We had a meeting with management of Mi Technovation last week, which provided some relief after the tough period experienced in 1H 2023. Management stressed that the worst is over for the Group and it sees better performance in the 2H compared to 1H, with no orders cancelled in the past but only deferred due to slower capital expenditure by customers. Nevertheless, we cut our FY23 earnings forecast by 21% to reflect weaker performance for both equipment and solder ball businesses in the 1HFY23 but retain our forecasts for FY24-25F in view of the bullish semiconductor outlook for the next 3 years. The Group’s 2QFY23 results are scheduled to be released in mid-Aug. Maintain Outperform call with an unchanged TP of RM2.57.

• Seeing signs of recovery for SEBU. Based on recent enquires and purchase orders, management expects the demand for the Semiconductor Equipment Business Unit (SMBU) in Korea, Southeast Asia and China to pick up in 2H, led by i) mobile device & telecommunication, ii) computer & accessories iii) AI, HPC & data centre and iv) automotive segments. For Mi Equipment Malaysia, management has high expectation on the Mi28 series die sorting machine that is equipped with artificial intelligence features. For Mi Equipment Suzhou China (MISC), it has set its sights on two testing platforms, namely, Ambient Light Sensor (ALS) for sensor application (has supplied 6 machines to its 25.5%-owned Talentek) and Known Good Die (KGD) for power module. The increasing demand for Silicon Carbide used in electric vehicles will drive more orders for its KGD, which is required for power module testing. In-short, management expects to see double-digit quarterly sales growth in 3QFY23 with its associate OSAT company, Talentek expecting to turnaround this year while MISC and Mi Equipment Korea are targeted to turnaround in 2024.

• Eyeing higher capacity utilization for SMBU. The Semiconductor Material Business Unit (SMBU) recorded capacity utilization of 40%-60% in 2QFY23 for the solder ball plant in Tainan, Taiwan and is projected to hit 80% utilization in 3QFY23. Meanwhile, three production lines (2 lines for big solder ball and 1 line for small solder ball) have been installed at the new plant in Ningbo, China. Management plans to expand capacity with an addition of 2 production lines. On an even more positive note, US chipmaker, Micron Technology has already qualified their products though it will have to undergo some restructuring due to the recent ban by China.

• Mi Equipment Korea is riding on the AI boom. The 70%-owned Korean operation has seen a technological breakthrough for its Laser Compression Bonding (LCB) and Laser-Assisted Bonding (LAB) machines, currently pending the greenlight from the customer after delivering a demo machine. We understand that the LCB machine is meant to eventually replace the conventional thermo-compression bonding machine as it has a far better performance when it comes to High Performance Computing chip packaging. Riding on the global AI boom, it has received various enquiries from Korea and Taiwan. Management believes that it can secure the maiden LCB purchase order by next year.

Source: PublicInvest Research - 17 Jul 2023