Elsoft’s 9MFY23 core net profit of RM6.7mn (-34.5% YoY) came below our full-year estimates at 64.9% due to weaker-than-expected demand for automated test equipment (ATE) and burn-in systems.
YoY. 9MFY23’s core net profit dropped 34.5% YoY to RM6.7mn, dragged by weaker demand for ATE and burn-in systems amid the semiconductor sector’s downcycle. Revenue fell 40.4% YoY to RM13.9mn.
QoQ. 3QFY23’s core net profit declined 50.0% QoQ to RM1.3mn as revenue contracted 48.6% QoQ to RM3.2mn on weaker demand for ATE and burn-in systems.
Despite weak results, Elsoft remained on strong financial standing with a robust net cash position of RM103.2mn (+8.3% QoQ, +37.9% YoY) as at end-3QFY23.
Outlook
Towards end-FY23, Elsoft continues to anticipate weak demand for its ATE and burn-in systems against the backdrop of slower capital expenditure amid the semiconductor sector's downcycle.
Beyond near-term weakness, we continue to view catalysts for Elsoft from recently acquired Xyrius and the impending commercialisation of embedded controllers designated for peritoneal dialysis machines. Of note, Xyrius, a designer and manufacturer of customised automation equipment, is expected to help enhance the automation capabilities of Elsoft’s ATE and burn-in systems and thus, its competitiveness versus peers. That said, we believe efforts would only likely come to fruition over the medium-to-longer term.
Impact
We have cut our FY23F earnings forecast by 14.4% after lowering revenue by 14.9% to reflect actual 3QFY23 results.
Valuation & Recommendation
In all, we maintain our Hold recommendation on Elsoft with an unchanged TP of RM0.58 based on a PE multiple of 24.0x against CY24F EPS. Maintain Hold. We would view rerating catalysts to include strongerthan-expected demand for its ATE and burn-in systems, as well as traction with the acquisition of Xyrius, and the commercialisation of embedded controllers designated for peritoneal dialysis machines.
Key risks include lower-than-expected demand for ATE and geopolitical tensions weighing on economic growth and disrupting supply chains.
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....