PETALING JAYA: Higher raw material costs that surged 39.5% on a quarterly basis have weighed down on MCE Holdings Bhd
’s profitability despite a healthy yearly revenue growth.
In a report, Hong Leong Investment Bank Bhd (HLIB) Research said the original equipment manufacturer’s fourth quarter of financial year 2026’s core profit after tax and minority interest (Patami) fell 64.9%, coming in at RM1.6mil, which brought the financial year 2026 (FY26) sum to RM21.6mil.
HLIB Research said this was below its expectation, making up 90.9% of its full-year forecasts.
However, revenue for the quarter rose 3.2% driven by higher sales from newly launched vehicle models.
According to the research house, the increase reflected a catch-up charge for a material underbilled in previous quarters, changes in sales mix and a stronger Chinese New Year and the US dollar, which raised imported material costs.
“Higher resin and mineral prices; and outsourcing of certain plastic injection processes amid factory space and capacity constraints as the group prepared to manufacture new products also helped,” it noted.
On a yearly basis, HLIB Research said the group’s core Patami fell 38.9% due to higher raw material costs, and increased employee benefit expenses from the additional headcount for the new Serendah plant in Selangor and new product design and development.
The research house said even while cost pressures should ease in the coming quarters, elevated resin and mineral prices are likely to continue weighing on the group’s margins in the near term, particularly amid ongoing geopolitical tensions.
With that, HLIB Research said it will lower its FY27 and FY28 forecasts by 4.3% and 1.3% to factor in higher raw material costs.
“Moreover, we maintain ‘buy’ but with a lower target price of RM2.31 from RM2.42 based on 15 times price-to-earnings ratio applied to partially diluted FY27 earnings per share, assuming the exercise of 50% of the outstanding warrants.
“We like MCE for its strong competitive moat in engineering and design capabilities, which has enabled the group to move up the value chain, broaden its customer base and expand its product mix.
“Additionally, it is also well-positioned to benefit from structural tailwinds, including the accelerating localisation trend as well as the China+1 supply-chain shift.”
Moving forward, HLIB Research expects QV-E component production to ramp up gradually, supported by recent promotional pricing that improves the model’s competitiveness against Proton’s electric vehicle offering.
“MCE is also expected to begin deliveries to US customer JVIS from the end of the second quarter of FY27,” the research house added.
“And the new Johor Baru factory will support both the return of outsourced plastic injection processes in-house and the expansion of the group’s non-automotive business,” it noted.
Furthermore, MCE bagged a contract to supply audio display units, reverse cameras and advanced driver assisted system-related products for a Perodua internal combustion engine model, thus moving the group into more sophisticated, higher-value electronics.
