Post-analyst briefing, we are increasingly confident that the Group will end FY23 on a strong note despite some pushback by end-customers due to change of design, and cautious spending. In anticipation of the robust semiconductor outlook for 2024, the Group is currently looking for new land bank in Penang for further capacity expansion to house all operations under one roof. Meanwhile, management has also set its sights on aerospace IPS production line, with maiden contribution kicking in earliest by 1QFY25. Maintain Outperform with unchanged TP of RM1.12 based on 35x FY24 EPS.

• 3QFY23 results review. Malaysian market made up 50.5% of 9MYFY23 sales. Remaining sales were contributed by Mexico (28.0%), US (8.8%), Singapore (6.7%), Hungary (3.0%) and Vietnam.

• Looking for new landbank. The group is currently looking for a 3-5 acre landbank in mainland, Penang to expand its manufacturing floor space. Based on our estimates, that landbank size would increase its current floor space of 50,000 sq ft, or by at least 4-fold. The group plans to fund the land acquisition and construction cost via the proceeds from the issuance of 83m new shares under the Bumiputera Equity Condition. The fundraising exercise, which was proposed in May, is expected to be completed by this coming month-end. The allocated capex is around RM35m-40m.

• Technological breakthrough for ATE. Its standard platform vision inspection automated test equipment has seen technological breakthroughs and it expects to clinch repeat orders soon. It has successfully developed two new 3D Automated Optical Inspection semiconductor equipment, namely, Eye-Sight20-PMI (Automated PostMold Inspection) and EC-EYES10 (3D Automated Post Wire-Bonding Inspection). They are critical to ensure quality of wired bonded semiconductor leadframes and colors of mounted die. The 3D imaging guarantees measurement of critical parts such as wire placement, wire height, solder paste, die co-plane, ball bonding and others not able to be done by using 2D inspection machine.

• Eyeing healthy growth for FY24. The group has set a target of doubledigit growth for its FY24 topline, underpinned by the current book-to-bill ratio of more than 1x. Automated Test Equipment (ATE) makes up about 70% of the current total orderbook, mostly to be recognized in FY24. Meanwhile, it has set its sight on providing full-range assembly and test solution for insulated-gate bipolar transistor (IGBT) power devices. It has built a prototype for an existing client and the feedback is positive. They are currently tendering for 2 production lines, which will take 2 years to complete. The tender results will be known by 2Q 2024. If successful, it could contribute significantly to the group sales in the future. Meanwhile, the digital display tag project is experiencing some delays due to change of design by its key customer in Mexico.

Source: PublicInvest Research - 10 Oct 2023