Results

Although 9MFY14 turnover of RM569.8m was slightly below expectations, its core net profit of RM67.8m came in within expectations, accounting for 71.3% and 72.3% of HLIB and consensus full year forecasts, respectively. Deviations

Within expectations.

Dividends

Proposed 3rd single tier dividend of 1.2 sen (3QFY13: 0.9 sen) per share and a special dividend of 0.8 sen (3QFY13: 0.9 sen per share). YTD dividend amounted to 5 sen (9MFY13: 3.5 sen) per share.

Highlights

9MFY14 revenue more than doubled to RM569.8m compared to a year ago mainly due to the consolidation of Amertron as well as higher trading volume from the existing business.

Amertron revenue was relatively flat qoq with a contribution of RM106.8m to the Group in 1QFY14 while the existing business expanded to RM85.0m, representing a sustainable healthy growth of 5.1% qoq and 49.6% yoy.

It remains optimistic on business prospects supported by continued end-user adoption of smart mobile devices globally which IDC expects shipments to reach 2.2bn units in 2018, implying a CAGR of 4.0%.

It will also continue to work towards widening clientele, intensification of R&D initiatives and expansion of production capacity.

Forecasts

Unchanged.

Catalysts

• Wireless communications / mobility / IoT (M2M) / LTE.
• Business diversifications into optoelectronics and T&M.
• Favorable FOREX.
• Continuous effective operational strategy.

Risks

• Single major client risk (Avago) / high dependency.
• FOREX risks.
• Patent disputes.
• Resources / labour shortage.

Rating

BUY, TP: RM3.09

Positives - Synergy from acquisition, 40% dividend payout providing reasonable yield and listing transfer to Bursa Main Board.

Negatives – innovation stalemate in telecommunication.

Valuation

Reiterate BUY with unchanged fair value of RM3.09 based on unchanged 15.1x CY15 P/E or average P/E of its Malaysian and US-based peers (see Figure #5).

Source:Hong Leong Investment Bank Research - 16 May 2014