• Critical’s 1QFY25 results were in line with expectations as we expect stronger performance in subsequent quarters on the back of accelerated project progress billing

• Secured RM220m contract wins thus far; on track to achieve our FY25 revenue forecasts of RM302m

• Reiterate our BUY rating with an unchanged 12-month target price of RM1.65

Result in line

Critical posted a 1QFY25 net profit of RM3.5m (-76% QoQ, -43% YoY), representing 12% of our full-year forecast. The sequential decline in revenue and profit was expected due to clients' fast-tracking progress to completion in the previous quarter and benefited from timing differences between revenue and cost recognition. Overall, results were in line with our expectations, as we anticipate stronger earnings in the subsequent quarters, supported by a more substantial order book and accelerated progress billing from recently secured contracts.

Seeing an uptick in local semiconductor activity

Critical’s orderbook nearly doubled from RM105m in 4QFY24 to RM203m in 1QFY25, demonstrating its strong ability to seize on emerging opportunities, particularly in high- demand sectors such as semiconductor manufacturing. The group recently secured two semiconductor mechanical and electrical (M&E) projects, bringing YTD wins to RM220m. Critical is on track to achieve our FY25 revenue forecast of RM302m, meeting 75% of our expectations. Order book replenishment prospects remain encouraging, bolstered by strong tender opportunities in semiconductor plants, data centres, and industrial projects. Local semiconductor tenders are seen gaining momentum following the conclusion of the US election, driven by accelerated supply chain diversification.

Maintain BUY and TP of RM1.65

We reiterate our BUY rating and 12-month target price of RM1.65, based on a 20x PE multiple applied to FY25 EPS. Critical's net cash level stands at RM62m (17% of its current market cap). We continue to like Critical for its exposure to the fast-growing semiconductor and data centre industries. We believe the premium valuation is justified on the back of a positive earnings trajectory and promising tender outlook. Downside risks include slower-than- expected contract replenishment, any unforeseen project delays, and margin pressure.

Source: Philip Capital Research - 29 Nov 2024