SKPRES: Profit Misses Forecasts, Target Price Trimmed on Weaker Demand
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.88 (+35.4%) |
| Last Traded | RM0.65 |
| Recommendation |
A recent investment bank report highlights a weaker-than-expected financial performance for a prominent industrial products and services company, with its interim half-year 2026 (IHFY26) net profit falling short of both internal and consensus estimates. The report attributes this miss primarily to softer demand from a key customer and the adverse impact of US reciprocal tariffs.
Performance Review
The company reported an IHFY26 net profit of RM54.7 million, which accounted for only 40.6% of the investment bank’s full-year estimates and 43.8% of consensus projections. This underperformance was mainly a result of weaker-than-expected demand from its primary client.
On a year-on-year basis, IHFY26 net profit saw a 12.7% decline to RM54.7 million. Revenue also decreased by 7.9% to RM1,050.4 million, largely due to reduced demand from its key customer following the imposition of US reciprocal tariffs, coupled with additional start-up costs incurred while onboarding new customers. Consequently, the profit before tax (PBT) margin contracted by 0.4 percentage points to 6.9%.
However, the second quarter of financial year 2026 (2QFY26) showed a sequential improvement, with net profit increasing by 0.9% to RM27.5 million and revenue rising by 4.8% to RM537.4 million. This stronger quarterly performance was primarily driven by an uptick in orders placed in anticipation of the year-end festive season.
Future Outlook and Risks
Looking ahead, order visibility from the company’s key customer has moderated, influenced by the current tariff landscape. Approximately 20% of the group’s revenue is estimated to be directly exposed to the US market. Despite these challenges, management is actively bidding for two new consumer models from its key customer, offering some future upside.
The investment bank maintains a cautiously optimistic stance on the company’s medium-to-long-term prospects, underpinned by initiatives such as new customer onboarding, product portfolio expansion, and “China Plus One” opportunities which could diversify its revenue streams.
Given the weaker-than-expected results, the investment bank has revised down its earnings forecasts for FY26, FY27, and FY28 by 20.3%, 24.1%, and 17.4% respectively, reflecting lower sales assumptions from the key customer.
Valuation and Recommendation
In light of the ongoing challenging environment in the US market, the investment bank has adjusted its target price (TP) multiple from 13 times to 12 times earnings. This revision, combined with the updated earnings forecasts, has led to a reduction in the target price from RM1.25 to RM0.88, based on 12x CY26 EPS. Despite the target price revision, the investment bank maintains a BUY recommendation on the stock, indicating potential upside from its last traded price of RM0.65.
Key downside risks highlighted include lower-than-expected utilisation rates and the potential loss of a crucial customer.
