Results

Remarkable FY14 sales of RM793.7m was translated into a much anticipated core net profit of RM95.3m, accounting for 100.3% and 96.6% of HLIB and consensus’ full year estimates, respectively. X

Deviations

Within expectations.

Dividends

Proposed 4th single tier dividend of 1.8 sen (4QFY13: 1.0 sen). YTD dividend amounted to 6.8 sen (9MFY13: 4.5 sen) per share.

Highlights

Separately, also announced its subscriptions into Hektar Haruman SB (Hektar) for a total consideration RM399k and assuming liabilities amounted to RM25.5m, to be funded by internally generated funds and bank borrowings. Upon completion, Hektar will become a 99.975% owned subsidiary.

Through Dufu Dyna-Edge, Hektar owns a 5.5 acre leasehold land with a 2-storey factory building located at Bayan Lepas, Pulau Pinang (close proximity to existing factories). The land lease is 60 years expiring on 6 March 2050, and the gross built up area of the factory building is ~166k sqft.

The layout of the factory is designed for semiconductor operations with clean room facilities and they can be easily adopted, modified, upgraded and enhanced for its on-going business operations, future expansion and opportunities.

Apart from higher trading volume from the existing business, FY14 revenue more than doubled mainly due Amertron consolidation, but this has also diluted EBITDA margin due to its lower margin optoelectronics products.

Amertron revenue gained 15.2% qoq with a contribution of RM123.0m to the Group in 4QFY14 while the existing business expanded to RM100.9m, representing a strong growth of 18.7% qoq and 49.0% yoy supported by demand.

It remains optimistic on business prospects supported by continued end-user adoption of smart mobile devices globally which IDC expects shipments to reach 1.8bn units in 2018, implying a CAGR of 12.3% from 2013 to 2018.

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: RM3.41

Positives - Synergy from acquisition, 40% dividend payout providing reasonable yield and strong earnings growth.

Negatives – innovation stalemate in telecommunication.

Valuation

Reiterate BUY with unchanged fair value of RM3.41 based on 15.1x CY15 P/E.

Source: Hong Leong Investment Bank Research - 27 Aug 2014