Despite seeing signs of slower-than-expected semiconductor recovery and moderate growth for automotive sector, management sees pockets of opportunities and aims to expand its manufacturing-based earnings following three successful job wins from a front-end wafer fabrication automotive player in Northern Malaysia. It aims to surpass FY23 financial performance, hinting that there could be a strong catch-up in the 2H performance. Maintain Outperform with an unchanged TP of RM0.86 based on 26x FY25 EPS.

• 1HFY24 results round-up. During 1HFY24, distribution and manufacturingsegments contributed 88.2% and 11.8%, respectively. In terms of revenuebreakdown, semiconductor remained the largest revenue contributor (38.6%)followed by Automotive (33.3%) and Electrical and Electronics (17.2%). Interms of semiconductor breakdown, test & assembly and wafer fabaccounted for 41.8% and 58.2%, respectively, quite a big change comparedto the ratio of 65.6% and 34.4% for the same period last year. Surprisingly,Mobile 5G became the largest contributor to the semiconductor segment,making up 50.5% followed by Opto, Sensors & Discrete (19.4%), AutomotiveIC (16.9%) and Memory & Microprocessors (5.6%).

• Backed by strong orderbook. As of July 2024, The Group’s orderbookstood at RM111m (vs April 2024: RM108m) with distribution andmanufacturing segments making up 76.5% and 23.5%, respectively. Therewill be two more orders for wafer stocker and wafer sorters under theAutomated Handling System (AHS) which will be shipped out overseas in thesecond half. The bulky manufacturing products, which take up to 9 monthslead time, are mainly catered for the automotive industry. Management hasretained its manufacturing revenue target of RM43m this year, a significantgrowth of +32% compared to FY23’s RM32.6m. It had recognizedmanufacturing sales of RM14.7m in the 1HFY24, indicating that there will beanother RM28.3m to be recorded in the 2HFY24. Meanwhile, there will beanother RM28m-32m to be recognized for its recurring distributionmaintenance revenue in the 2HFY24 as only about 49% of annual recurringdistribution of RM55m-60m was recognized in the first half.

• Batu Kawan plant is slightly behind schedule. The new plant is currentlyat 65% completion and is about 2 months behind schedule. The second plant,which will double the company’s manufacturing capacity upon completion, isscheduled to be completed by year-end.

• Expanding distribution channels. Besides the ASEAN region,management plans to strengthen its footprint in China by collaborating withsome local semiconductor equipment manufacturers in the wafer fab and testassembly areas. It is also trying to establish a presence in the Taiwanese,Japanese and Korean markets by engaging distributors and representativesthere. The distributors covering the European and US markets have receivedpositive feedback and is expected to see the results by 1H 2025.

Source: PublicInvest Research - 26 Aug 2024