Review

• CORAZA reported a 1HFY24 core net loss of RM1.7mn, which came below Ours and Consensus’s Full-year Profit Forecasts of RM10.7mn and RM8.0mn, respectively. The variance was mainly due to weaker-thanexpected demand and higher-than-expected operating costs.
• YoY, the group recorded a core net loss of RM1.7mn in 1HFY24 as compared With a Core Profit of RM2.0mn, While Revenue Was 15.7% Lower at RM41.5mn. The softer earnings performance was largely due to weaker demand and higher costs arising from ongoing expansion efforts and new product Development.
• On a brighter note, the group saw a second consecutive QoQ earnings recovery. The Core Net Loss Further Narrowed to RM0.3mn in 2QFY24 from RM1.4mn a Year Earlier, While Revenue Was Up by 10.2% to RM21.8mn. The Stronger Earnings Performance Was Largely Driven by Gradual Demand Recovery From the Semiconductor and Other Industries.
• It maintained a healthy balance sheet with a net cash position of RM25.8mn as at End-2QFY24.

Outlook

• The group has seen an increase in orders recently, with the order book expanding by approximately 35% compared to the previous quarter, and more than half of the orders coming from the semiconductor industry. Hence, we believe the group is likely to see sequential improvements in the upcoming quarters, underpinned by demand recovery.

Impact

• Following the weaker-than-expected results, adjustments are made to reflect lower sales volume and higher operating costs. Consequently, earnings forecasts for FY24/FY25/FY26 were cut by 32.2%/22.8%/19.5%, respectively.

Valuation & Recommendation

• After revising the earnings forecasts, we revised the target price from RM0.69 to RM0.53, Based on a PE Multiple of 22.0x CY25F EPS. Maintain a Buy call on the stock. Overall, we like CORAZA for its medium-to-longterm earnings growth prospects backed by its expansion plans and exposure to High-growth Industries, Including semiconductor, Instrumentation, and Medical and Life Science.

• Key downside risks include i) dependence on major customers, ii) raw material price fluctuations, and iii) geopolitical tensions weighing on economic Growth and Disrupting Supply Chains.

Source: TA Research - 23 Aug 2024