Eltek (NasdaqCM:ELTK) Q3 2025 Earnings Call November 18, 2025 09:00 AM ET Company ParticipantsRon Freund - CFOEli Yaffe - CEOConference Call ParticipantsMark Sergustanski - AnalystNone - AnalystOperatorLadies and gentlemen, thank you for standing by. Welcome to the Eltek Ltd 2025 Third Quarter Financial Results Conference Call. All participants are at present in a listen-only mode. Following management's formal presentation, instructions will be given for the question-and-answer session. For operator assist ...

Financial Data and Key Metrics Changes - Company reported sales of $13.3 million for Q3 2025, a slight decrease from $13.5 million in Q3 2024 [9] - Gross profit for Q3 2025 was $1.6 million, down from $3.5 million in the same quarter last year [9] - Operating profit for Q3 2025 was $50,000 compared to $1.9 million in Q3 2024 [9] - Net loss for Q3 2025 was $0.2 million, or $0.03 per share, compared to net income of $1.7 million, or $0.25 per share in Q3 2024 [10] - EBITDA for Q3 2025 amounted to $0.6 million, down from $2.3 million in the prior year [10] - Positive cash flow from operating activities was $2 million in Q3 2025, compared to $1.6 million in Q3 2024 [10] Business Line Data and Key Metrics Changes - Demand for products remains strong, particularly in the defense sector, which accounted for 63% of quarterly sales [6] - RigidFlex products represented 66% of quarterly sales and 65% of sales for the first nine months of the year [6] Market Data and Key Metrics Changes - Company is experiencing increased competition from new foreign entrants, particularly in the defense sector [6][23] - Delivery times across the industry remain extended due to strong global demand and constrained manufacturing capacity [6] - In low-volume, high-complexity production, competition remains limited, allowing for greater pricing flexibility [6] Company Strategy and Development Direction - Company is in a transition period, absorbing significant additional capacity and technology upgrades [5] - Production capacity expansion program is progressing well, with the new production hall nearing completion [7] - The RP project is on track to go live in 2026, aiming to integrate all company platforms for improved operational efficiency [8] Management's Comments on Operating Environment and Future Outlook - Management noted that operational instability is primarily due to the ramp-up of new equipment and the integration of new staff [5] - The impact of currency depreciation on operational profit was approximately $800,000 compared to Q3 2024 [4] - Management expects the revised pricing model to positively impact results in the coming quarters [4] Other Important Information - Company is facing pressure from large Israeli customers to extend credit terms, increasing working capital requirements [6] - Recent improvements in regional security have positively affected logistics, allowing for reduced inventory levels [6] Q&A Session Summary Question: What is the status of operational issues? - Management clarified that previous operational issues were related to construction and are now due to engineering and manpower challenges [12] Question: When will the pricing lift due to USD depreciation be realized? - Management indicated it typically takes six to nine months for pricing adjustments to translate into profits [13] Question: When will operational difficulties be resolved? - Management stated it is difficult to predict, as it depends on employee absorption rates and engineering proficiency [14] Question: When can gross margins of 26-27% be expected? - Management expects to stabilize production processes and improve gross margins by mid-2026 with the integration of new equipment [15] Question: What is the impact of new competition? - Management noted that competition is increasing from foreign entrants, particularly in the defense sector, affecting pricing flexibility [23] Question: Will currency and foreign exchange impacts continue? - Management confirmed that as long as the dollar remains weak, financial expenses and operating income will be negatively affected [27]

Group 1: Company Performance Overview - The company expects a net profit of 450 million to 500 million RMB for the first half of 2025, a year-on-year decline of 59.18% to 63.26% [2] - Excluding non-recurring gains and losses, the net profit is projected to be 220 million to 265 million RMB, a year-on-year increase of 0.00% to 20.00% [2] - The decline in net profit is primarily due to a previous year's gain from the disposal of shares in Dazhuo Siter, which impacted net profit by approximately 890 million RMB [2] Group 2: PCB Business Performance - The subsidiary Dazhuo CNC achieved a revenue of 959 million RMB in Q1 2025, a year-on-year increase of 27.89% [4] - Net profit for the same period was 117 million RMB, up 83.60% year-on-year, with a non-recurring profit of 108 million RMB, reflecting a 90.14% increase [4] - The demand for PCB processing equipment has rebounded due to the recovery in the consumer electronics market and the explosion of AI infrastructure needs [4] Group 3: New Energy Sector Developments - The lithium battery equipment sector is shifting focus from domestic to international markets, with ongoing collaborations with major clients like CATL and others [6] - The company is enhancing its market competitiveness in power battery and energy storage equipment through innovation and refined management [6] - In the photovoltaic equipment sector, the company has secured bulk orders for core production equipment from leading battery manufacturers [7] Group 4: Industrial Laser Processing Equipment - The company has launched a 150KW ultra-high power cutting machine, significantly enhancing its market presence in high-end applications [8] - The self-developed three-dimensional five-axis cutting head achieved sales exceeding 50 million RMB in its first year, widely replacing imported products [8] - The company is expanding its coverage in the mid-to-low-end market, steadily increasing its market share in high-power laser cutting equipment [8] Group 5: Overseas Expansion Strategy - The company is actively expanding its overseas R&D and sales teams to capitalize on the diversification of manufacturing supply chains [9] - The PCB market in Southeast Asia is expected to grow at a compound annual growth rate exceeding that of mainland China in the coming years [9] - The compound growth rates for IC packaging substrates in the US and Europe are projected to be 18.3% and 40.6%, respectively, over the next five years [9] Group 6: Share Buyback and Cancellation - The company completed a share buyback of 22,589,592 shares, accounting for 2.15% of its total share capital, with a total expenditure of approximately 500 million RMB [10] - The shares were subsequently canceled to reduce registered capital, with the latest total share capital now at 1,029,603,408 shares [11] Group 7: Pledge Situation - The actual controller and major shareholders have a share pledge ratio of 79.89% [12]

Investment Rating - The investment rating for the company is "Buy" [9] Core Views - The company benefits from the expansion of PCB equipment and the acceleration of semiconductor equipment layout, maintaining a "Buy" rating. Despite a downward revision of the company's annual profit forecast due to limited capacity in the first phase of the factory, the company is expected to benefit from downstream PCB manufacturers' expansion and the upcoming production of the second-phase factory, leading to a positive mid-term performance release. Long-term, the company's semiconductor business is gradually constructing multiple growth drivers, with projected revenues of 1.5 billion, 2.2 billion, and 2.7 billion yuan for 2025, 2026, and 2027 respectively, and net profits of 300 million, 516 million, and 709 million yuan for the same years [5][6][9]. Company Overview - The company is a leading manufacturer of direct imaging lithography equipment, primarily serving the PCB and semiconductor sectors. Its products include direct imaging equipment for PCB and semiconductor applications, covering various processes from microns to nanometers. The company has a complete range of LDI equipment for PCB manufacturing, including IC substrates, HDI, and flexible printed circuits [6][15]. PCB Business - The PCB business is driven by high-end demand from AI infrastructure, with optimistic capital expenditure guidance from PCB manufacturers. The company has maintained a full order book since Q2 2024, but growth has been limited by capacity constraints. The gradual production of the second-phase factory is expected to release capacity and positively impact order growth [6][15]. Semiconductor Business - The semiconductor business is accelerating its industrialization process, with multiple layouts constructing a new growth curve. The company is focusing on advanced packaging technologies and has successfully completed product validation for several advanced packaging customers. The company is also making steady progress in the general semiconductor field, benefiting from the long-term trend of domestic substitution [7][36]. Financial Summary and Valuation Metrics - The company's revenue has shown steady growth, with a projected revenue of 1.467 billion yuan in 2025, representing a year-on-year increase of 53.8%. The net profit is expected to reach 300 million yuan, with a year-on-year growth of 86.7%. The gross margin is projected to be 39.9% in 2025, with a net margin of 20.4% [8][34]. Market Position - The company has established a strong market position with a complete range of products covering various PCB types and processes. It has successfully penetrated the high-end PCB market and is positioned to benefit from the ongoing expansion in the semiconductor sector [6][15].