Results

• FY15 revenue of RM1.26bn was translated into a core net profit of RM155.5m which is above expectations, accounting for circa 132% and 121% of HLIB and consensus’ full year estimates, respectively.

Deviations

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

Dividends

• Recommended a final tax-exempt dividend of 4.0 sen per share (4Q14: 2 sen) subject to shareholders approval. YTD dividend has amounted to 10 sen (FY14: 6 sen).

Highlights

• An outstanding quarter for achieving historical high PAT in a seasonally weak quarter thanks to favorable FOREX, strong demand and successful strategy in shifting focus to highmargin advanced packaging (see Figure #4).

• Stripping out the strong USD which appreciated 5.9% qoq and 27.4% yoy, sales was actually flat at +0.5% qoq and fell by 4.9% yoy. FY15 top line only grew 1.5% in USD term.

• Continue to see strong demand in bumping, wlCSP, flipchip and MIS packages driving utilization rates at high levels.

• Undergoing qualifications with new clients to introduce new products for smartphone in 2H16. Automotive segment is supported by resilient demand for tire pressure management systems while orders for new applications (airbags/exhaust sensors and engine manifold controls) are being loaded. Power management and PC are expected to be sluggish.

• 1Q16 revenue (in USD) is guided to fall by 8-12% qoq while managing FY16 CAPEX to be 33% of EBITDA.

Catalysts

• Improved consumer confident and spending.

• Technological advancement and creation of new electronics.

Risks

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

Forecasts

• Updated model based on latest guidance and industry outlook. As a result, FY16-17 EPS were cut by 3.6% and 6.4%, respectively.

Rating

HOLD , TP: RM2.39

Positives

• Strong 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 after lowering TP by 3.6% from RM2.48 to RM2.39 reflecting our downward revision of EPS. Fair value is pegged to unchanged multiple of 15x of FY16 EPS.
• Although there is more than 10% upside to our TP, we are cautious with the expectations of weakening USD in 2H16 and lackluster global industry growth.

Source: Hong Leong Investment Bank Research - 24 Feb 2016