• Still BUY, new MYR0.62 TP from MYR0.68, 49% upside. 1H24 results missed expectations on softer-than-expected sales and margins. Although the recovery has been uneven and gradual, we believe the recent share price weakness has priced in the low expectations. We expect a stronger performance in 2H, driven by improving demand for semiconductor equipment, which leverages on Coraza Integrated Technology’s solid customer base and exposure in the front-end semiconductor supply chain.

• Below expectations. 1H24 core losses of MYR1.7m (1H23: MYR0.5m profit) came in below our and Street’s estimates. The negative deviation was due to slower-than-expected sales and margins recovery. Note: We stripped off the unrealised FX gain of MYR0.1m to arrive at the core profit numbers. Geographically, 1H24 sales declined by 26% in both Malaysia and the US due to slower orders from all customers, while stronger sales in Singapore (+22%) cushioned these declines.

• Results review. YoY, 1H24 revenue fell 15.7% to MYR41.5m due the cyclical downturn in the semiconductor market – leading to the deferral of orders from semiconductor customers. 1H24 GPMs dipped 6.6ppts YoY to 13.1% due to underutilisation and absorption of fixed costs. QoQ, 2Q24 revenue improved 10.2% due to the gradual and uneven recovery of the semiconductor industry. Consequently, 2Q24 core loss narrowed QoQ to -MYR0.3m (1Q24: -MYR1.4m).

• Outlook. We expect a stronger 2H performance following the gradual recovery seen in 1H. Optimism for 2H is lent from the resumption of orders by some of Coraza’s major customers without further push-outs. Notably, SEMI recently revised its projections upwards, anticipating a recovery in sales for FY24 front-end (+5.4%), test (+7.4%), and assembly & packaging equipment (+10%) segments, with all sub-segments set to accelerate further in 2025. As a key supplier to leading equipment makers (both front- and back- end) and EMS players, Coraza is well positioned to benefit from the rebound in semiconductor demand, particularly with the newly acquired plant undergoing upgrades and renovations (4Q24 completion). Additionally, increased order volumes from both existing and new customers should enhance margins through operating leverages and economies of scale.

• Forecast and ratings. Post results, we cut our FY24F-26F earnings by 83%, 8%, and 4% after imputing softer sales and margin assumptions considering 1H24’s uneven recovery. That said, we anticipate an improved performance in 2H24, with a more meaningful recovery expected in FY25. Our TP is revised to MYR0.62, based on an unchanged 20x FY25F P/E (at mean) and after applying a 4% ESG discount. Key downside risks: Slower-than-expected semiconductor sector recovery, labour shortages, and FX rate fluctuations.

Source: RHB Research - 23 Aug 2024