Following a recent meeting with management, we are increasingly cautious over the Group’s near-term prospects. Management expects earnings to stay depressed as order book remains anemic and showing little signs of improvement in business confidence. We trim our FY23-25 earnings forecast by 15%-45% to account for a slower demand growth recovery. Our call is consequently downgraded from Neutral to Underperform with a reduced TP of RM1.00 based on 7x FY25 EPS.

• Outlook. Persistently high core inflation, elevated interest rates in most economies and on-going geopolitical conflicts continue to weigh on global growth and dampened demand for the Fastener products. The Eurozone economy contracted 0.1% in 3Q and is expected to remain weak in 4Q given recent economic datasets still in contractionary region. US economic activity is also set to slow noticeably heading into 2024 as higher borrowing cost dampens hiring and spending.

• 1QFY24 results round-up. During the quarter, the Group’s earnings were down to RM2.6m (-90.1 YoY, -49.3% QoQ) owing to lower revenue (-90.1% YoY, -48.3% QoQ) and average selling prices (ASP) following the drop in global wire rod prices and competition from China. The Group’s capacity utilisation rate was at record low of 22% as the demand for both divisions (Fasterners and Wire products) was affected by softer global demand amid economic headwinds and on-going geopolitical conflicts, particularly in the European and US market.

Source: PublicInvest Research - 6 Dec 2023