CHB: Operational Mismatches Impact Recent Earnings, Strong Order Book Fuels Future Optimism

Critical Holdings recently reported core earnings for FY25 that fell short of expectations, largely due to a timing mismatch between project cost recognition and revenue. Despite the softer short-term performance, the company’s robust order book and strategic positioning in growing sectors underpin a positive outlook, leading PhillipCapital to maintain its “BUY” rating.

Performance Overview

For the full financial year 2025, Critical Holdings recorded core earnings of RM27 million, marking a 10% year-on-year decline and missing analyst forecasts. The fourth quarter of FY25 saw core net profit drop significantly by 29% quarter-on-quarter and 52% year-on-year to RM7.2 million. While FY25 revenue climbed 23% year-on-year to RM329 million, driven by a surge in order book, the core net profit contraction was primarily attributed to a timing discrepancy where project costs were booked in 4QFY25, but the corresponding revenue recognition will only commence in FY26. This mismatch also led to a 4.6 percentage point contraction in EBITDA margin during 4QFY25. On a positive note, the company’s net cash position strengthened by 63% year-on-year, reaching RM84.2 million.

Future Prospects and Order Book

Looking ahead, Critical Holdings demonstrates strong prospects to sustain earnings visibility. The company secured new contract wins totaling RM378 million in FY26, reinforcing the ongoing momentum in the semiconductor sector. Although the order book stood at RM149 million as of June 2025, a decrease from previous periods due to accelerated revenue recognition, replenishment prospects remain robust. The tender book currently stands at a substantial RM800 million, with a 70:30 split between data centre and semiconductor projects. This mix is anticipated to shift towards a 50:50 distribution by year-end, driven by the rollout of more semiconductor projects linked to AI applications. Additionally, upcoming data centre tenders valued at RM500 million are expected to be awarded soon, further enhancing order book visibility.

Investment Recommendation

Despite the weaker-than-expected recent results, PhillipCapital maintains its confidence in Critical Holdings, projecting a strong year ahead backed by a robust tender pipeline. The investment bank reiterates its “BUY” rating with an unchanged 12-month target price of RM1.62. This target price is based on an 18x price-to-earnings (PE) multiple on FY26E EPS. PhillipCapital has also introduced an FY28 earnings forecast, anticipating a 10% year-on-year growth. Key downside risks highlighted include lower-than-expected new contract wins and potential cost overruns.