We recently attended MI Technovation’s (MI Tech) virtual briefing hosted by the management. The key takeaway is China’s role being a key growth driver for the Group’s equipment and material business units in the next 2 years. We gather that management plans to offer total solutions to Chinese clients for both semiconductor equipment and material products, which can help improve margins and cross sell both products. Nevertheless, final quarter number for this year will be softer due to the ongoing supply destruction and deferment by customers due to the revised capacity schedule. We retain our Outperform call with a lower TP of RM5.04 (from RM5.78) after cutting our FY21-23 earnings forecasts by 4%-10%.

• 3QFY21 results round-up. Topline surged +77% YoY to RM114m, contributed by semiconductor business unit (+56.3%) and semiconductor material business unit (+43.7%), respectively. China, Taiwan and Korea are the top three markets, contributing 42.0%, 32.8% and 6.5%, respectively. Meanwhile, sales from the top three markets (China, Taiwan and Korea) made up 73.5% of the semiconductor equipment business unit sales while sales from Taiwan, Singapore and China made up more than 90% of the semiconductor material business unit. The Group also witnessed gradual upward ASP revision for its Taiwan-based solder balls due to cost hike in materials. It also plans to penetrate into Korean and Japanese markets and aims to slowly phase out the low-margin solder ball business.

• Positive news from Mi Equipment Korea. Following the successful maiden sale of the laser-assisted bonding (LAB) machine to a reputable Korean phone maker, the Group is aiming for 20%-25% market share as it has started qualification for another potential client. It targets to deliver 10- 15 units of LAB systems in 2022. It is worth noting that the ASP for LAB machine can be higher than its flagship Mi series as it is mainly applicable to high performance computing systems such as graphic processing unit (GPU) and accelerated processing unit (APU).

• Ningbo plant ready to gear up. Management highlighted that Accurus Scientific’s plant in Ningbo will undergo pilot run soon followed by audit and qualification by next month. It is expected ramp up the solder ball production in the 1H 2022. Eventually, the Group plans to supply solder balls to its customers in China out of the Ningbo plant. This can free up its existing floor space in Taiwan to produce the ultra-small solder balls, which can fetch higher margins. Meanwhile, Mi Equipment China has secured pilot orders for a new product segment, test handle solutions from its 22.64%-owned associate company Talentek Microelectronics (He Fei), an outsourced semiconductor assembly and test company that mainly services China’s chip design house specializing in RF chip (mobile phone segment). Sales contribution is expected to kick in during 4QFY21. We gather that Talentek Microelectronics may require 150 test handlers in the next 2 years. It also plans to introduce cost-effective die sorter machines for the China market in the 2Q 2022. Lastly, it is planning to roll out Mi50 machine, a higher performance die sorting model and aiming to sell in Taiwan and Korea.

Source: PublicInvest Research - 3 Nov 2021