Cape EMS shares slide on disappointing results

KUALA LUMPUR: The trading stock of Cape EMS Bhd plunged to historically low trading levels on Tuesday after it posted sharply lower earnings for the fourth quarter of its 2023 financial year (4QFY23).

The electronic manufacturing services (EMS) provider, which made its debut on the Main Market less than a year ago, opened 13 sen or 11.5% lower at RM1 before descending to an all-time trading low of 92 sen a share.

The share, among the most actively traded on Bursa Malaysia at the time of writing with 11.7 million units changing hands, was quickly sold down by investors on the back of disappointing results announced after trading hours yesterday.

In a note, Phillip Capital Research, which has a "buy" call on Cape EMS, revised lower its target price on the share to RM1.60, from RM1.90 previously after cutting its earnings forecasts.

"We cut our 2024E earnings forecast by 8% after imputing a slower production ramp up and potential costs escalation spilling into the upcoming 1Q24.

"We also trim our 2025E earnings forecast by 5% after lowering our margin assumptions," it said.

However, the research firm said it continued to anticipate robust order flow in 2024 as key customers have been seen loading more orders to Cape EMS.

"Despite the dip in earnings this quarter, we remain positive on CAPE’s prospects being a prime beneficiary from the ongoing US–China trade tension.

"We expect earnings growth to remain driven by the secular growth themes (ie: 5G and electric vehicle) and with more manufacturing volumes being diverted from China to CAPE amid the trade relocation."

Further, Phillip Capital said the recent completion of iConn acquisition in January 2024, which comes with a cumulative US$8mil profit guarantee across 2024–2026 will help lift earnings.

Cape EMS announced in a bourse filing yesterday that its net profit in 4QFY23 dove to RM5.5mil from RM8.9mil in 4QFY22, representing a drop in earnings per share to 0.55 sen from RM1.19 previously.

According to the group, the bottomline was impacted by tax finalised tax expenses and other costs.

It said there were also general operational costs incurred in the relocation of the aluminium die casting operation to a new factory and establishing a new operation team for the electric vehicle business in the current quarter.

The group's revenue was higher at RM147.74mil against RM118.2mil in the comparative quarter due mainly to an increase in sales from the EMS segment.

Over the full financial year, the group's net profit remained higher at RM44.38mil against RM33.54mil in the previous year.

Revenue was also improved at RM542.84mil in FY23 compared to RM437.95mil in FY22.

"During the financial year under review, the group successfully secured a new customer for EMS of industrial electronic products for thermal energy devices, which contributed to the positive sales momentum," said Cape EMS.

On outlook, the group said it was optimistic of its performance and leveraging on its competitive advantages expects its expansion to contribute positively to its financial performance in the future.

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Cape EMS , EMS , Phillip Capital


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