• 1Q19 core earnings fell 74% yoy in tandem with poor revenue on the back of weak smartphone demand and unexpected measure by certain customers to stop shipments towards end Mar 2019.

• Core earnings fell 87% qoq driven by lower volume loadings from the South East Asia market (c.90-95% of total revenue) which fell -50% qoq.

• Overall, 1Q19 core earnings were only 7% and 4.6% of ours and consensus’ 2019F figures accordingly. We cut 2019F core earnings by 18% to reflect lower volume loadings from ket customer.

• Reiterate SELL at lower TP of RM1.30 (from RM1.55). We retain our negative view on the stock in view of waning demand for non-android smartphones, particularly in 2019F, and uncertainties from the US-China trade tension.

Margin improved

1Q19 core earnings slumped 74% yoy to RM3.3m in tandem with drastically lower volume loadings which led to a 50% revenue decline. This was on the back of moderate growth in smartphone sales and certain customers unexpectedly stopped shipments towards end of Mar 2019 in order to deplete existing inventories in its supply chain.

Weaker sales from East Asia market

On qoq basis, core earnings fell 87% caused by the South East Asia market; sales from SEA (c.90-95% of sales) halved amidst cooling demand for non-Android smartphones. Overall, 1Q19 core earnings was only 7% and 4.6% of ours and consensus’ 2019F figures accordingly.

Dragged by slower smartphone sales

We cut our 2019F by 18% to reflect lower volume loadings. We expect sales to remain weak amidst slower orders from a key customer.

SELL at TP of RM1.30 (from RM1.55)

Maintain SELL on the stock with a lower TP of RM1.30 (from RM1.55) (WACC: 8%, terminal growth rate: 3%). Historically, the trades at 30- 35x PE. However, the implied PE for our valuation is at 23.5x; we believe is justified due to its huge exposure to non-android smartphone supply chain and uncertainties from the US China trade tension.

Source: BIMB Securities Research - 2 May 2019