• Maintain SELL (TP: RM1.11). PMB Technology (PMBT) 3MFY24 core profit of RM1.2mn was both below our and consensus estimates. 1QFY24 earnings dropped 80% YoY no thanks to lower selling price of metallic silicon and higher foreign exchange loss recorded. No dividend declared. Moving forward, we expect earnings to stay at normalised level from supernormal profit earned in FY21-22 which were boosted by production cut in China. Maintain a SELL call on PMBT with TP of RM1.11 based on FY24F EPS of 2sen pegged at +2.0SD PER of 55.5x. As the stock price is currently trading at an excessive valuation of 150x FY24F P/E, we think it has not fully reflected the normalisation in earnings.

• Key highlights. According to Bloomberg, the price of China silicon metal spot price declined by 15% YoY and 9% QoQ. This, coupled with lower revenue from Construction and Fabrication segment (-30% YoY), has squeezed its core profit margin to <1% vs 4% in 1QFY23.

• Earnings Revision. No earnings revision.

• Outlook. We anticipate earnings to stay at normalised level going forward, resembling the period before the metal silicon production cut in China in mid-2021. However, we think the price will not decline significantly further now given persistent supply-side constraints from the red sea crisis coupled with expectation in China’s market condition to improve in tandem with current government efforts to rejuvenate the property sector. As of 1QFY24, silicon metal spot price hover at 14,850CNY/MT compared to its peak of 67,300CNY/MT during September 2021.

Source: BIMB Securities Research - 31 May 2024