DAMPENED by a weak demand in semiconductor industry, ECA Integrated Solution Bhd reported paltry earnings of RM0.2m for the 1Q24. This is in contrast to RM4.1m a year ago. The weaker than expected results only made up 2% of our full-year expectation.

Consequently, we cut our FY24- FY26F earnings forecasts by 20%- 39% by imputing a lower margin for standalone automation equipment (SAE) segment and lower sales from integrated production system (IPS) segment. Despite the challenging start, management anticipates a robust and gradual recovery in the 2H24 as it sees signs of recovery.

Downgrade to 'Neutral' with a lower TP of RM0.41 (previously RM0.58). We think the poor financial performance has been fully reflected in the current share price. No dividend was declared for the final quarter.

1Q24 sales halved to RM5.6m. During the first quarter, revenue fell from RM10.6m to RM5.6m, dragged by weaker sales from both IPS and SAE segments as a result of weaker demand from the semiconductor sector.

Meanwhile, the group made only a small profit of RM165k compared to RM4.1m for the same period a year ago. Gross margin fell from 38.7% to 2.9%.

Update on IPO proceeds. Of the RM1.2m raised from the special Bumiputera allocation, majority of the proceeds has been earmarked for working capital purposes.

Remains upbeat. Despite the tepid earnings in 1H24, management expects a robust and gradual recovery towards 2H24. To minimise the earnings risks, it diversifies its core products, securing new projects, expanding customer base, and developing a long-term growth plan. It also aims to acce- lerate time-to-market for pro- ducts and introduce new revenue streams for existing products.