of space at the Shah Alam plant and the installation of a new cleanroom.

In light of these positive developments and strong growth prospects, the investment bank has revised its earnings forecasts for FY26-28F upwards by 5-7%. This positive revision, coupled with the anticipated turnaround and robust order book, underpins the “BUY” recommendation.