Coraza Integrated Technology (Coraza) has maintained its BUY rating despite a challenging first half of 2024. The company has set a revised target price (TP) of RM0.62, indicating a potential upside of 48.3% from its current price of RM0.42. This adjustment follows 1H24 results that missed expectations due to weaker-than-anticipated sales and margins. The stock has faced a year-to-date decline of 3.5% and a 12-month drop of 34.4%, but analysts suggest that the recent share price weakness may have already factored in these low expectations.

Calls by analysts at RHB reflect a mixed but generally positive outlook. The house maintains a BUY rating with a new TP of RM0.62, up from RM0.68, citing a 49% upside potential. The firm expects stronger performance in the latter half of the year, driven by a recovery in demand for semiconductor equipment. This expectation is supported by Coraza's robust customer base and its role in the front-end semiconductor supply chain.

The company reported core losses of RM1.7 million for 1H24, falling short of both analysts' and market forecasts. This negative deviation was due to slower sales and margin recovery. In particular, 1H24 sales dropped by 26% in both Malaysia and the US due to reduced orders, although sales in Singapore increased by 22% during the same period. Revenue for 1H24 declined by 15.7% year-on-year to RM41.5 million, affected by the semiconductor market downturn and order deferrals. Gross profit margins also fell by 6.6 percentage points to 13.1%, due to underutilisation and fixed cost absorption. However, 2Q24 revenue showed a 10.2% improvement quarter-on-quarter, reflecting a gradual recovery in the industry. The core loss for 2Q24 narrowed to RM0.3 million from RM1.4 million in 1Q24.

Looking ahead, the outlook for Coraza is positive. RHB analysts anticipate a stronger performance in the second half of 2024, supported by the resumption of orders from key customers and a general recovery in semiconductor equipment demand. The Semiconductor Equipment and Materials International (SEMI) has raised its projections for FY24, forecasting growth in the front-end, test, and assembly & packaging equipment segments. Coraza is well-positioned to benefit from this rebound, particularly with its newly acquired plant undergoing upgrades expected to be completed by 4Q24. Increased order volumes from existing and new customers are likely to enhance margins through improved operational efficiencies and economies of scale.

Despite lowering earnings forecasts for FY24F-26F due to the uneven recovery in 1H24, a more substantial recovery is expected in FY25. The revised target price of RM0.62 reflects these adjustments and maintains a 20x FY25F P/E ratio, including a 4% ESG discount.

Source: RHB
Title: Improving Outlook; Still BUY