D: Automotive LED Supplier Reports Significant Earnings Miss

A prominent automotive LED maker has reported a significant drop in its 9MFY25 core profit, missing both internal and consensus full-year expectations. The company recorded a core profit of RM19.8 million for the nine-month period, a substantial 62.3% decrease year-on-year. This figure represented only 39% of Public Investment Bank’s and 60% of the consensus full-year forecasts, signaling a weaker-than-expected performance.

For the third quarter of FY25 (3QFY25), sales declined by 6% year-on-year to RM256.5 million from RM273.2 million, while core profit for the quarter halved to RM7.7 million, down 55.7% year-on-year. Furthermore, the gross margin narrowed from 20% to 17.3%, indicating increased cost pressures or lower pricing power.

Weak Performance Marred by Production Cuts and Impairments

The underwhelming results were primarily attributed to widespread vehicle production cuts in China, driven by an oversupply condition. Adding to the financial strain, the Group undertook a significant inventory impairment exercise, amounting to RM248.9 million. This impairment stemmed from an assessment of product transition and demand viability across its conventional LED inventories.

Sales contributions across all key regions—Asia (-4.9%), Europe (-4.2%), and North America (-6.7%)—weakened. The company highlighted several factors contributing to this decline, including production cuts in China due to car inventory build-up, a shift in supply sources for interior LEDs, stalled EV development in the US following the expiry of an EV tax credit, and cautious consumer sentiment in Europe. Capacity utilisation during the quarter stood at approximately 74-75%.

Cautious Outlook and Strategic Adjustments

Management maintains a muted outlook, anticipating that earnings weakness will persist into the final quarter of the year. Despite the traditionally strong fourth quarter, the company does not expect any significant sales pickup. No signs of recovery are observed for most of its automotive LED products, with the exception of smart LED, BLU Spiceplus 2520, and headlamp LED.

In response to the challenging environment, management is focusing on optimisation initiatives and plans to sell off slow-moving inventories to make way for more advanced LED products. Capex spending is expected to decline substantially to RM20 million this year, with next year’s capital expenditure primarily allocated to smart LED production lines at Plant 2, in anticipation of stronger future volumes. Separately, the Dominant Electronics segment is seeing volume pick up and is on track to break even in early 2026.

Analyst View

In light of the revised earnings outlook, Public Investment Bank has significantly cut its FY25-FY27F EPS forecast by 31-47%. Consequently, the investment bank has downgraded its call to Underperform, with a revised target price (TP) of RM0.81, based on a revised 24x FY26 EPS. No dividend was declared for the quarter.