At its post-result briefing, management stressed that it wants to adopt a more conservative approach as it remains doubtful over the long-term recovery of the industry due to various uncertainties. It is worth noting that more than 76% of its 1QFY24 revenue was linked to the smartphone industry, which is on track for recovery this year. Overall, we expect to see significant improvements this year on the back of a turnaround in regional operations and better earnings contribution from MI Equipment China. Maintain Outperform with an unchanged TP of RM2.67.

• 1QFY24 results round-up. The group recorded a surge in sales, up 39.5%YoY, to RM107m, the highest quarterly sales since 4QFY22. Out of theRM107m, Mobility & Wearables segment (smartphone, 5G and IoE)accounted for 76.8%, followed by High Performance Computing & Memorysegment, 12.7% and Automotive & Renewable Energy segment, 10.5%.By region, China remains the biggest contributor at 34.9% followed byTaiwan (34.5%), Southeast Asia (22.6%), North America (4.7%) and Korea(3.3%). For the Semiconductor Equipment Business Unit (SEBU), MiEquipment Malaysia made up the entire earnings contribution as MiEquipment China and Mi Equipment Korea incurred losses of RM1.0m andRM3.7m, respectively due to hefty spending on R&D. Meanwhile,Semiconductor Material Business Unit (SMBU) earnings were mainlycontributed by Accurus Taiwan and Accurus Singapore while AccurusChina continued bleeding with a loss of RM2.5m.

• Outlook guidance. Management lauded the commendable 1QFY24results due to strong recovery from Taiwan and Southeast Asian regions.It also commented that the Accurus China might take longer to reach highmanufacturing volume due to some change of ownership in some of its keycustomers in China, resulting in longer qualification process. Nevertheless,the qualification process by customers is ongoing and it expectscompletion of major qualification process this year. Meanwhile, orderbookas of 10th May 2024 stood at USD81.2m (RM386m) with 60% coming fromSEBU while remaining 40% contributed by SMBU and SemiconductorSolution Business Unit (SSBU), which has seen a cumulative investmentof RM5.8m on the Hangzhou facility. However, there is no precise timingover the recognition of sales as it is subject to the customer’s order for thedelivery period. The allocated capex for FY24 stood at USD14m (RM67m)mainly catered for the SSBU in Hangzhou, China. On the pioneer status,which expired on 17th Jan 2024, the group is in the final stage of discussionwith MIDA for the extension.

• All eyes set on turnaround for regional operations. Assuming there isflattish growth for both Mi Equipment Malaysia and Accurus Taiwan, thecompany’s bottomline would still see significant improvement this year if itmanages to turn around or reduce losses for the regional operations,namely, Mi Equipment Korea and Accurus China while Mi EquipmentChina is tipped to be profitable this year, banking on the robust OSATorders from its associate company, Talentek.

Source: PublicInvest Research - 14 May 2024