Kobay Technology Berhad's outlook remains challenging, according to Hong Leong Investment Bank (HLIB Research), based on the fact that the company's profits fell short of forecasts.
Its nine-month core net profit for the fiscal year 2023 (9MFY23) of RM29 million, a decrease of 26 per cent year-over-year (y-o-y) was a disappointment due to the manufacturing division's underperformance, which was influenced by two new projects that are in the incubation stage.
It said that the company's third-quarter FY23 (3QFY23) revenue of RM74 million which declined 10 per cent quarter-on-quarter (q-o-q) and 26 per cent y-o-y yielded a core net profit of RM8 million (a decline of 23 per cent q-o-q and 49 per cent y-o-y) which brought 9MFY23's sum to RM29 million, accounting for 57 per cent of the investment bank's full-year estimate.
The top line fell by 10 per cent to RM74 million attributable to the declines in manufacturing (15 per cent and pharmaceutical (seven per cent), which more than offset the gain in property development (four per cent).
According to a note today by HLIB Research, the slump in the semiconductor business affected manufacturing and affected new orders.
The investment bank said that despite decreased D&A of 14 per cent, core net profit fell by 23 per cent to RM8 million, mostly because of higher setup costs for new manufacturing facilities, rising costs for pharmaceutical's key raw materials, and higher finance costs.
Given the state of the economy right now, manufacturing is projected to experience difficulties, it said.
FY23 will also be a difficult year for pharmaceuticals given the inflationary pressure on operating costs and at risk of the looming recession.
"Property development performance is expected to be positive on the back of the completion of its maiden Langkawi project. FY23 will also be a difficult year for pharmaceuticals given inflationary pressure on operating costs and at risk of the looming recession," it said.
HLIB Research is downgrading Kobay to hold with a lower target price of RM2.38, reflecting the downward earnings revision and lower PE multiple for the manufacturing division.