Dufu Technology Corp Bhd appears to be heading for more upside after going above the RM2.10 mark on April 16. The counter may see near-term resistance level is seen at RM2.40, followed by RM2.60. On a year to date basis, the counter has fared relatively well, reaching a 52-week high of RM2.26 on Apr 12 from a low of RM1.68 last October. Just based on the past 5 days, the company has gained 18.3%.

The precision machining parts and components manufacturer may be seeing better days ahead. This is mainly spurred by increased demand for large-capacity hard disk drives (HDD) products driven by the artificial intelligence market has caused overall HDD prices to surge.

American memory giant Western Digital confirmed on April 8 that there is a supply shortage for HDD and SSD. Western Digital stated that the demand for both flash memory and hard drive products has exceeded expectations, leading to supply constraints. These challenges in the electronics industry’s supply chain further affect availability.

Not too long ago, Dufu saw its net profit plunged to RM24.3 million in the financial year ended Dec 31, 2023 from RM67 million in the previous year on the back of a 25.1% lower revenue of RM227.8 million versus RM304 million. The decrease in revenue was mainly due to the decrease in revenue related to hard disk drives components and sheet metal fabrication. The drop in profit was mainly due to the fall in revenue, increase in operating costs namely labour, energy and drop in economy of scale.

On the demand side, high inflation in the US and Europe has resulted in a slowdown in consumer spending. This decline in consumer spending, coupled with rising interest rates and persistent inflationary pressures, has led to reduced capital expenditures by enterprises and cloud providers. Consequently, the demand for large-capacity HDD and other semiconductor-related fabrication equipment has been negatively impacted.

In Malaysia, its profitability was affected by the increased energy costs resulted from electricity tariff adjustments through the Imbalance Cost Pass-Through mechanism. While it will still have to deal with the challenges of higher operating cost, it will benefit from the current uptick in demand and possibly higher revenue.

Dufu anticipates digital storage devices to grow in sync with the strong demand from the cloud data center market, driven by the relentless growth of data. HDD storage devices are expected to remain the most cost-effective solution for storing large volumes of data. As such, prospects of Dufu look promising and should see more investors wanting a piece of this gem