Review

• Elsoft’s 1QFY24 core profit of RM0.9mn came in below expectations, accounting for 6.8% of our full-year estimate. The variance was mainly due to softer-than-expected demand for automated test equipment.

• YoY, 1QFY24’s core profit dropped 66.8% to RM0.9mn, as the group suffered from a margin squeeze and share of loss in the associate company. On top of that, the demand for automated test equipment had yet to recover. Meanwhile, revenue stayed flat at RM4.6mn.

• On a brighter note, the group saw a QoQ earnings recovery. 1QFY24’s core profit jumped 92.4% to RM0.9mn as revenue surged by 107.3% to RM4.6mn thanks to higher demand from the automotive segment.

• Its balance sheet remains solid with zero debt and a net cash position of RM96.7mn or 14.0sen/share as at end-1QFY24.

Outlook

• The group is still 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 semiconductors.

Impact

• Given the weaker-than-expected results, earnings forecasts for FY24/FY25/FY26 are reduced by 27.9%/2.0%/1.7%, respectively, after factoring in lower sales assumptions.

Valuation & Recommendation

• After revising the earnings forecasts, we tweaked the target price lower from RM0.59 to RM0.575, based on 24x CY25 earnings. Maintain a Hold call on the stock.

Source: TA Research - 6 May 2024