| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
A leading automotive LED maker recently reported a headline net loss of RM254.3 million for the full financial year 2025 (FY25), primarily driven by a substantial one-off inventory impairment and costing reassessment totaling RM320.9 million. A significant portion of this charge, RM47.2 million, impacted the fourth quarter (4QFY25). This extensive exercise aims to align inventory valuation with prevailing market trends and operational conditions, effectively positioning the group for a fresh start in FY26 without the burden of past adjustments.
Performance Review
For 4QFY25, the company’s sales experienced a 5.2% year-on-year (YoY) decline, with revenue retreating from RM262 million in the prior year to RM248 million. This downturn was largely attributed to weaker sales contributions from key regions, particularly Europe (down 13.3%) and North America (down 55.4%). Contributing factors included a policy reversal on EV development in the US and ongoing disruptions from US tariffs on the EU’s automotive industry. During the quarter, capacity utilisation hovered around 65-70%, while smart LED sales constituted approximately 8% of total group sales.
The headline net loss for 4QFY25 widened to RM66.9 million, stemming from the aforementioned one-off non-cash inventory costing adjustment. Despite the top-line pressures, the group demonstrated continuous efforts in cost optimization, successfully reducing distribution expenses by 15.9%, R&D expenses by 12.1%, and finance costs by 19%.
Future Outlook and Strategic Initiatives
Despite the challenging environment, management remains optimistic, projecting an 8-10% sales growth for 2026. This anticipated growth is expected to be fueled by several key product categories: ambient lighting smart LED (+70%), Rear Combination Lights (RCL) Spiceplus 2520 (+20%), Infotainment (+15%), and head lamp (+10%) LED products. Primary target markets include China, the EU, India, and South Korea, indicating a diversified regional strategy.
In a strategic move to strengthen its presence in China, the company has established an IC chip design centre for customer qualification purposes, with initial orders expected to materialise by 1Q 2027. Furthermore, Plant 2, which focuses on the module business, has shown a significant pick-up in technology transfer from its key customer, Hirain Beijing. Following intensified tariff issues last year, the company has set up 6-8 assembly lines to accommodate upcoming new projects from Hirain Beijing. Despite some delays and challenges in onboarding a second customer, management aims for its Dominant Technology segment to achieve breakeven by end-2026, projecting it to contribute less than 5% to the group’s total revenue next year. Additionally, the company plans to allocate RM20 million for machinery upgrades to enhance its operational capabilities and support future growth.
