Mi Equipment is an emerging leader in equipment manufacturing for advanced semiconductor packaging. Despite being fairly young, the Company has had an immaculate track record (both operationally and financially), leading to its considerable customer base comprising global Tier-1 OSATs and IDMs. Its entry into Fan-Out packaging could also pay off well, as this technology remains in its infancy. With a 3- year projected core net profit CAGR of 16%, we expect Mi Equipment to grow its business with new product offerings, while penetrating new markets. We initiate coverage on Mi Equipment with a BUY rating and a price target of RM2.57, based on 17x CY19E PE.

Focused in a Niche But Growing Space

The advanced packaging industry is largely focused on the communication space, but will likely proliferate into other segments given advantages of performance, cost savings and form factor. Mi Equipment is also wellpositioned for the envisaged sharp growth in Fan-Out packaging.

Sticky Premium Customer Base

Mi Equipment was only founded in 2012, and yet its customer base largely comprises Tier-1 OSATs and IDMs which is a telling sign of its product performance and equipment quality. These factors have also helped it seal its relationship as a highly regarded key supplier for its customers.

Capacity Constraint and Forex to Cap 2018E Performance

We project Mi Equipment to achieve a 2017-2020E core net profit CAGR of 16% supported by expansion in capacity (>7x increase in monthly equipment output over the next 3 years) and new equipment introduction (wire-bonder, wafer-level final test equipment, infrared inspection machine). However, until new factory floor space is available the earliest by 2Q19, 2018E earnings (-8% yoy) could be muted and also impacted by a firmer RM against US$.

Initiating With a BUY and TP of RM2.57

With its exciting growth prospects, we initiate coverage on Mi Equipment with a BUY and price target of RM2.57, based on 17x CY19E PE. We like the Company’s prospects, supported by: i) a capable management team with robust technical expertise and industry experience; ii) favourable industry growth as demand shifts from die-level packaging towards waferlevel packaging; (iii) proximity and deepening engagement with major back-end players. Key risks to our call include cyclicality risks in the semiconductor industry which could sharply hamper machinery orders.

Source: Affin Hwang Research - 19 Jul 2018