SKPRES: Profits Decline on Softer Demand, Outperform Rating Affirmed
| Investment Bank | PUBLIC INVESTMENT BANK |
|---|---|
| TP (Target Price) | RM0.64 (+13.4%) |
| Last Traded | RM0.565 |
| Recommendation |
A recent research report by Public Investment Bank highlights a challenging period for the company, with its 3QFY26 core net profit declining by 37% year-on-year to RM16.1 million. Revenue for the quarter also saw a 9.2% year-on-year drop to RM457.2 million. The cumulative 9MFY26 earnings significantly missed expectations, meeting only 68% and 67% of Public Investment Bank’s and consensus full-year forecasts, respectively.
This underperformance was primarily attributed to a confluence of factors, including lower order volumes from key customers amidst softer consumer demand. The implementation of a 19% US tariff on Malaysian imports also played a role, as customers have largely been unable to pass these additional costs onto end-consumers, leading to more cautious inventory management and reduced orders. Furthermore, ongoing cost optimisation measures by certain customers contributed to a dampening effect on production orders and overall profitability.
The lower utilisation rates at the company’s manufacturing facilities resulted in higher fixed-cost absorption per unit, which in turn compressed the core net margin by 1.6 percentage points year-on-year, settling at 3.5% for 3QFY26.
Future Outlook
Despite the immediate challenges, Public Investment Bank maintains an optimistic stance on the company’s medium-term prospects. The report suggests that current valuations have largely factored in the near-term earnings weakness, while structural growth initiatives remain firmly in place. The company is actively expanding its Printed Circuit Board Assembly (PCBA) and injection moulding capabilities, aiming to broaden its product portfolio and deepen customer integration.
Management is also actively engaging with potential new clients, a strategy expected to gradually diversify revenue streams and enhance earnings resilience over time. The company continues to offer an attractive dividend yield of 6-7% across FY26-28F, which is expected to provide downside support amid earnings volatility.
Public Investment Bank has reiterated its “Outperform” recommendation on the stock, albeit with a revised lower target price of RM0.64. This new target price is based on an estimated 11x CY27F EPS, reflecting adjustments to earnings estimates by an average of 7% downwards for FY26-28F to account for the more challenging operating environment.
