The Group reported a slightly weaker 3QFY23 net profit of RM40.7m (-11.6% YoY, -12.4% QoQ) due to higher material content and higher start-up costs incurred for new models in the current quarter. Nevertheless, cumulative 9MFY23 net profit of RM124.4m (+4.9% YoY) is within our estimates at 74% of full-year numbers, though below consensus at 70%. Typically a seasonally stronger quarter, subdued revenue growth on a sequential basis (+0.5% QoQ) is reflective of subdued consumption spending globally, though strength on a YoY basis is also reflective of steady order flows from its key customers. While we keep FY23 estimates unchanged, we continue to err on the side of conservatism and cut FY24/FY25 estimates by 20.2%/11.7% to account for weaker order flows ahead, though we still expect see steady earnings growth, underpinned by the rollout of new products for its key customers. Our Outperform call is affirmed with a lowered PE-derived target price of RM1.69 (RM2.01 previously), based on a 15x multiple to CY23 earnings.

• 3QFY23 performance. The current quarter, as mentioned above, is typically a stronger one seasonally, synonymous with festive-related spending (Christmas and New Year) and/or iconic shopping-heavy days like Thanksgiving (in the US) and “Singles Day” (in China). Enthusiasm this around appears to have been capped by a noticeably higher interest rate environment (globally), reflected by a sequential revenue growth of only +0.5% QoQ to RM740.1m.
  Net margin slipped to 5.5% (2QFY23: 6.3%) owing to higher material content and higher start-up costs incurred for a new model this current quarter. As a result, net profit retreated 11.6% YoY and 12.4% QoQ respectively to RM40.7m. We expect margins to be sustainable at the ~6% range going forward however due to the Group’s pricing mechanisms.

• Prospects still encouraging. The Group’s capital expenditure is synonymously linked to its securing of new orders from its key customers, as has been the case historically. In the last nine months, the Group has already spent close to RM100m on the purchase of property, plant and equipment. We remain encouraged over the Group’s multi-year earnings growth prospects, underpinned by the production of new models having been secured earlier, from what we gather. Near-term earnings growth spurt will be capped by subdued global consumption, though likely to recover strongly over the medium term.

Source: PublicInvest Research - 27 Feb 2023