Results

FY13 reported lackluster sales of RM990.6m which translate into core net loss of RM16.6m, RM2.3m lesser than our full year forecast but RM2.0m more than consensus’. However, we consider this as within expectations. Deviations

Largely in line.

Dividends

Final tax exempt of 2 sen per share (4Q12: 2 sen) subject to shareholders approval in forthcoming AGM.

YTD dividend of 2 sen per share (FY12: 2 sen).

Highlights

Overall utilization rate was relatively unchanged qoq, ranging 55%-60% although WLCSP / flip-ship product lines were running at more than 80% of capacity.

As a result of effective product rationalization, leadless and WL packaging / bumping’s sales contribution gained traction steadily reaching 54.9% (+3.6-ppt yoy) of sales in 4Q13, a positive result as it yields higher margins (see Figure #4).

Saw demand and opportunities picked up in bumping, 8in and 12in WLCSP, as well as <0.33mm QFN designed into coming generations of smartphone in 4Q13. MEMS microphone and pressure sensors also gaining demand.

Headcount has further shrunk to 6.9k from 8.1k a year ago.

Guidance: lower 1Q14 sales with a possible -5% qoq due to shorter production days and CNY. The main focus is on operational excellence, cash conservation and debt reduction.

Catalysts

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

Risks

FOREX, weak consumer demand, continuous drag by Batam’s performance.

Forecasts

Updated and rolled over our model. In turn, FY14-15 EPS was revised upward by 350.0% and 54.5% respectively.

Rating

HOLD, TP: RM1.18

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.

Valuation

Raised fair value by 29.7% from RM0.91 to RM1.18 based on historical average P/B of 0.83x FY14 book per share (see Figure #7). Although our new TP implies slightly more than 10% potential upside, we maintain HOLD call, pending the emergence of more convincing turnaround signals from the firm.

Source:Hong Leong Investment Bank Research - 27 Feb 2014