• 4Q18 core earnings grew 11.4% yoy despite weaker revenues as growth was driven by high-margin products which saw EBITDA margin expanding 14.5ppts to 46.7%.

• On qoq basis, 4Q18 core earnings were flattish as it fell 1.4% due mainly to weaker sales from South East Asia (c.95% of sales) which was down 5.9%.

• Overall, 2018 core earnings exceeded our estimates but came inline with consensus at 112% and 99% respectively. No change to estimates as we expect poor outlook for the sensors business.

• A 3sen DPS was declared, translating to YTD DPS of 6sen (FY17: 11sen) which implies a 57% payout ratio.

• Maintain SELL at RM1.55 TP. We remain negative on the stock as given its huge exposure to non-android smartphones which are expected to see weak sales in 2019F.

Margin improved

4Q18 core earnings grew 11.4% yoy to RM70.8m despite lower revenues. We believe this was due to increased sales of high-margin products which also includes the LED-laser headlamp business (started production in Oct 2018). Overall, this led to EBITDA margin expanding by 14.5ppts to 46.7%.

Weaker sales from East Asia market

On qoq basis, 4Q18 core earnings fell 1.4% in tandem with the 6.2% drop in revenue. This was mainly due to weaker sales from South East Asia market (c.95% of sales) which was down by 5.9%.

2018 supported by strong 2H18 earnings

2018 core earnings surged 48% amidst combination of a low base in 2017 and a strong performance in 2H18. The strong 2H18 performance was aided by the higher net opex incurred in 1H18 possibly due to timing of expenses; 2H18 EBITDA doubled over 1H18. Overall, 2018 core earnings were ahead of our estimates at 112% despite revenue being broadly inline.

Maintain SELL at a TP of RM1.55

We maintain our SELL call on the stock at a RM1.55 TP (WACC: 8%, g: 3%) which implies FY19/20F PE of 22x/21x. Despite a strong showing in 2H18, we remain negative on the outlook of the sensors business given its huge exposure to non-android smartphones which have been forecasted to see weaker sales in 2019. While we see some potential upside to earnings from its high margin product (LED-laser headlamp), contribution remains fairly limited at this juncture.

Source: BIMB Securities Research - 26 Feb 2019