Review

• Elsoft’s 9MFY24 core profit of RM2.2mn came in below expectations, accounting for 28.3% of our full-year estimate. The variance was mainly due to weaker-than-expected demand for automated test equipment.

• YoY, 9MFY24’s core profit fell 66.7% to RM2.2mn due to lower revenue as the demand for automated test equipment had yet to fully recover. Meanwhile, revenue dropped 26.4% to RM10.2mn from RM13.9mn.

• QoQ, 3QFY24’s core profit fell 94.5% to RM0.1mn as revenue declined by 53.5% to RM1.8mn on weaker demand for automated test equipment.

• Its balance sheet remains solid with zero debt and a net cash position of RM90.9mn or 13.1sen/share as at end-3QFY24.

Outlook

• Beyond near-term weakness, we expect earnings to improve next year, 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 41.0%/14.2%/10.2%, respectively, after factoring in lower sales and margin assumptions.

Valuation & Recommendation

• After revising the earnings forecasts, we tweaked the target price lower from RM0.58 to RM0.50, based on 26x CY25 earnings. Maintain a Buy call on the stock.

• Key risks include lower-than-expected demand for automated test equipment and geopolitical tensions weighing on economic growth and disrupting supply chains.

Source: TA Research - 25 Nov 2024