Highlights

We left the analyst briefing on a rather positive impression chiefly due to MPI’s decision to streamline Dynacraft by shutting down the lossmaking stamped leadframe (l/f) business, leaving only the profitable and complementary etch l/f business. The closure will release property for sale and returning cash to business.

Analysis by operating unit (see Figure #1 and #2) revealed that overall stellar 1QFY14 performance was attributable to Dynacraft’s turnaround with PAT of RM2.9m from LAT of RM7.8m in 4QFY13.

Dynacraft’s improvement is incidental to its right sizing plan and will boost earnings in the short term (till 2QFY14) as customers are stocking up to 6 months’ supply ahead of the shutdown, artificially inflating capacity utilization rate.

On the contrary, Carsem’s EBITDA margin and earnings contraction of by 1 ppt and 13.0% qoq respectively on the back of flat top line growth during a cyclically strong quarter (ahead of year-end festive and holiday seasons) did not excite us.

1QFY14 utilization rate was unchanged from last quarter, hovering within the range of 82-83%.

Revenue contributions from smartphone/tablet and PC market segments gained 3 ppt and 2 ppt yoy respectively at the expense of feature phone. Automotive market segments accounted for one-fifth and MPI intends to increase this to 25% as it sees good margins and stable market demand outlook.

Ipoh: Top EU customer has qualified a custom automotive pressure sensor to ramp up volume in 3QFY14. Also, secured significant win as a major test hub from a US customer and will see ramp up from late 2QFY14 into 4QFY14 involving ~40 test systems.

Su Zhou: Entry into LGA and FBGA markets for lost cost smartphones. Volume ramp up from newly qualified top-tier IDM, new XboX 720 and handheld WiFi PEM devices.

2QFY14 revenues expected to soften slightly as its customers are guiding for 5-10% weakness.

Preparing for new Carsem product wins in 2HFY14 with focus on extremely thin MLP (alternative to WLCSP) which confers benefits including ultra-thinness, cost effectiveness, speed to market, multi-die capability and robustness.

Catalysts

• Improved consumer confident.
• Technological advancement and creation of new electronics applications.

Risks

FOREX and weak consumer demand.

Rating

Not Rated

Positives – Appreciation of greenback, proliferations of smartphones, tablets, wearable techs and hybrid / electric automobiles.

Negatives – intense competition from Taiwanese peers, higher input costs, challenging economic outlook which will eventually hampers consumer confident and stalemate in electronics innovation.

Source: Hong Leong Investment Bank Research - 18 Nov 2013