RATION: Strong Earnings Performance Underscored by AI, But Valuation Remains a Key Concern

A recent investment bank research report highlights a robust financial performance, with fourth-quarter 2025 (4Q25) results significantly exceeding expectations. The company’s core earnings for the full year 2025 (FY25) reached RM145 million, representing a substantial 48% year-on-year increase. This figure surpassed both the bank’s and consensus estimates by 103% and 109% respectively.

Revenue for 4Q25 saw strong quarter-on-quarter growth of 27% to RM290 million, outperforming previous guidance which ranged between RM199 million and RM213 million. The impressive growth was largely attributed to the increasing adoption and demand for Artificial Intelligence (AI) related products and services. Furthermore, the company received a positive boost with the grant of a new 5 + 5 years income tax exemption, replacing an expiring pioneer status which had led to a higher effective tax rate in 4Q25.

Performance Review

The report underscores the company’s strong execution capabilities and technology leadership, particularly in the AI sector. This has enabled the firm to deliver consistent results despite a challenging market environment. The core net profit for FY25 demonstrates this resilience, far outpacing the prior year’s performance.

Challenges and Outlook

Despite the strong operational performance, the report cautions that valuation remains a critical factor for investors. With a price-to-earnings (PE) ratio of 40x, the stock is currently perceived as “priced for perfection,” suggesting that significant upside may be capped unless there is a meaningful correction in its share price. The bank advises that the best time to accumulate shares is typically when market sentiment is weak and expectations are low, rather than when results are at their peak.

Operational challenges include capacity constraints, particularly for MVST and AXI products, which may hinder incremental volume delivery without new capacity. A firmer Malaysian Ringgit also poses a risk to margins, with a 6% drop in the USD/MYR rate noted to have shaved off 4 percentage points from its Profit Before Tax (Pbt) margin in FY25.

For the first quarter of 2026 (1Q26), revenue guidance is projected to be between RM237 million (+68% YoY, -18% QoQ) and RM274 million (+94% YoY, -6% QoQ). While demand is robust, execution challenges related to capacity are noted as potential limitations.

Investment Recommendation

In light of these factors, the investment bank has maintained its SELL recommendation on the stock. While the target price has been revised upwards to RM3.30 from RM2.75, the current trading price of RM4.60 implies a negative potential return of 27%, reinforcing the cautious stance based on valuation.