Dufu warns of weaker 4Q on prolonged demand weakness for HDD

KUALA LUMPUR (Nov 1): Dufu Technology Corp Bhd has warned of weaker results in the coming fourth quarter ending Dec 31, 2022 (4QFY2022) on prolonged demand weakness for its hard disk drive (HDD) components.

The company's share price has already fallen 43.82% from RM4.29 as at end-December and is currently trading at the RM2.41 level.

"We are expecting a satisfactory financial performance for the financial year ending 2022 [FY2022] although the final quarter results at the close of the financial year is anticipated to be weaker than the previous year’s financial quarter end,” the Penang-based precision machining parts manufacturer said in a filing with Bursa Malaysia.

“Based on the forecast in hand, we foresee HDD demand will continue to remain weak in line with our recent industry checks suggesting inventory adjustments will likely continue at least for the next quarter towards end of 2022. On top of that, demand is seasonally weak in the first quarter of 2023.”

For 3QFY2022, Dufu's net profit fell 18.92% to RM16.42 million, from RM20.25 million a year ago, on lower revenue.

Earnings per share shrank to 3.1 sen in 3QFY2022, from 3.8 sen in 3QFY2021.

Revenue for the quarter declined 17.88% to RM74.72 million, from RM90.99 million a year before, mainly due to the decrease in revenue related to HDD components.

For the cumulative nine months ended Sept 30, 2022 (9MFY2022), net profit however increased by 14.91% to RM63.93 million, from RM55.69 million a year earlier, even though revenue dipped 2.27% to RM252.83 million, from RM258.71 million.

Dufu said the strengthening of the US dollar against other currencies had boosted its 9MFY2022 earnings performance but cautioned that demand for HDD has deteriorated throughout the current quarter with its major customers revising their outlook of late.

The group’s non-HDD revenue segment remains resilient with growth expected as the semiconductor and medical-related equipment capital spending remains strong. However, due to the weighting from HDD revenue, the group expects its revenue to wane towards the final quarter and potentially beyond.

“The attributable factors to the current global conjuncture are the intensifying interest rates in [the] United States (US) to subdue rampant inflation worldwide, the continuing lockdowns in China, weaknesses in Europe and the ongoing Russia and Ukraine conflict,” it noted.

“An escalation of the trade war between [the] US and China which includes stopping the transfer of advanced chip technologies to China may threaten a wider spillover of its effects on the supply chain of the chip-based semiconductor equipment and its related peripherals,” it warned.

In order to cope with the associated risks on the unpredictability and uncertainty posed by various challenges arising from the above-mentioned events, Dufu said it will be cautious in its operation and capital spending.

Shares in Dufu closed up four sen or 1.69% to RM2.41, giving it a market capitalisation of RM1.31 billion.