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TA Sector Research

Author: sectoranalyst   |   Latest post: Wed, 20 Feb 2019, 08:47 AM

 

Elsoft Research Berhad - Consecutive Quarter of Record High Revenue

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Review

  • Elsoft reported 3QFY18 core net profit of RM13.5mn (+17.9% QoQ, +76.8% YoY), bringing 9MFY18’s to RM33.1mn (+69.8% YoY). This came within ours and consensus estimates at 91.6% and 84.2% respectively. With the complete delivery of the new series of flash tester for a new smartphone model, we expect 4QFY18’s performance to be softer.
  • Separately, a third interim dividend of 1.25sen/share was declared. On a YTD basis, dividends of 3.33sen/share translates into a dividend payout of 65.4% - above the group’s dividend policy of a minimum payout of 40%.
  • In 3QFY18, revenue grew 1.3% QoQ and 57.4% YoY to another record high of RM24.5mn. This was driven almost equally by the smart devices and automotive segment which accounted for 43.2% (-36.7pp QoQ) and 41.5% (+31.3pp QoQ) of revenue. In terms of profitability, EBITDA and core net profit margin remained robust and strengthened to 54.8% (+6.5pp QoQ) and 55.1% (+7.8pp QoQ) due to a better product mix and partially to higher other income and positive contributions from associate.
  • 9MFY18’s revenue and core net profit grew 45.1% YoY to RM65.1mn and 69.8% YoY to RM33.1mn, effectively surpassing FY17’s performance. As a percentage of revenue, contributions were mainly from the smart devices segment (61.4%) and followed by the automotive segment (26.7%) and general lighting segment (10.0%).
  • Meanwhile, the group’s net cash position strengthened 11.9% QoQ and 30.3% YoY to RM67.5mn (~10.1sen/share).

Impact

  • We maintain our earnings estimates.

Outlook

  • We remain sanguine on the group’s growth prospects. For FY18, our projections for revenue and net profit growth of 13.5% YoY and 21.2% YoY is underpinned by the smart devices segment. The group’s order book as at end-3QFY18 was guided to be over RM20mn.
  • Meanwhile, the group remains focused on the research and development of new test equipment for 1) its existing smart devices and automotive segments, namely for the next generation LED flash tester and automotive headlamp tester, as well as 2) IR/VSCEL devices. The latter is a prospective market in view of the robust growth outlook for the 3D imaging and sensing market which Yole Development projects to grow at a 5-year CAGR of 37.7% to reach US$9bn by 2022.

Valuation

  • We maintain our TP for Elsoft at RM1.56/share based on an unchanged PE of 25.0x. We continue to like Elsoft for its research and development capabilities, relevant product offerings, rich margins and robust balance sheet. Reiterate Buy. Key risks include single customer/product risk and lack of recurring business.

Source: TA Research - 19 Nov 2018

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