Results

• 1QFY15 sales of RM221.9m was translated into a core net profit of RM30.6m, accounting for 23.1% and 22.4% of HLIB and consensus’ full year estimates, respectively.
• This is within expectations due to seasonal weakness in 1H. Furthermore, forthcoming capacity expansion will further boost earnings.

Deviations

• In line.

Dividends

• Declared 1 st single tier dividend of 1.8 sen (1QFY14: 1.1 sen) per share and a special dividend of 0.4 sen (1QFY14: 0.4 sen) per share, represent circa 38.5% payout as per policy.

Highlights

RF business continues to be robust, growing 55.8% yoy and 10.0% qoq contributing almost 50% of revenue. RF demand is expected to grow resiliently in to 2QFY15 as backlog piles.

Amertron’s contribution weakened by 7.7% yoy and 9.8% qoq mainly due to seasonality but this was well cushioned by RF’s gain. Amertron’s transformation is on track to expand margins through synergy and efficiency.

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 CA GR of 12.7% from 2013 to 2018.

It will also continue to integrate and improve the margin of opto-electronics and the new fibre optics business units. With a good balance of mature and new services / produc t offerings, it is progressing well as an enlarged entity in the EMS industry.

Forecasts

• Unchanged.

Catalysts

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

Risks

• 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 unchanged 15.1x CY15 P/E.

Source: Hong Leong Investment Bank Research - 26 Nov 2014