Excluding the impact of i) net foreign exchange (FX) loss (RM17.7m) and ii) losses from minority interest in 90%-owned Mi Equipment Korea (RM1.1m), Mi Technovation saw its 9MFY24 core earnings surge from RM25.2m to RM64.8m. Led by SEBU and SMBU, the commendable results accounted for 93.8% and 95.5% of our and the street's full-year expectations, respectively. On a more positive note, losses from the Korean operation had halved to only RM1.1m. In view of the stronger-than-expected results, we raise our FY24F earnings forecast by 11% but make no changes to FY25-26F. Maintain Outperform with an unchanged TP of RM2.92 based on 33x FY25 EPS. No dividend was declared for the quarter.

• 3QFY24 revenue rose 20% YoY. During the quarter, the stronger revenue was underpinned by both the Semiconductor Equipment Business Unit (SEBU) and Semiconductor Material Business Unit (SMBU) segments. SEBU sales climbed 22.7% to RM62.7m, 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 16.1% YoY to RM54.9m 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 small revenue of RM61k.
• Core earnings surged 97% YoY. Stripping out the i) realised gain on FX (RM2.4m), ii) unrealised loss (RM20.1m), and iii) minority interest (RM0.6m), the group saw its core earnings double to RM22.3m. Meanwhile, operating profit margin improved from 20.1% to 22.4% due to higher capacity utilisation. SSBU made a loss of RM4.2m due to start-up costs. Meanwhile, we estimate that the 90%-owned Mi Korea's losses shrank substantially from RM5.6m to RM1.8m. Talentek also saw good progress, as it recorded another breakeven quarter.
• Management guidance. The group expects double-digit revenue growth for both SEBU and SMBU in FY24. Meanwhile, SSBU is set to complete its first phase of talent recruitment as well as the establishment of laboratories and testing departments this year. The sample of the first-generation products had been delivered to the customer for qualification, and the current progress of SSBU is on track with the group's plan.

Source: PublicInvest Research - 21 Nov 2024