We came away from Mi Technovation’s (Mi) recent analyst briefing with a more positive view on the company’s outlook. Management is confident that it can turn around its China and Korean equipment operations in the near-term. Losses from overseas operations are expected to narrow as order book starts climbing while Accurus Taiwan is also currently running at higher capacity utilization of 80%. Meanwhile, management will put in more focus on the new Semiconductor Solutions Business Unit (SSBU) setup, which provides power module for electric vehicles. Maintain Outperform with an unchanged TP of RM2.57 based on 30x FY24 EPS.

• 1HFY23 results overview. During the first half, China made up 47.2% of sales followed by Taiwan (30.1%), Southeast Asia (18.3%), Korea (3%) and North America (1.4%). In terms of segmental business, mobility and wearables was the largest contributor, accounting for 66.1%, followed by HPC and Memory (17.1%) and Power and Automotive (16.8%). Meanwhile, operating profit margin softened from 15.7% to 7.3% due to higher fixed cost following the expansion in both Mi Equipment Korea and Mi Equipment China as well as Accurus China. Overseas operations collectively posted total losses of RM18.1m.

• Laser-Compression Bonding (LCB) machine a game-changer. We understand that the LCB machine is meant to overtake conventional thermo-compression bonding machine as it has a far better performance for semiconductor packages despite higher pricing. It currently has 3 LCB machines pending sale, with a potential market demand of 20-30 units from global technology players.

• SSBU. Management plans to venture into power module business in Hangzhou, Ningbo (China) and Malaysia to tap on the increasing voltage for inverter in view of bigger battery storage demand in the future. It plans to inject USD30m-40m into the new venture with commercial production set to take off in 2024. As it is a capex-intensive business given that it costs about USD15m for each production line, management is planning to bring in industry partners via a strategic stake sale.

• Setting sights on China and Korea turnaround. Mi Equipment Suzhou China, which supplies all series to domestic clients, is expected to deliver 10 units of test handler machines this year compared to only 4 units in 2022. Based on the current orderbook, management believes that China’s equipment operations together with its 25.5%-owned OSAT company, Talentek can break even this year. It incurred a small loss of RM1m for 1HFY23. Accurus China, which posted a loss of RM6m, is only expected to breakeven by FY26 due to the delays in customers’ qualification and production ramping amid intense geopolitical tensions. To fast-track the turnaround plan, it does not rule out the possibility of bringing in a local partner via a strategic stake sale. Meanwhile, Mi Equipment Korea, which posted a loss of RM6.8m, is expected to breakeven next year.

Source: PublicInvest Research - 24 Aug 2023