KUALA LUMPUR (May 23): PublicInvest Research has initiated coverage on QES Group Bhd (KL:QES) with an "outperform" recommendation at 65 sen and target price (TP) of 86 sen, pegged to 26x FY2025 earnings per share.
In a note on Thursday, the research house deems the TP of 86 sen, a 10% discount to the industry average of 29x, justifiable given the i) lower earnings base, ii) relatively small manufacturing earnings compared to its industry peers and iii) higher risk given the low entry barrier for its distribution division.
“Nevertheless, we think the distribution division can be a two-pronged sword for the group as the business environment is recession-proof and there is low investment requirement while the turnover period is short.
“It can provide steady recurring cash flows for the company to drive its manufacturing growth going forward,” it said.
PublicInvest said QES’ recurring income segment, comprising of service, maintenance and sales of consumable parts, has contributed RM55 million-RM60 million per annum to the group.
“We expect this to expand further, leveraging on its sturdy sales in the past, once the maintenance cycle kicks in. Its after-sales team currently comprises of 129 technical personnel.
“The group is also looking to roll out a customer relationship management software to better monitor its customers’ equipment status and initiate service calls.
“Thus, in our view, it would help to improve the repair and maintenance revenue and supply of spare parts in the long-term,” it said.