Results

• 9M15 core net profit of RM98.5m beat expectations, accounting for circa 95% and 90% of HLIB and consensus’ full year estimates, respectively.

• Major one-offs including grant income of RM10.4m in 1Q14, asset disposal gains of RM2.0m in 1Q15, RM3.3m in 2Q15 and FOREX losses of RM7.9m in 3Q15.

Deviations

• Higher-than-expected EBITDA margins due to major shift in mix towards more profitable products.

Dividends

• Second interim tax-exempt dividend of 3.0 sen per share (3Q14: 2 sen) with ex-date on 25 Nov.

• YTD dividend has amounted to 6 sen (9M14: 2 sen).

Highlights

• While top line was mainly aided by the strong USD (+10.6% qoq and +26.6% yoy), its strategy in shifting focus to highmargin advance packaging was commendable (see Figure #4), leading to record high quarterly profit since 4Q10.

• Nonetheless, 3Q15 sales decline of 0.9% qoq and 4.9% yoy in USD term signals weakness in demand, especially in a traditionally strong quarter.

• Continue to see strong demand from smartphone and automotive tire pressure management system, while power management and PC market stubbornly slow since 1Q15.

• 4Q15 revenue (in USD) is guided to be flat qoq while managing FY16 CAPEX to be 25-30% of EBITDA.

• Bumping and wlCSP utilization rate remained high at circa 80% although Ipoh has just completed 25% bumping expansion. Leaded and leadless utilization rates were circa 70% and 60%, 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 model based on latest guidance, industry outlook and taking into consideration of enlarged share base due to warrant. In turn, this has led to FY15-17 EPS revisions by +6.8%, -10.1% and -10.8%, 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

• Reiterate HOLD with unchanged TP of RM2.48, pegged to unchanged multiple of 15x of FY16 EPS.

Source: Hong Leong Investment Bank Research - 30 Oct 2015