• Overview. 2QFY20 core profit grew 17% yoy and 27% qoq in tandem with higher revenue. EBITDA margin expanded 0.5ppt yoy and 1.6ppt qoq to 26.3% despite higher net opex. This was due to favourable mix of high margin products derived from the automotive segment.

• Key highlights. On yoy basis, improvement in revenue was underpinned by higher contribution from Asia market (+8%) which offset the weaker contribution from Europe and US market (Table 2).

• Against estimates: inline. 1HFY20 core profit fell 2.3% on lower 1QFY20 performance. Overall, 1HFY20 core profit was inline with our and consensus’ expectations at 54% and 52% respectively.

• Outlook. Management guided of FY20’s challenging business environment coming from uncertainties in the global economy and the impact of the Covid-19 outbreak. However, management will continue to improve its operational efficiency through automation and enhance product development. This is inline with it plans to sustain EBITDA margin at 24-27%.

• Our call. Maintain BUY with EV/ROIC-derived (based on GGM formula) TP of RM12.75 (WACC: 9.2%, g: 1%), implying FY20/21F PE of 18x/13x.

Source: BIMB Securities Research - 27 Feb 2020