Results

• 1HFY15 sales of RM449.8m was translated into a core net profit of RM60.3m, accounting for 45.6% and 43.6% 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 in subsequent quarters ahead.

Deviations

• In line.

Dividends

• Declared 2nd single tier dividend of 1.8 sen (2QFY14: 1.1 sen) per share and a special dividend of 0.5 sen (2QFY14: 0.4 sen) per share, represent circa 36.5% payout as per policy. Both go ex on 16 Feb 2015.

Highlights

• 2QFY15 turnover of RM227.9m (+22.1% yoy and +2.7% qoq) was another historical high mainly due to higher trading volume from RF business as demand from smartphones and mobile devices swelled. This was also partly boosted by the strengthening of USD which averaged circa RM3.40/USD (+5.4% qoq and +4.8% yoy).

• While sales breakdown was not disclosed, we understand that Amertron’s contribution was flat and stable qoq. Its transformation is on track to expand margins through synergy and efficiency.

• It remains optimistic on business prospects and believes that global semiconductor industry along with its sub segment of optoelectronics will undergo a modest CAGR of 4.6% from 2013 to 2018.

• It will also continue to integrate and improve the margin of optoelectronics and continue to ride the growth of mobile smart device market.

Forecasts

• Unchanged pending analyst briefing today.

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: RM3.03

Positives

• Appreciation of greenback, 40% dividend payoutproviding reasonable yield and strong earnings growth.

Negatives

• Innovation stalemate in telecommunication.

Valuation

• Reiterate BUY with unchanged fair value of RM3.03 based on unchanged 15.1x CY15 P/E.

Source: Hong Leong Investment Bank Research - 5 Feb 2015