Post 4QFY23 analyst briefing, we are more upbeat on the group’s prospects, spurred by higher capacity utilization for radio frequency (RF) segment ahead of the new flagship phone coming out next week. Datacom and automotive segments are also the key focus in the near-term. The group is currently in the midst of discussions with four strategic customers that are involved in automotive, smartwatch, optical transceivers for data centre and automated optical inspection machine. Despite weaker FY23 results, we expect to see a strong comeback in FY24. Maintain Outperform with unchanged TP of RM3.53 based on 35x FY24 EPS.

• FY23 results round-up. The group recorded a sales drop of 12.5% to RM1.3bn in FY23, the first decline in four years. Radio frequency sales made up 59% followed by Optoelectronics, 33% and Generic, 8%. Smartphone segment continued to be the largest sales contributor, making up 62% followed by Datacom (15%), Automotive (10%), Industrial (7%) and Generic (6%). Total capex spent slipped from RM129m to RM113m with 82% allocated for machineries and remaining 18% for construction.

• RF capacity utilization ramping up. In contrast to only 60% recorded in 4QFY23, The RF capacity utilization is currently running above 85% ahead of the new flagship 5G smartphone release next week. We expect to see continuous growth in this segment on the back of increasing RF content (+5-8%) and technological complexity coupled with bigger market size for the 5G smartphone.

• Update on 54.5%-owned Yiwu Semiconductor Corp in China. The setup of the new plant, which offers premium OSAT services to local customers, is almost ready with the first production line and customer audit to commence by 3Q 2023. Management aims to go for listing in the next 5 years once it surpasses RMB1bn sales.

• Datacom riding on AI boom. Driven by the emerging AI platforms, it requires more memory and fibre transceiver (a key component of fibre optic network) to power data centre. It has recently completed a high volume line for its new memory customer with another 4 lines to set up at P34. It is also currently working on new product called silicon photonics application, which can support higher speed from 400G to 800G. It targets potential revenue of RM100m-150m with half of it coming from the memory product alone.

• Automotive projected to have higher loading by 4Q 2023. Led by production of optocoupler products, automotive segment is expected to perform well in FY24. It has successfully secured a few projects involving high-power LED, System On Module for high power server/industrial application.

Source: PublicInvest Research - 8 Sept 2023