We recently came away from MI Technovation’s analyst briefing with a mixed view on both SMBU and SEBU outlook. We gather that the semiconductor equipment segment is still in the doldrums due to various challenges that have affected its margins significantly. Management also shared on the setup of a new business unit, which is Semiconductor Solutions, which provides assembly and packaging solutions for specific process and application. The key re-rating catalyst is the long-awaited commercial operation of the new solder ball plant in Ningbo, China, which can propel the group’s earnings by double-digit. Maintain Neutral with an unchanged TP of RM1.65.
- Mixed fortune. During the 1HFY22, Semiconductor Equipment Business Unit (SEBU), which posted 59% decline in earnings, contributed 41% to the group earnings while the remainder was made up of the Semiconductor Material Business Unit (SMBU), which jumped nearly 10-fold. Taiwan remains the bigger sales contributor, making up 39.7%, followed by China’s 37.5%, Southeast Asia’s 14.3% and Korea’s 6.1%. During the first half, sales from mobile device and telco segment contributed 56.9% followed by PC & accessories (16%), HPC, data centre and memory (12.2%), industry & IOT (10.4%) and auto & transportation (4.5%).
- Expecting equipment sales to recover in 4Q. The 2QFY22 SEBU sales were mainly contributed by China (23.9%), Taiwan (5.3%) and Malaysia (5%). Nevertheless, the SEBU is expected to be weaker compared to last year due to a slowdown in capex spending by the outsourced semiconductor assembly and test (OSAT) customers as supply chain disruptions and a slowdown in gadget demand have delayed some major foundry’s capacity expansion plans. This year, management is targeting RM200m sales for SEBU segment, implying a strong catch-up in the 2H as 1HFY22 only contributed RM85.6m. Mi Equipment Malaysia continues to focus on the Flip-Chip Ball Grid Array (FCBGA) segment with Mi Series multiples bin die sorter for flip chip devices. Mi 30 and Mi 40 series remain the top selling products for SEBU. We also gather that there will be no new launches of new Mi Series model in the near-term due to lacklustre demand.
- Solder ball outlook remains exciting. The 2QFY22 SMBU sales were mainly contributed by Taiwan (31.9%), China (11.2%) and Singapore (4.1%). Operating margin jumped from 12.4% in 2QFY21 to the current level of 22.4%, bolstered by increased demand from the more lucrative small-size solder balls. Due to the supply chain disruptions and Covid-related lockdowns, the commercial operation of the new Ningbo plant, which is almost 3x bigger than the Taiwan’s plant, has been delayed by another 1-2 quarters. Accurus China has started contributing small sales with two production lines in place for pilot run. According to the plan, there will be 5 production lines for over 0.2mm diameter solder ball production, which can produce 100bn units per month. The 2nd phase will see another 7 production lines for less than 0.2mm diameter solder ball production. As of now, the new plant has been qualified by US-based Micron Technology.
Source: PublicInvest Research - 4 Aug 2022