FY20 core earnings of RM54.9m (YoY: -9.7%) were in line with our and street expectations, making up 98% and 95% respectively. Despite seeing a 19.9% growth in topline numbers, pre-tax margin fell from 31.1% to 24.3%, attributed to an i) increase in operating costs on its two new factories in Batu Kawan and Bayan Lepas, ii) higher R&D spending and iii) rise in sales & marketing expense resulting from the set-up of manufacturing facilities in Taiwan and Korea. No dividend was declared for the quarter. Nevertheless, we raise our TP from RM4.33 to RM6.34 after rolling forward our valuation base year to FY22, based on a higher PER of 45x (from 40x). This is anchored on the acceleration of 5G capex cycle for the telecommunications and semiconductor sectors in the North East Asian region following a short-term disruption in 2020 due to Covid-19.

• 4QFY20 revenue fell slightly to RM67.5m. During the quarter, the semiconductor equipment business, which is under Mi Equipment Group, contributed 93.6% (FY20: 96.7%) to Group revenue, out of which 5.78% (FY20: 8.2%) were spare parts, accessories and upgrades for semiconductor equipment. Mi Series from the assembly and packaging product remains the largest contributor to revenue. Automation & Robotics business unit, which is under the Mi Autobotics Group based in Batu Kawan, contributed 6.4% or RM4.3m to Group sales. It was a significant improvement compared to 3QFY20’s RM3.1m and 2QFY20’s RM0.2k. Taiwan was its top market, contributing 37.8% followed by China’s 28.9% and Korea’s13.6%.

• Core profit weakened (YoY: -22.7%, QoQ: -1.3%). The Group’s core profit softened to RM15.7m, dragged by i) increased operating costs at its new factory in Batu Kawan, ii) higher sales and marketing expenses following the set-up of manufacturing facilities in Taiwan and Korea and iii) one-off professional fees in relation to a corporate exercise. 4QFY20 pre-tax margin slipped from 26% to 21.8%.

• Robust outlook. Taiwan is expected to remain as top market for the Group this year. To strengthen its penetration, it has established a technology centre with manufacturing facilities in Hsinchu, Taiwan, which became operational this year. It is also in the midst of setting up a technology centre and manufacturing facilities in Suzhou, China to ride on the robust foundry and memory investment as the country forges ahead with its own semiconductor supply chain, from chip design to manufacturing. The China plant is targeted to be operational by 1H 2021. The Korean market is also tipped to see stronger growth on the back of a recovery in memory chips and increases in logic investments. The Group is well positioned there with the establishment of technology and manufacturing facilities.

On the semiconductor equipment business, the demonstration (demo) units have shrunken from 15 in 3QFY20 to only 4 units as most of the demo units were converted into purchase orders before year-end. The current order visibility is around 8 weeks, which is considered healthy. The automation & robotics business units saw two more new OTO (automation) series and KOBOT (robotics) series machines shipped during the quarter, bringing total sales to RM7.6m for FY20. Two ENGEYE (artificial intelligence) series products had been launched in 4Q, hitting its target to deliver all three product-series by 2020. A few more customized KOBOT series products are under development and expected to be delivered to customers in the 1H of 2021. Some new OTO series and ENGEYE series products are pending customer decisions. The Group has doubled its headcount to 100 staff for the Batu Kawan site to respond to more customer enquiries and demand.

Source: PublicInvest Research - 22 Feb 2021