With the rapid development of the digital economy, the demand for data centers is increasing day by day, and the potential demand for storage equipment in the market is also rising. Driven by this momentum, the stock prices of companies related to storage equipment have recently entered an upward trend.

However, Dufu Technology Corp. Berhad (DUFU, 7233), which is engaged in the manufacturing and trading of Hard Disk Drives (HDD) and other related components, has recently experienced a slight pullback in its stock price due to its soft performance in the latest financial results. Let us delve into the performance announced by DUFU a few days ago and explore the management's guidance and direction for the HDD industry.

Revenue Comparison (YoY -22.01%, QoQ +14.02%)

As of March 31, 2024, DUFU's revenue decreased by approximately RM16.32 million or 22.01% year-on-year to around RM57.85 million. The decrease in revenue was mainly attributed to the decline in sales of HDD components. In terms of geographical distribution, revenues from Malaysia, Singapore, and China all showed a year-on-year decline trend.

Nevertheless, compared to the previous quarter (4Q23), the company's revenue increased by approximately RM7.11 million, achieving a growth rate of around 14.02%. However, the management did not provide an explanation for this revenue growth.

Net Profit Comparison (YoY -59.34%, QoQ -34.62%)

In this quarter, DUFU recorded a net profit of approximately RM4.42 million, a year-on-year decrease of about RM6.45 million or 59.34%. This decline in profit was mainly due to the decrease in revenue from HDD components and an increase in operating expenses.

Compared to the previous quarter, DUFU's net profit also decreased by approximately RM2.34 million or 34.62%. This was due to the reversal of approximately RM1.70 million in inventory write-downs in 4Q23.

It is worth mentioning that DUFU remains a net cash company, holding approximately RM121.34 million in cash this quarter, an increase of around 16.46% year-on-year. On the other hand, the company has borrowings of approximately RM66.98 million.

Additionally, the company is set to distribute a final dividend of RM0.020 per share, with the ex-dividend date on May 29th, and payment scheduled for June 14, 2024.

Outlook

2023 marked the lowest point in the HDD market cycle. With the advent of the second quarter of 2024, the company will address the end of the downturn in the storage market. Furthermore, the recovery in global semiconductor sales and the memory industry indicates the potential beginning of a new growth cycle and increasing demand for electronics and AI-related applications.

As told, DUFU's new factory in Bukit Minyak, which focuses on Sheet Metal Fabrication, commenced operations last year. The management anticipates that the full-year revenue for 2024 will maintain a growth rate of 10.00% to 15.00%, with HDD product growth at 10.00%, while non-HDD product growth is projected to reach 20.00%.

Lastly, what are your views on the future prospects of DUFU, dear readers?

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Disclaimer: The above is purely for educational purposes and reflects personal opinions. It does not constitute any buying or selling recommendations.

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