Kobay bounces back

AFTER a year of poor results, a turnaround in the first half of financial year 2026 ending June 30 (FY26) appears to have placed Kobay Technology Bhd back on investors’ radar.

After slipping into the red in FY25, the precision engineering group has delivered two consecutive quarters of profits that’s partly driven by its pivot into higher-value segments – most notably, assembly and test services for the artificial intelligence (AI) industry.

Its managing director and chief executive officer Datuk Seri Koay Hean Eng described the shift as a structural inflection rather than a cyclical bounce.

“A key catalyst for our recovery was the growth of our assembly and test services for the AI industry.

“This, combined with a recovery in both the semiconductor and aerospace sectors, enabled us to turn a corner.

“This is clearly reflected in our earnings over the past two quarters,” he tells StarBiz 7.

The improvement comes against the backdrop of a challenging FY25, where Kobay slipped into a net loss of RM16.17mil mainly due to a one-off non-cash intangible asset impairment of RM40mil, weighed by a goodwill impairment charge in its asset and investment management segment.

“Having delivered two consecutive quarters of solid results, we are confident we can continue to build on this positive momentum, supported by the healthy order book we currently have,” Koay further says.

AI pivot reshapes margin profile

Kobay credited its turnaround to its exposure to AI server assembly, a segment that is structurally more lucrative than traditional electronics manufacturing services.

The company is currently generating margins of around 21% in this segment.

These margins reflect both the technical barriers to entry and the capital intensity required to participate in this ecosystem.

“Our margins were relatively higher due to higher requirements from customers and capital investments involved,” Koay says, noting that Kobay has spent roughly RM40mil on its factory and a further RM30mil on facilities and renovations for its assembly plant.

He believes these profit margins are sustainable moving forward.

“We are always mindful of competitive dynamics in the industry.

“But the assembly business demands stringent qualifications and certifications, substantial upfront capital commitment, and perhaps most importantly, it places a premium on proven track records,” Koay says.

In other words, the moat is not just technological, but reputational.

Kobay is betting that its early positioning as a “qualified and trusted partner” will allow it to maintain pricing power even as competition gradually increases.

Meanwhile, Kobay’s order book provides visibility into the second half of FY26 and into FY27, with management actively pursuing both deeper engagement with existing clients and also targeting new customer wins.

“The demand outlook for Kobay remains promising, underpinned by a healthy order book that provides us with clear earnings visibility,” Koay says.

Beyond confirmed orders, ongoing negotiations and industry tailwinds, particularly in AI infrastructure and semiconductor recovery, are expected to support continued growth.

“The team is actively engaged in ongoing discussions with both existing customers to deepen relationships and capture incremental sales; and prospective customers, as we look to broaden our customer base and scale the business further.

“Taken together, we are cautiously optimistic about the trajectory ahead,” he says.

While AI-driven manufacturing is its headline story, Kobay’s other segments are also contributing to earnings stability.

Its pharmaceutical and healthcare division posted strong growth in the second quarter of 2026, driven by higher-margin products and the introduction of new medical devices. The group is expanding its therapeutic portfolio while exploring overseas markets – which could add another layer of growth.

“We anticipate this positive trend to sustain as our strategy for the pharmaceutical and healthcare division continues to bear fruit, coupled with steady demand supported by rising health awareness and a stronger focus on preventive care.

“We are also broadening our product range by exploring overseas markets and continuing to enforce strict cost controls.”

Meanwhile, its property development arm benefitted from progress billings and sales of completed units, particularly in affordable housing projects.

With several projects nearing completion by 2026, this segment is expected to continue providing steady contributions.

To capitalise on AI-related demand, Kobay is already expanding its assembly capacity. The group has applied for additional power supply to support the scale-up, with completion targeted within the next nine to 12 months.

“We have set aside approximately RM13.5mil for the group here,” Koay notes.

Foreign exchange exposure, often a concern for export-oriented manufacturers, is not a major risk for Kobay.

The company maintains that currency fluctuations have an “insignificant” impact on operations and that hedging strategies are in place.

Kobay has seen its share price rising by more than 40% since April 22, revisiting its 22-month high as the AI theme among manufacturers comes back into focus.

While still recovering from the lows seen during its loss-making period in FY25, any sustained interest in Kobay would hinge on whether it can sustain earnings momentum.

In the year-to-date period, its shares have already gained some 51% in value at the time of writing.

Hong Leong Investment Bank Research had in November 2023 ceased coverage on Kobay after it anticipated a longer turnaround time for the company on the back of a challenging macro environment then.

But now, RHB Research expects Kobay to see a significant turnaround in FY26, anticipating its second half to be stronger than its reported first.

In January, RHB Research issued a non-rated report on the company with a fair value of Kobay at RM3.33 per share.

Risks still remain: whether high margins are sustainable in the longer term amid potential competitive entries, and if the huge impairments that were booked in FY25 could potentially repeat in the future.

These factors would all influence its bottom line performance moving forward.