QES rides chip cycle

WHILE automated test equipment (ATE) manufacturer QES Group Bhd may have had an uninspiring financial year ended Dec 31, 2025 (FY25), things could be looking quite different this year.

Several factors point to this. Firstly, its newish medical technology (medtech) segment has seen a spike in orders, albeit largely from a single major customer in Penang.

QES is also one of Malaysia’s tech players benefitting from the rapid rise of India’s semiconductor sector.

And then there is the possibility of a “China Plus One” strategy working out, which could nicely fill the lacuna at its Batu Kawan facility, which has been a drag for some time.

For its medtech segment, the group has secured orders from a US-headquartered company with operations in Penang, as well as facilities in Arizona, San Diego and Ireland.

QES operates two buildings at its Batu Kawan plant, one of which is leased to the local unit of US-based Applied Engineering Inc through a joint venture that dates back to 2021.

But this only uses 40% of the facility’s capacity.

The balance 60% has weighed on QES, but the new medtech division is expected to take up about 30% of that capacity, with potential for further expansion.

“The medtech business is very sticky due to the complexities and long testing periods required. Once you are qualified, it is very difficult for other suppliers to come in.

“From one machine, this customer began placing orders for its Penang expansion, purchasing another batch of multiple units.

“They also ordered additional units for their other global sites. These locations are expected to continue expanding.

“This gives us good visibility through 2026 and 2027, with spillover into 2028,” co-founder and managing director Chew Ne Weng tells StarBiz 7.

As its medtech customer expands, QES is looking to establish support offices in the United States and Europe, given the niche and highly specific requirements involved.

Chew expects volumes from this customer over the next two to three years to be significant.

Meanwhile, India is shaping up to be a key growth catalyst for the group.

The country is fast-tracking the development of its semiconductor sector, backed by strong policy support and government funding.

Major players such as Tata Electronics Pte Ltd, in partnership with Taiwan’s Powerchip Semiconductor Manufacturing Corp, and Micron Technology Inc are setting up facilities in India with substantial subsidies.

QES derived about 60% of its FY25 revenue from the Asean region, with Malaysia accounting for most of the remainder.

India has yet to feature meaningfully in the group’s revenue mix, but Chew expects this to change in FY26.

“Year-to-date, our India order intake has been significant. We are already hitting close to RM15mil in orders from Indian customers.

“We are scheduled to deliver all these orders within this year. India will become a much larger revenue contributor in percentage terms, even much bigger than China.

“India is a frontier market. The land is big and they have money. The Indian government recognises that a lot of big multinational corporations want to pivot away from China to de-risk.

“As such, India is positioning itself to take on some of the capacity shifting out of China.

“In that sense, Malaysian, Singaporean and other Asean-based companies have an advantage, as their neutral stance works in their favour,” he says.

For some years now, QES has been trying to penetrate the Chinese market, but progress has been limited, with China contributing just 0.7% of group revenue in FY25.

Chew describes it as a “tough nut to crack”, noting that the group has had limited success so far.

“We have been working with a Chinese microscope manufacturer to see whether we can leverage that partnership by developing competitively priced automatic wafer handling features integrated into their microscopes that can be shipped in higher volumes. But it has been slow moving.

“We are also engaging another partner that we think may be more promising. This company is heavily involved in X-ray metrology and they have a significant presence in China,” he says.

This is in the early stages of engagement and QES expects to see some results over the next couple of quarters.

Chew adds that some previously delayed projects in China are beginning to gain traction again after being held back for more than a year amid weakness in the electric vehicle sector, which had impacted the semiconductor supply chain.

“Some of our customers are asking us to refresh quotations,” he says.

He notes that the “China Plus One” strategy remains relevant, with QES exploring collaboration projects with Chinese equipment makers to jointly manufacture and ship products from Malaysia.

These projects could play a meaningful role in ramping up utilisation at its Batu Kawan facility, he says.

QES’ business is made up of two key segments: value engineering and manufacturing.

The former entails not only distribution of equipment and materials, but also customised solutions for end clients, thus bumping up profit margins.

The value engineering segment contributes the bulk of QES’ revenue, while its manufacturing arm produces semiconductor inspection, measurement and automated handling equipment.

The value engineering division is underpinned by an installed base of more than 17,000 machines worldwide.

Chew says that assuming about half of these machines are active, the group is able to generate recurring income from service contracts, maintenance and spare parts of roughly RM60mil annually.

For the manufacturing division, the group is focused on ramping up utilisation across its facilities, which came under pressure during last year’s semiconductor downturn.

“We are targeting the manufacturing segment to contribute about 30% to 35% of total revenue in FY26.

“This is what I had envisioned four years ago.

“This year, we will see it materialise,” he adds.

At Thursday’s close of 43 sen a share, QES trades at a historical price-to-earnings (PE) multiple of 21.94 times and a forward PE of 18.7 times.

Apex Securities Research and Tradeview Capital Research have target prices of 48 sen and 50.5 sen, respectively.

Apex Securities notes that the stock trades at a discount to ATE peers such as MI Technovation Bhd and ViTrox Corp Bhd, which command average forward PE multiples of about 34.7 times FY26 earnings.

Tradeview Capital Research, meanwhile, anchors its view on improving order momentum and a gradual recovery in the semiconductor cycle, supported by growth drivers such as medtech and the Indian market.