GREATEC: Financial Firm Exceeds Profit Forecasts on Tax Efficiencies, Target Price Lifted
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM2.37 (+20.3%) |
| Last Traded | RM1.97 |
| Recommendation |
A prominent financial firm has reported its core net profit of RM114 million for 2025, a 24% year-on-year decrease, yet significantly surpassing expectations at 118% of its full-year forecast. This beat was primarily attributed to a lower-than-anticipated effective tax rate.
Performance Review
Despite a 3% growth in revenue for 2025, the firm’s earnings were impacted by a weaker EBITDA margin, which fell by 4 percentage points, and higher depreciation charges. Margins were further pressured by one-off costs totaling RM10 million. Adjusting for a RM19 million unrealised forex loss, RM3.4 million in employee compensation, and RM3.2 million in write-offs, the underlying core net profit demonstrated resilience.
Operational Challenges and Strong Order Book
The company faced sequential revenue decline in the fourth quarter of 2025, down 11% quarter-on-quarter, although core net profit saw a 62% rise due to the favorable tax rate. A significant challenge for the firm is the existing production floor constraints, which necessitate the leasing of additional factories to support operations.
Nonetheless, the order book remains robust, standing at RM1 billion as of end-2025, a substantial 44% increase from RM698 million in 3Q25. This provides strong earnings visibility extending into 2026. The order book is diversified across key sectors, including data centres (50-55%), energy (15-20%), e-mobility (10-15%), semiconductor (10-15%), and life sciences (5-10%). Management aims for RM2 billion in new orders for 2026, having already secured RM560 million year-to-date. Importantly, the RM10 million tariff cost incurred in 4Q25 is a one-off, with future contract tariffs to be fully borne by customers.
Analyst View and Future Outlook
Analysts have reiterated a BUY recommendation for the firm, raising the 12-month target price to RM2.37 from RM2.30. This adjustment follows a 2-3% upward revision in 2026-27E EPS forecasts, reflecting improved project execution and revenue recognition, albeit partially offset by a higher effective tax rate pending pioneer status. The target price is based on an unchanged 32x PE multiple on 2026E EPS. Key downside risks highlighted include slower order book replenishment, weaker-than-expected revenue recognition, and potential cost pressures.
