Results

• Excluding major EIs, 1H15 core net profit of RM50.6m came in slightly below expectations, accounting for circa 45% of both HLIB and consensus’ full year estimates, respectively.

• Major one-offs including grant income of RM10.4m in 1Q14, asset disposal gains of RM2.0m and RM3.3m in 1Q15 and 2Q15, respectively.

Deviations

• Lower-than-expected 2Q15 sales vs. guidance of sequential expansion of 10%-15%.

Dividends

• Recommended an interim tax-exempt dividend of 3.0 sen per share (2Q14: none) which goes ex on 9 Sept 2015.

Highlights

• Despite the resilient demand from smartphone segment , sequential turnover growth undershot own guidance chiefly due to inventory adjustment in PC, power management and EU automotive segments which prolonged into 3Q15.

• Also, bumping capacity expansion by 25% in Ipoh was delayed and only managed to start contribution in late June.

• Remain confident to meet FY growth of 8%-10% leveraging on premium smartphone launches scheduled in 2H15 with the expectations that major brands will ramp orders in Sept- Oct timeframe.

• Do not experience any ASP pressure albeit gaining from USD strength.

• CAPEX is upped again to RM130m for FY15, deviating from 25% of EBITDA guidance.

• Guiding for 3Q15 sales (in USD) to improve 0%-5% qoq.

• Bumping and wlCSP utilization rate remained high at circa 85%. Leaded and leadless utilization rates were circa 50% and 65%, respectively.

Catalysts

• Improved consumer confident and spending.

• Technological advancement and creation of new electronics.

Risks

• FOREX, weak consumer demand, continuous drag by Batam’s performance and labour shortage.

Forecasts

• Adjusted forecasts based on latest guidance and industry outlook. In turn, this has led to downward revisions of FY15- 17 EPS by 7.2%, 12.8% and 11.2%, respectively.

Rating

HOLD , TP: RM2.48

Positives

• Appreciation of greenback, proliferations of smartphones, tablets, wearable techs and hybrid / electric automobiles.

Negatives

• intense competition from Taiwanese peers, higher input costs, challenging economic outlook which will eventually hampers consumer confident and stalemate in electronics innovation.

Valuation

Downgrade from BUY to HOLD after cutting TP by 11.4% from RM2.80 to RM2.48, reflecting the downward earnings revision. Fair value is pegged to unchanged multiple of 15x of FY16 FD EPS.

Source: Hong Leong Investment Bank Research - 31 Jul 2015