We came away from the Mi Technovation analyst briefing yesterday with more guidance on the type of acquisition deals that they are targeting in the near-term. Following the maiden contribution from Taiwan-based Accurus Scientific, the semiconductor material business unit (SMBU) is expected to continue growing with the commercial operation of the Ningbo plant in early-2022. We continue to like the exciting growth in the company through organic capacity expansion and multiple acquisitions, which will propel the company forward. We maintain our Outperform call with an unchanged TP of RM5.78.

• Driven by robust demand from China. During 1HFY21, the semiconductor equipment business unit (SEBU) generated total equipment revenue of RM144m, with markets in China contributing 43% followed by Taiwan (37%), Southeast Asia (9%) and North America (7%). Mi Series equipment sales (die sorting) made up more than 90% of the SEBU sales. The strong demand from its customers in China was mainly attributable to strong consumption for 5G-enabled smartphones and wireless electronics during the pandemic. Meanwhile, SMBU contributed maiden sales of RM27m following completion of the Accurus Scientific acquisition on 19 April 21. The solder ball business derived most of its revenue from Taiwan, making up 62% with China coming in second with 20%.

• Bullish solder ball outlook. The Taiwan-based Accurus Scientific is currently running beyond full capacity and production workers are working extra hours to fill up the orders. Meanwhile, its new plant in Ningbo, China, which is 2.5x bigger than the production plant in Tainan, Taiwan, is scheduled to be commercially operational early next year and will focus on a wide range of solder ball products for the Taiwan and US customers who are based in China. The new plant will take up to 3 years to fill up to full capacity.

• Multiple plans ahead. Management plans to set up the third business unit, which is semiconductor manufacturing and specific process services by 2024. The 4th business unit called technology intensive commercial products is slated to be established by 2026. Meanwhile, it is targeting up to USD240m (RM1bn) worth of acquisitions in China, Taiwan and Korea to expand the portfolio for SEBU. It has also set aside USD35m-45m (RM145m-185m) to acquire 2 chemical companies in EU and US, which have strong exposure to automotive industry and semiconductor high-end package that can complement its newly acquired solder ball business. Management also voiced its plan to increase its solder ball business penetration in the Southeast Asian market through its Batu Kawan plant. All in, it has set its sight on acquisition deals of up to USD285m (RM1.1bn). Finally, it plans to roll its new Mi series equipment called Mi 50, in the 4Q during the upcoming Semicon Taiwan Taipei show

Source: PublicInvest Research - 5 Aug 2021