Results

• 9MFY15 sales of RM678.1m was translated into a core net profit of RM90.1m, accounting for 66.4% and 63.7% of HLIB and consensus’ full year estimates, respectively.

• This is in line due to seasonal weakness. Also, contributions from added RF capacity and Chipfab at P13 will further boost earnings in subsequent quarter.

• One off adjustments:

Deviations

• In line.

Dividends

• Declared 3rd single tier dividend of 2.1 sen (3QFY14: 2.0 sen inclusive of special dividend of 0.8 sen) per share, represent circa 39.4% payout as per policy. Ex-date on 3 Jun 2015. YTD dividend amount to 6.6 sen per share.

Highlights

• 3QFY15 turnover of RM228.3m (+19.0% yoy and +0.2% 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 RM3.62/USD (+9.6% yoy and +7.5% qoq).

• 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 will undergo a modest CAGR of 3.1% from 2014 to 2019. Optoelectronics is forecasted to rise 10% in 2015 to a record high of USD34.8bn and continue to grow by CAGR of 6.9% untill 2019.

• Work on starting up production in P13 began in 3QFY15 and is expected to contribute modestly in 4QFY15.

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: RM3.44

Positives

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

Negatives

• Innovation stalemate in telecommunication.

Valuation

• Reiterate BUY while TP is maintained at RM3.44 pending analyst briefing with upward bias. TP is pegged to multiple of 15x of CY16 EPS.

Source: Hong Leong Investment Bank Research - 15 May 2015