ECA Integrated Solution (ECA) ended FY23 with core earnings of RM10.8m, up 21.3% YoY, led by stronger contributions from both integrated production systems and standalone automated equipment segments. Despite the stronger finish, the results were below our full-year expectations, making up only 74%. We attribute the weaker-than-expected results due to slower spending by the end customers especially in the semiconductor and automotive segments in the final quarter as well as higher selling and administrative expenses. Consequently, we cut our FY24-25F earnings forecasts by 29%-35%. Maintain Outperform with a lower TP of RM0.73 (previously RM1.12) as we believe the poor financial performance has been fully reflected in the current share price. No dividend was declared for the final quarter.

• 4QFY23 sales tumbled 40.5% YoY. During the final quarter, revenue contracted from RM7.9m to RM4.7m, dragged by weaker sales from both Integrated Production System and Standalone Automation Equipment segments. Meanwhile, the Group made only a small profit of RM14k compared to RM2.9m for the same period a year ago. Gross margin fell from 56.4% to 29.7%, attributed to changes made to the product mix at a later stage as well as a rise in the selling and administrative expenses.

• Update on IPO proceeds. Of the RM25.5m raised from the listing exercise, ECA has fully utilised the proceeds. Majority of the proceeds are earmarked for acquisition of new advanced machinery to bolster its production capabilities as well as for working capital purposes in order to undertake larger customer orders.

• Outlook guidance. Management expects the current slowdown in global semiconductor to persist until the first half of 2024 before seeing a recovery in growth. To mitigate the risk exposure, the group aims to diversify through the introduction of innovative products, while concurrently emphasizing the improvement of operational efficiency and the expansion of market size.

Source: PublicInvest Research - 29 Dec 2023