D: Automotive LED Maker Navigates Market Headwinds, Eyes Future Growth Drivers

The global automotive LED market faces a challenging period, particularly within China, which constitutes a significant portion of a leading automotive LED maker’s revenue. Amidst intensified competition, an oversupply of older electric vehicles (EVs), and prevalent price reductions, the company is recalibrating its outlook.

Market Landscape and Recent Performance

The industry has been grappling with a difficult start, evidenced by China’s car sales in January, which recorded their steepest fall in nearly two years, declining 19.5% year-on-year to 1.4 million vehicles. The New Energy Vehicle (NEV) segment, a key growth driver, also saw a notable retreat of 22.9% year-on-year. Furthermore, a revised government trade-in policy has impacted subsidies for lower-priced cars, while a ban on below-cost car sales has intensified the price war, placing significant strain on the entire supply chain, including suppliers who have faced extended payment waiting periods.

Future Outlook and Growth Initiatives

Despite the prevailing market headwinds, management remains focused on future growth, projecting a 10% increase in sales for 2026. This growth is anticipated to be driven by key product segments, including ambient lighting smart LED (+70%), Rear Combination Lights (RCL) Spiceplus 2520 (+20%), Infotainment (+15%), and head lamp (+10%) LED products. The company is strategically targeting key markets such as China, the EU, India, and South Korea for these product categories.

In terms of technological development, an IC chip design center has been established in China to facilitate customer qualification, with initial orders expected by the first quarter of 2027. The company’s Plant 2, dedicated to its module business, is experiencing an uptick in technology transfer from its key customer, Hirain Beijing. Efforts are also underway to achieve breakeven for the Dominant Technology segment by the end of 2026, despite past delays and challenges in onboarding a second customer. Capital expenditure plans include an allocation of RM20 million for machinery upgrades to support these initiatives.

Investment Bank’s View

In light of the challenging market conditions and revised earnings expectations, a prominent investment bank has maintained a “Neutral” recommendation for the stock. The firm revised its 12-month target price to RM0.54, reflecting a downward adjustment to its FY25-27F earnings forecast by 6-28% and a lower P/E multiple of 22x. The company’s fourth-quarter FY25 results are slated for release on February 25th, which will provide further clarity on its recent performance.