PMB Technology (PMBT) core earnings of RM9.7mn narrowed during 1QFY23 compared to earnings of RM54.9mn in 1QFY22 in the same period a year ago. The decline was primarily the result from a drop in contribution from the Manufacturing & Trading segment, a pullback in selling price and tonnage sold, and an increase in raw material and operating costs. No dividend was declared. Despite the easing of supply chain disruptions and the recovery of sectors such as electric vehicles (EV), solar, automotive, and construction thanks to full economic re-openings, we maintain our cautious stance however due to inflationary risks and tighter financial conditions. Reiterate a HOLD call on PMBT, with a lower TP of RM3.41.

• Below expectations. 1QFY23 core profit of RM9.7mn was below our forecast and consensus, accounting 3.3% of both estimates full year forecast, respectively.

• Dividend. No dividend was declared.

• QoQ. Revenue dwindled by 10.5% QoQ, no thanks to deceleration in on-going projects in Construction and Fabrication segment during the current quarter. Moreover, various cost pressure related to raw materials and operations pushed profit before tax (PBT) to decline by 23.6%, pressuring PBT margin to slip by 0.9ppts QoQ.

• YoY/YTD. On yearly comparison revenue declined by 9.0% YoY stemming from lower turnover from Manufacturing & Trading segment (1Q23:67.1% vs 1Q22:78.8%). The drop in selling price and tonnage sold, elevated raw material and operating costs led to a significant decline of approximately 76.9% in segment earnings compared to the previous year. Overall, there was a YoY earnings decrease of 82.2% to RM9.7mn, resulting in margin of only 3.5% compared to 18.1% in 1Q22.

• Outlook. We remain cautious on global economic outlook given persistent inflationary pressures and tighter financial conditions though the supply chain disruption has begun to ease, making namely for electric vehicle (EV), solar, automotive, and construction sectors.

• Forecast. We tweak our FY23F/FY24F earnings forecast lower by 22%/29% after revision in operating cost and lower selling price of metallic silicon.

• Our call: Maintain a HOLD call on PMBT with a lower TP of RM3.41 based on PER of 17x that is pegged to FY23F EPS of 20.1 sen.

Source: BIMB Securities Research - 31 May 2023