Excluding the impact of i) foreign exchange (FX) gain (RM10m), ii) losses from minority interest in 70%-owned Mi Equipment Korea (RM2.4m) and withholding tax of RM3.6m in relation to the dividend received from its Taiwan subsidiary, Mi Technovation posted core earnings of RM48.8m in FY23, down 11.1% YoY. The results were in line with our full-year expectation but it missed market expectations, making up 100% and 90% of full-year numbers, respectively. The results would have been even better if not because of the start-up cost totaling RM1.5m incurred under Semiconductor Solution Business Unit (SSBU). On a positive note, the 4Q core results improved by 33% QoQ, a third consecutive quarterly growth. Maintain Outperform with an unchanged TP of RM2.57 based on 30x FY24 EPS. A second interim DPS of 2sen was declared for the final quarter.

• 4QFY23 revenue slipped 17.5% YoY. During the quarter, the decline in topline was mainly due to weaker Semiconductor Equipment Business Unit (SEBU) while Semiconductor Material Business Unit (SMBU) sales stayed flat. SEBU sales retreated 31.6% YoY to RM42.6m, weighed by lower number of machine deliveries to China, especially for electromagnetic interference process equipment. Despite the ongoing inventory adjustment, especially for Mobility & Wearable segment, the SMBU contributed RM54m sales.

• Core earnings dropped 13.8% YoY. Stripping out the i) realized gain on FX (RM2.6m), ii) unrealized loss on FX (RM10.6m) and iii) minority interest (RM0.2m), the group saw its core earnings contract from RM23.2m to RM20m. Meanwhile, operating profit margin softened from 18.8% to 15.8% due to lower capacity utilization. It is worth noting that the group incurred a start-up cost of RM1.5m for the setup of new business unit, SSBU, which is involved in the high power modules and devices for wide band-gap applications in Automotive & Renewable Energy segment in Hangzhou, China.

• Optimistic outlook. Under the SEBU, management guided that its various product series that are equipped with Artificial Intelligence features are gaining more traction in tandem with the robust market demand. Under the SMBU, riding on its advanced applications for i) Mobility & Wearables, ii) High-Performance Computing & Memory and iii) Automotive & Renewable segments, it expects a strong growth for SMBU in the coming years. Overall, we expect to see a strong earnings recovery for the group in FY24.

Source: PublicInvest Research - 26 Feb 2024