KUALA LUMPUR: Kobay Technology Bhd's incubation stage for its two new projects that dragged the manufacturing division will likely dissipate soon as the factories are fit for production.
Hong Leong Investment Bank Bhd (HLIB Research) said in a note that the company's manufacturing division weakened by 21 per cent year-on-year (YoY) for its second quarter (Q2) financial year 2023 (FY23) on the back of the slowdown of the semiconductor market and softened new orders.
"Additionally, this was also impacted by the two new projects in incubation stages, namely the electronics manufacturing services (EMS) and solar frame that incurred pre-operating costs of approximately RM6 million for the past two quarters.
"Despite the relatively healthy outlooks for aerospace and oil and gas divisions, Kobay anticipates manufacturing's performance will be softer amid a weak global economy," it said in a note.
The company's results for Q2 FY23 missed HLIB Research's estimates with a core net profit of RM10 million, down 29 per cent YoY, which brought its first half's sum to RM21 million, down 12 per cent YoY.
For Kobay's solar segment, the research firm noted that the company was ready for its venture into manufacturing aluminium frames for solar panels for renewable energy-related business.
Kobay has already renovated and installed the 15-acre plant dedicated to renewable energy-related business.
"The prior delay from authorities' approvals has been rectified, and the factory is now successfully connected to the electric power after the substation upgrade by Tenaga Nasional Bhd.
"The anodizing line has been set up, and currently, the factory is ready to run for production," it said.
Demand for its advanced data server segment has weakened due to the decline in digital currency prices.
HLIB Research noted that demand would kick in stronger once the bitcoin price recovers to US$26,000 -27,000.
"From Kobay's guidance, order visibility for the next three months is still murky due to the muted demand," it said.
Meanwhile, its property development was expected to deliver positive performance on the back of the completion of its maiden Langkawi project.
The pharmaceutical division will continue to work on widening its product range, along with cost control efforts to improve profitability and market competitiveness.
HLIB Research reiterated its 'Buy' call on the stock with a target price of RM4.