QES sees earnings uplift in 2020

KUALA LUMPUR: The semiconductor industry and players forming part of its supply chain have been hit hard by the ongoing US-China trade conflict.

One such player is QES Group Bhd, listed on Bursa Malaysia’s ACE Market in March 2018, which distributes, manufactures and provides engineering services for inspection, test, measuring, analytical and automated handling equipment.

However, the group is hopeful of an earnings uplift for the next financial year ending Dec 31, 2020 (FY20), driven by a new product and a pickup in orders from its manufacturing segment.

QES’ setback this year saw it reporting a net loss of RM1.53 milion for the second quarter (2QFY19) — compared to a net profit of RM5.1 million a year ago — the group’s first quarterly loss since its listing. Revenue for the quarter was down 12.9% to RM40.51 million.

This resulted in the first-half (1HFY19) net profit plunging 95.4% year-on-year to RM305,000, on a 4.5% decline in revenue to RM80.39 million.

“Our manufacturing side was badly affected, partly by the US-China trade war,” QES managing director Chew Ne Weng told The Edge Financial Daily.

“But I would say our earnings were brought down mostly by a majority of our customers [in the manufacturing segment] who are automotive IC (integrated circuit) makers, impacted by a decline in global vehicle sales,” he said.

“The decline in automotive sales prompted our customers to postpone their buying activities, hitting us hard.

“Going forward, we are focusing on having a product mix, meaning the same machine being sold to different segments of customers. For example, semiconductor firms supplying Internet of things devices and smartphones. By doing that, we are not so concentrated on just the automotive segment.”

Chew said the group expects 2HFY19 to be better as orders have been picking up since August.

“My only concern is I may not be able deliver in [good] time for this year, as the delivery lead time for our machines is about three months. So, for orders in the later part of the year, we can only recognise them in our books next year.”

QES’ order book as of 2QFY19 stood at RM48.6 million, of which RM40.14 million was from its distribution division and RM8.48 million from its manufacturing division.

On the aforementioned new product, the group is looking to commence pilot testing of its Fully Automatic Vision Inspection System (Favis) by 3QFY20. Favis is an upgraded vision inspection system with full automation covering wafer probing, dicing and wire bonding.

“The product will be at a testing phase before its full commercialisation. Conservatively, if we can sell three to five machines in 2020, it could generate something like US$3 million in revenue,” said Chew.

Manufacturing activities accounted for 18.3% of the group’s revenue for FY18, with QES looking to grow this further. It is looking to expand its manufacturing customer base to China this year, by working with sales partners and distributors there.

The group’s distribution division remains the largest revenue contributor at 81.7% for FY18.

QES distributes inspection, test and measurement equipment materials for its principals — mostly from Japan, Europe and the US — not just in Malaysia but also in other Asean countries where it has a presence — Singapore, Thailand, the Philippines, Indonesia and Vietnam.

“With the drop in revenue from our manufacturing division, we expect a larger portion of revenue from our very established distribution segment. In fact, QES started 28 years ago as a distribution company and today, we distribute over 10,000 products from around the world.

“Besides product sales, we also have recurring income from servicing the equipment sold, contributing around RM35 million to RM40 million to our revenue yearly,” said Chew.

Chew and executive director Liew Soo Keang are the group’s largest shareholders, with 33.66% and 26.09% stakes respectively. The two are former schoolmates; their alma mater is Kolej Sultan Abdul Hamid in Alor Setar.

QES’ share price rose to a record-high of 35.9 sen on Oct 4 last year. Since then, it has been declining, closing at 17.5 sen last Friday — below the initial public offering price of 19 sen — with a market capitalisation of RM132.7 million.

AmInvestment Bank, the sole research house covering QES, in an Aug 29 note, said it still likes the group for its long-term expansion plans for the manufacturing segment and resilient recurring revenue from its trading and servicing business.

However, it is taking a cautious stance on the group due to uncertainties from the long-standing dispute between the US and China. AmInvestment has a “hold” call on the stock with a fair value of 21 sen.

OCK 集团 – 访谈内容

目前在大马拥有300+座电讯塔，即将收购额外100座，年杪预计可达500+座；缅甸业务享有5年的免税期限，从今年开始计算；有可能在孟加拉收购一些资产，当地已颁发执照给外国企业，而OCK不排除将与他们合作。

菲律宾市场方面，有兴趣成为当地的电讯塔业者；将与当地排第3的通讯业者商讨合作，因为最大的2家业者不会与他们共享。

需要改变投资者和分析师的思维；虽然在账面上已完成收购某某多少座电讯塔，但不是立即可列认当中的收益；一些电讯塔处于非法地区或者政府的储备地区，也就是说还没正式注册，因此无法完成会计手续。

去年电讯塔业务贡献RM120m营业额，其他租赁收入则是RM80m；两者加起来的持续性收入占整体营收的大约40%；业务增长模式不具备爆发性，但却是稳定型。

盈利主要遭到2大因素冲击 – 贷款利息和电讯塔拆旧；该行业的最佳参考指标是EBITDA；银行贷款的期限一般介于6-7年，一些至今已经过半；去年偿还的利息加本金大约USD15m！一旦往后完成支付，这些将转换成现金流以及盈利。

截至今年Q1，资产负债率为0.95倍；电讯塔业务的融资模式一般上都是80%债务和20%股权；将脱售电讯塔子公司的股权10-20%为融资一部分；近期不会再推出私下配售。

为何下半年会比上半年好？通讯业者每年都拥有2项资本开销 - OPEX和CAPEX；后者主要用于扩展技术、科技和新据点；每年杪都会决定拨出多少，然后在Q1公开招标以及颁发，而OCK则在下半年开始执行；以Maxis为例，每年的CAPEX介于RM1-1.2b。

计划将电讯塔业务分拆在新加坡上市，预计在2020-2021年落实，但是前提是达到5,500座电讯塔；新加坡拥有很多机构投资者，需要他们的参与；当地转钱出外国仅需要2天，而大马则耗上2周也无法完成；如果在本地上市，交易所将要求以连锁模式进行，以对现有投资者公平。

在上市前，或许将优先邀请一些机构投资者参与；一些是外国知名的机构，但是却不愿透露名字；至于现有股东们，正与投行商讨最好的方案，以让他们受惠。

之前曾为Huawei管理差不多30,000个据点 (大约70%)，但是目前已降低至24,000-25,000个，主要因为他们不想OCK垄断；曾经也垄断Maxis的电讯塔管理项目，但是新上任的CEO却不允许，即便如此OCK至今还是拥有最大份。

去年股价大跌除了大市不好，也因为遭到回教基金抛售；40%的机构投资者中，有7-8%属于回教基金；之前CFO告诉我，很大可能将被踢出Shariah名单，因此我们主动通知回教基金；但是万万没想到，先后2次都还是保留在名单内；不知道是哪里出错，或许是交易所出现失误，也或许是我们；目前回教基金持有的应该是少于0.5%。