DUSTRY: Return to Profitability Signals Strong Inflection Point, Positive Outlook Affirmed

A leading electronics manufacturing services (EMS) provider has demonstrated a significant turnaround, returning to profitability despite prevailing external uncertainties. The company’s robust operational improvements, strategic customer partnerships, and strengthening financial position signal a clear inflection point, affirming a positive long-term outlook.

Performance Review

The company reported a core profit of RM28 million for the recent quarter, a substantial recovery from the RM30 million loss recorded in the previous period. While reported margins stood at 2.6%, a deeper analysis reveals that underlying operational performance was stronger, with adjusted margins closer to 3.7% after accounting for specific losses from its Philippines operations and HT Press. This suggests effective cost management and an improving operational efficiency. The current valuation, trading below book value, is highlighted by the investment bank as a “once in a decade opportunity.”

Strategic Initiatives and Market Dynamics

Despite the positive turnaround, the company acknowledges ongoing challenges, including softer utilization in some segments, particularly in its Philippines facilities. To address this, strategic initiatives are underway, including the commencement of a new model production in the Philippines by December 2025, with a target to achieve breakeven by March 2026. Additionally, production for a new pool cleaner customer is slated to begin in the first quarter of 2026. The recovery, however, is not expected to be entirely linear, with the second quarter of FY26 anticipated to be seasonally softer due to customer inventory adjustments and the impact of a stronger ringgit on revenues.

Future Outlook and Financial Health

Looking ahead, revenue is projected to rebound strongly in FY26F and FY27F, driven by the rollout of new models and expanding customer engagements. Margins are expected to improve to 5% as production volumes normalize, leveraging operating efficiencies. Financially, the group has returned to a net cash position in FY25, reinstated dividend payments, and successfully repaid the first RM200 million tranche of its Sukuk Wakalah programme, which is estimated to boost future earnings by approximately 4% through interest savings. A remaining RM300 million tranche is due in September 2027. This demonstrates a healthy cash flow and a continuously strengthening balance sheet, reinforcing the long-term positive outlook.

The investment bank maintains a BUY recommendation, based on the company’s clear return to profitability, improving operational performance, and robust future growth prospects.