GREATEC: Technology Firm Misses Earnings Forecasts Amid Cost Headwinds, Target Price Revised

A Malaysian technology company recently announced its third-quarter and nine-month financial results, which fell short of market expectations due to a confluence of operational challenges, despite a notable increase in revenue. The company’s core net profit for the nine months ended 3Q25 was RM91 million, a 25% year-on-year decline, primarily impacted by softer margins and higher effective tax rates.

Performance Overview

For 3Q25, the company recorded a core net profit of RM14 million, representing a significant sequential drop of 63% quarter-on-quarter and a 59% year-on-year decrease. This downturn was observed despite a 10% year-on-year increase in 9M25 revenue, which, at RM600.7 million, aligned with analysts’ initial forecasts, achieving 76% of the full-year projection. However, the earnings miss was attributed to a 4-percentage point softer EBITDA margin and a 7-percentage point increase in the effective tax rate. The company’s 9M25 core net profit only met 50% and 52% of the investment bank’s and street’s expectations, respectively.

Operational Headwinds

The underperformance was largely driven by higher operating costs and redundancy expenses related to the company’s Slovakia plant. Further sequential margin declines are anticipated due to increased staff costs from additional hiring and expected additional redundancy lay-offs in Slovakia. Management also highlighted that 4Q25 margins would face additional pressure from tariff-related costs, prompting discussions with customers to implement cost-sharing agreements.

Outlook and Recommendation

Despite the current headwinds, the company’s order book remains robust, standing at RM698 million, a 15% quarter-on-quarter increase, providing clear earnings visibility through 2026. The backlog is diversified across solar (32%), DC-related (23%), semiconductor (16%), and e-mobility (15%), among others. Management anticipates securing an additional RM500-600 million in new orders by the end of 2025. While a meaningful ramp-up is expected in 2027, the near-term outlook is tempered by the continued revamp phase and cost uncertainties.

Analysts at TA Securities have maintained a BUY recommendation, albeit with a revised 12-month target price. The target price was adjusted downwards to RM2.30 from RM2.44, based on a revised 2026E EPS forecast and an unchanged target PE of 32x. Key downside risks include slower order book replenishment and further cost pressures.