• Overview. 1QFY20 core earnings fell 14% yoy on weaker sales volume from optoelectronic products and unfavourable forex rate which was exacerbated by higher depreciation charge and effective tax rate. On qoq basis, core earnings surged 32% on higher volume loadings for radio frequency (RF) products.

• Key highlights. On yoy basis, revenue from major market segments came in lower for both Singapore (-5%) and Malaysia (-5%). We believe this was mainly due to moderate smartphone sales which affected optoelectronics and RF products.

• Against estimates: inline. Overall, 3MFY20 core earnings were broadly inline with ours and consensus’ expectations at 25% and 21% respectively.

• Dividend. A first interim DPS of 1.3 sen was declared (1QFY19: 1.6 sen), implying a dividend payout of 85%.

• Outlook. Despite strong qoq growth recorded in RF division to reflect shipments for a new non-android model, we expect sales to moderate in coming quarters amid softening demand in the smartphone market.

• Our call. Maintain SELL with lower TP of RM1.40 (from RM1.45) as we roll-over valuation to FY20. This implies an FY20/21F PE of 23x/22x.

Source: BIMB Securities Research - 27 Nov 2019