Despite the slow start in the beginning of the year, QES Group posted a strong earnings growth in the second quarter, bringing 1HFY24 core profit to RM8.5m (YoY: -5.5%), which made up 38.2% and 40.6% of our and consensus’ full-year earnings forecasts, respectively. Underpinned by the strong orderbook of RM103m, we expect to see stronger earnings momentum in the second half. Maintain Outperform with an unchanged TP of RM0.86 based on 26x FY25 EPS. No dividend was declared for the quarter.

• 2QFY24 revenue climbed 1.6% YoY. During the quarter, stronger sales wasled by the distribution segment despite a slight decline in manufacturing sales.Distribution segment, which made up 86.4% of group sales, saw its salesincrease from RM56.7m to RM58.8m on the back of stronger contribution fromequipment sales. Meanwhile, manufacturing sales declined from RM10.2m toRM9.2m due to a change in product mix, with lower deliveries of inspectionsystems though seeing an increase in deliveries of automated handlingsystem.

• Core profit jumped from RM4.9m to RM6.4m. Stripping out the i) gain ondisposal of property, plant and equipment (RM0.4m), ii) gain on short-terminvestments (RM0.2m), and iii) net foreign exchange loss (RM0.6m), theGroup registered core profit of RM6.4m, up 30.6% YoY.

• Setting sights on front-end wafer fabrication opportunities. Management aims to increase its manufacturing business contribution from 11% to 35% in the next 5 years via more opportunities from front-end wafer fab market, which is less competitive and provides better profit margin. The revenue for the frontend wafer fab market contributed 17% of the group’s sales in FY23 and is expected to reach at least 20% in the coming years. Its wafer inspection (AOI) series dubbed PP1 3300, which was launched in 2022, has received two orders from wafer fab customers in Malaysia and Singapore and more than 20 inquiries. The platform can be customized to meet requirements with different sensors, widening the application coverage and also reducing initial costs if some customers have simple requirements. 
  
  Besides that, it has also secured an order from a European semiconductor firm with operations in Malaysia for its newly developed wafer fab equipment under the Automated Handling System (AHS) series and is expected to see more orders. Apart from that, it has also launched new products such as i) automated wafer stockers, ii) wafer sorters, iii) advanced metrology systems for wafer bumping and advanced packaging metrology requirements.

Source: PublicInvest Research - 22 Aug 2024