Review

• Elsoft’s FY23 core profit of RM7.1mn came below our full-year estimates at 81.3% due to softer-than-expected demand for automated test equipment (ATE) and burn-in systems.

• A second interim dividend of 1.0sen/share was declared, bringing YTD dividend to 2.0sen/share. (FY22: 3.0sen/share)

• YoY, FY23’s core profit dropped 40.2% to RM7.1mn, dragged by weaker demand for ATE and burn-in systems amid the semiconductor sector’s downcycle. Meanwhile, revenue fell 42.8% YoY to RM16.1mn.

• QoQ, 4QFY23’s core profit fell 62.9% to RM0.5mn as revenue declined by 30.0% to RM2.2mn on weaker demand for ATE and burn-in systems.

• Its balance sheet remains solid with zero debt and a net cash position of RM97.9mn or 14.1sen/share as at end-4QFY23.

Outlook

• Despite ongoing market uncertainties, the group is looking forward to seeing a recovery in 2024. We expect earnings to improve especially in 2H2024, alongside an anticipated recovery in the global demand for semiconductor.

Impact

• Given the weaker-than-expected results, earnings forecasts for FY24 and FY25 are reduced by 16.2% and 4.9% respectively, after factoring in lower sales assumptions.

• Meanwhile, we introduce FY26 numbers with a projected net profit of RM19.0mn, representing an earnings growth of 10.1%.

Valuation & Recommendation

• After revising the earnings forecasts and rolling forward our valuation base year to CY25, we tweaked the target price higher from RM0.58 to RM0.59, based on 24x CY25 earnings. Maintain a Hold call on the stock.

Source: TA Research - 26 Feb 2024