Mi Technovation announced that it has entered into an investment agreement with a Chinese provincial authority to invest in a research, development and manufacturing facility for power module and devices in Xiaoshan, Hangzhou City for USD30m (RM142m). Due to the sketchy information available at this juncture, we have not factored this into our earnings forecasts. Maintain Outperform with an unchanged TP of RM2.57 based on 30x FY24 EPS.

• Salient details of the proposed investment. Its wholly-owned company, Mi Semiconductor Pte Ltd has committed a total investment of USD30m (RM142m) to set up a research, development and manufacturing facility for power module and devices in Xiaoshan, Hangzhou City. The key management team will comprise of industry people from leading multinational corporations in Europe, the US and Taiwan. The proposed investment will be fully funded through internally generated funds, which should not be an issue given its current net cash position of RM329m. Under the agreement with the Xiaoshan Economic Committee, it is entitled for investment incentive for a period of 5 years, starting from 1st Jan 2024. Out of the RM142m, 65% will be allocated for capital expenditure related to the building and infrastructure, 25% for operating expenses and working capital and remaining 10% for the research, development and IP spending.

• Making an inroad into power module manufacturing. The proposed investment would diversify its Semiconductor Solution Business Unit into the semiconductor wide bandgap segment (WBG) in China. It is a power module that allows the third generation semiconductor to operate under the condition of high voltages, high temperatures and high frequencies. Management guided that its high power modules will include InsulatedGate Bipolar Transistor (IGBT) and Silicon Carbide (SiC) power modules with aerospace and automotive grade. The first production line with an annual turnover of around 60,000 pieces is expected to be ready for commercial operation by end-2024.

• Riding on the next-generation semiconductor wave. WBG semiconductor devices generally bring significant power efficiency to a variety of applications. The power modules can help address the highvoltage to low-voltage conversion for a variety of renewal energy applications, namely, solar, automotive, telecom, EV charging, consumer applications and industrial applications. Touted as the next-generation semiconductor, SiC products account for about 80% of the total market value. Trendforce pointed out the two largest application segments within the market for SiC powers devices are electric vehicles and renewable energy. The global market value for the SiC power devices is expected to reach USD2.28bn in 2023, a staggering growth of 41.4%, before hitting USD5.3bn in 2026 (refer to Figure 3).

• No approval required. The proposed investment is not subject to the approvals of the shareholders.

Source: PublicInvest Research - 20 Oct 2023