We came away from MI Technovation’s recent briefing with a more positive view on the company’s outlook. Management voiced its confidence to turn around some its overseas operations this year. After putting in huge expenditures for its acquisitions in the last 5 years, it has set its sights on drivin more significant profits in the coming years – 2024-2028. In view stronger earnings contributions expected from both equipment and solder ball businesses, and its 22.64%- owned Talentek, we raise FY24-25F EPS by 25%-40%. Maintain Outperform with a higher TP of RM2.57 based on 30x FY24 EPS.

• 2022 results round-up. The Group posted higher revenue of RM389.5m for FY22, led by SEBU (semiconductor equipment- 46.9%) and SMBU (semiconductor material- 53.1%). Taiwan remained the largest sales contributor, making up 42.3% followed by China (31%, Southeast Asia (18.3%) and Korea (5.4%). In terms of product breakdown, mobile device & telco made up 55.3%, followed by PC & accessories (16%), artificial intelligence, high performance computing (HPC) & data (12.4%), industrial & IOT (10.6%) and renewable energy & auto (4.6%). The robust 4QFY22 sales were mainly backed by deliveries from China for the Mi and Si series products. In terms of equipment sales breakdown, Mi Series accounted for 70% followed by Si series (20%) and Vi series (10%). Nevertheless, only Mi Equipment Malaysia and Accurus Taiwan were profitable, contributing PAT of RM53.5m and RM40.4m, respectively.

• Turnaround plan underway. Management expects Mi Equipment China (final test handler) and Mi Equipment Korea (precision bonding machine) to turn around this year while Mi Equipment Taiwan (vision inspection machine) will cease operations after being integrated into China’s operation for cost saving and better efficiency. It expects Mi Korea to do well this year as they have a number of laser-assisted (LAB) and laser-compression bonding (LCB) machines ready to be converted into purchase orders. It will also ramp up production lines at Accurus China in Ningbo from 3 lines to 4-6 lines. To break-even, the new plant requires at least 6 production lines. To beef up margins for the solder ball business, management aims to streamline the product mix in Accurus Taiwan by focusing on low material content patented solder ball products, namely, AT35U, Cylomax and iSAC. Accurus China will focus on the low margin and competitive solder ball product, SAC305 to cater for the mass market in China.

• Eyeing larger stake in Talentek. Management is planning to raise its stake in Talentek from 22.64% to 35% to gain bigger exposure into the semiconductor final test segment in China. Based on our back-of-the envelope calculation, Talentek registered net profit of about RM10m in FY22. Riding on the latter’s capacity expansion, Mi Equipment China in Suzhou will see more orderbook for the automated test equipment and test handler products. It is projected to see robust growth this year. Lastly, the newly established Semiconductor Solutions Business Unit, which is based in Singapore, will focus on the device and package development for power segment semiconductor module. It will also provide final products to renewable energy and EV segment (refer to Figure 3).

Source: PublicInvest Research - 3 Mar 2023