• 9M24 earnings came in below expectations

• Automotive quarterly revenue hit a new low, returning to 2019 levels

• We cut EPS forecasts by 11–19% to reflect lower ATE volumes and stronger RM. Maintain BUY but lower our target price to RM4.40

Automotive contribution hit a new low

3Q24 revenue declined 12% QoQ to RM150m, as the RM appreciated sharply by 13% against the US$, strengthening from RM4.72 in June to RM4.12. The softer revenue was attributed to reduced ATE shipment volumes amid subdued automotive demand during the quarter. The automotive segment posted a quarterly revenue of RM33m, a level last seen in 2019. Despite this, 3Q24 EBITDA margin rose 2ppts to 24%, driven by favorable revenue mix with increased contributions from the higher-margin FAS segment.

9M24 earnings rose 9% but missed expectations

While 9M24 revenue declined by 6%, net profit rose 9% YoY. Overall profit accounted for 64% of our and the street’s previous full-year estimates, with results tracking below our expectations due to a slower-than-expected recovery in the automotive segment. 9M24 EBITDA margin of 21% rose by 2ppts, largely due to the increased contribution of the FAS business, which commands higher margins. The medical business has been the key revenue and earnings contributors in 9M24, comprising for 48% and overtaking the automotive segment, whose contribution fell from 52% in 9M23 to 26%. This report marks a transfer of coverage.

Maintain BUY with lower TP of RM4.40

We slash our 2024–26E EPS forecasts by 11–19% to account for lower ATE volumes amid sluggish recovery in the global automotive sector and updated our forex assumptions. Our TP is revised down to RM4.40 (from RM6.10), based on a lower target PE of 31x (-1SD its 5- year mean), from 35x mean previously, to reflect the patchy automotive sector recovery. We reiterate our BUY rating, supported by expanding medical segment which has been offsetting the ongoing weakness in the automotive sector. The latter remains a potential catalyst as momentum improves. Key downside risks include: prolonged automotive market recovery, slower orderbook replenishment and margin drag.

Source: Philip Capital Research - 8 Nov 2024