D: Strong Margins Drive Earnings Beat, Investment Bank Raises Target Price

An investment bank highlighted that the company’s core earnings for the first nine months of fiscal year 2025 significantly surpassed both its own and street expectations, primarily due to robust margins. Despite a reported headline loss in the third quarter, this was attributed to substantial one-off impairments. The bank maintains a “BUY” rating on the stock, accompanied by an increased target price.

Performance Review

For the nine months ended 2025 (9M25), core earnings exceeded the investment bank’s forecasts by 107% and the street’s full-year estimates by 152%. This strong performance was primarily driven by better-than-expected margins, stemming from a concerted focus on operational efficiency improvements and headcount reductions aimed at lowering the cost structure.

However, 9M25 revenue saw a 9% year-on-year decline to RM742 million, impacted by persistent softness in the global automotive market and reduced production volumes. The 9M25 EBITDA margin also contracted by 9 percentage points year-on-year, settling at 6.3%.

The third quarter of 2025 (3Q25) presented a reported headline loss of RM169 million. This loss was heavily influenced by a significant RM250 million inventory impairment and a RM60 million deferred tax asset recognition. After adjusting for these exceptional items, the company’s core profit demonstrated a substantial sequential improvement, rising 104% quarter-on-quarter to RM26 million, compared to RM13 million in the preceding quarter. Management indicated that the inventory impairment largely related to slow-moving stock aged over three years and a prudent write-down of older products. Utilisation rates in the LED business improved to approximately 70% in 3Q25 from 65% in 2Q25.

Future Outlook

Management anticipates steady volumes in the fourth quarter of 2025, alongside further improvements in operating margins. The investment bank has consequently raised its EPS forecasts for 2025-2027 by 2-40%, incorporating improved margin assumptions into its model. The new 12-month target price has been increased, based on an unchanged target 27x PER multiple applied to higher 2026E EPS. The bank continues to favor the company, noting its position as one of the top-5 global automotive LED suppliers and its consistent market share gains. Potential downside risks include a strengthening Malaysian Ringgit, customer losses, production disruptions, and prolonged weakness in the global car sales market.

Investment Recommendation

The investment bank reiterates its BUY recommendation, setting a revised target price of RM0.25, reflecting a potential upside of 25.0% from the last traded price of RM0.20.