Results

• FY16 revenue of RM1.3bn was translated into a core net profit of RM148.0m. This is in line, accounting for 96-97% of HLIB and consensus FY estimates, respectively.

Deviations

• None.

Dividends

• Recommended a final tax-exempt dividend of 4.0 sen per share (4Q15: 4.0 sen) subject to shareholders’ approval.
• FY16 dividend totaled 11 sen (FY15: 10 sen) per share.

Highlights

• QoQ: Sales grew 13% thanks to volume improvement coupled with stronger US$. In US$ term, it gained strongly by 6%, above previous guidance of flat sequential quarter. Core net profit expanded 39% with better economy of scale.
• YoY: Top line was upped by 3% and 2% in US$ term. However, bottom line was weaker by 23% due to sales mix which skewed towards lower margin products.
• FY16: Revenue growth of 5% was mainly attributable to USD strength where it actually fell by 1% in US$ term. However, bottom line was weaker by 7% due the same reason above.
• Experienced strong demand in flip-chip while increasing demands for bump and wlCSP are coming from China.
• Utilization rate improved qoq with wlCSP/bumping at high 80%, leadless at 65-70% and leaded at 60%.
• Healthy balance sheet with a net cash position of RM202.2m (28 sen per share) as end of 4Q16. Prudent CAPEX policy allows room for dividend which is projected with a yield of 4.2% for FY17.
• 1Q17 revenue is guided to range US$78-79m, implying a 3.4% yoy growth but to decline 6.2% qoq due to seasonality.
• FY17 guidance: (1) Revenue growth of 3-5% in US$ term; (2) Higher effective tax rate of 13-14%; (3) CAPEX to be 35- 37% 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

• Tweak our assumptions based on latest operating data and guidance. In turn, FY17-18 EPS forecasts are raised by 2.4% and 0.8%, respectively.

Rating

BUY ↑, TP: RM3.00 ↑

• Besides being the major beneficiary of strong greenback, we like its (1) exposure to the automotive sector; (2) strategic presence in China’s booming tech market; (3) healthy balance sheet; and (4) rewarding dividend yield.

Valuation

• Upgrade to BUY from Trading Buy after raising our TP by 2.7% from RM2.92 to RM3.00, reflecting our earnings revision. Our fair value is pegged to 13x of FY17 EPS.

Source: Hong Leong Investment Bank Research - 24 Feb 2017