Excluding the impact of i) foreign exchange (FX) gain (RM11.8m) and ii) losses from minority interest in 90%-owned Mi Equipment Korea (RM0.5m), Mi Technovation saw its 1HFY24 core earnings surge from RM15.1m in the preceding year to RM43m. Led by SEBU and SMBU, the commendable results surpassed our and consensus full-year expectations, making up 62.2% and 56.5%, respectively. On a more positive note, losses from the Korean operation had shrunken substantially. Despite the stronger-than expected results in 1HFY24, we make no changes to our earnings forecast as management plans to incur additional provision of RM8.8m for staff costs. Maintain Outperform with an unchanged TP of RM2.92 based on 33x FY25 EPS. The first DPS of 2.5sen was declared for the quarter (vs 2QFY24: 2sen).

• 2QFY24 revenue jumped 51% YoY. During the second quarter, the jump in topline was mainly due to stronger sales from both the Semiconductor Equipment Business Unit (SEBU) and Semiconductor Material Business Unit (SMBU) segments. SEBU sales leapt 74% to RM71.9m, likely due to robust orders for the Mi Series (Assembly and Packaging Equipment) in Malaysia, and more deliveries of Si Series equipment (final test equipment) in China for the 30.75%-owned Talentek Microelectronics (Hefei), which is an outsourced Semiconductor Assembly and Test player for the smartphone industry. SMBU sales grew 22.4% YoY to RM52.4m on the back of increased sales in solder balls from both Accurus Taiwan and Accurus China operations. It is worth noting that the new business unit, Semiconductor Solutions Business Unit (SSBU), which is involved in high power modules and devices for wide band-gap applications in the Automotive & Renewable Energy segment in Hangzhou, China, made a maiden sales contribution of RM2.8m.

• Core earnings nearly tripled. Stripping out the i) realized gain on FX (RM3.5m), ii) unrealized loss (RM2.2m) iii) minority interest (RM0.5m), the group saw its core earnings balloon from RM8.9m to RM26.3m. Meanwhile, operating profit margin expanded from 15.9% to 26.0% due to higher capacity utilization. SSBU turned around with a pre-tax profit of RM1m. Meanwhile, our analysis shows that 90%-owned Mi Korea’s losses shrank substantially from RM9.7m to RM4.6m. Talentek also saw good progress, as it almost broke even in 1HFY24.

• Management guidance. In contrast to the global semiconductor industry forecast, management expects that a full recovery is unlikely to happen this year. It also sees weaker earnings in the second half compared to the first half due to the strengthening of Ringgit against the greenback and the additional provision of RM8.8m for staff costs. Nevertheless, we think it is a temporary blip, which will not affect our core earnings forecasts.

Source: PublicInvest Research - 19 Aug 2024