Review

• Excluding foreign exchange loss of RM3.4mn and other exceptional items, CORAZA’s 9MFY24 core profit of RM0.6mn came in below expectations, accounting for 7.9% and 26.3% of ours and consensus full-year estimates, respectively. The variance was mainly due to higher-than-expected administrative expenses.

• YoY, 9MFY24's core profit dropped 20.7% to RM0.6mn, although revenue was 13.0% higher at RM73.4mn. The weaker bottom line was mainly due to higher administrative expenses. Meanwhile, the revenue growth was largely driven by demand recovery from certain segments within the semiconductor sector and higher contributions from introducing new products.

• On a brighter note, the group saw a third consecutive QoQ earnings recovery. It recorded a core net profit of RM2.3mn compared to a core net loss of RM0.3mn a quarter ago. The quarterly revenue also jumped 46.3% to RM31.8mn from RM21.8mn. The decent earnings performance was largely driven by demand recovery from certain segments within the semiconductor sector.

• It maintained a healthy balance sheet with a net cash position of RM18.1mn as at end-3QFY24.

Outlook

• Overall, we believe the group is poised to see sequential improvements in the coming quarters, driven by an anticipated recovery in global semiconductor demand.

Impact

• Following the weaker-than-expected results, adjustments are made to reflect higher operating costs. Consequently, earnings forecasts for FY24/FY25/FY26 were cut by 51.3%/7.7%/3.6%, respectively.

Valuation & Recommendation

• After revising the earnings forecasts, we revised the target price from RM0.53 to RM0.49, based on a PE multiple of 22.0x CY25F EPS. Maintain a Buy call on the stock.

• 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 - 27 Nov 2024