Mi Technovation (Mi)’s 2019 results were within street expectations but above ours. Although revenue jumped in 4Q19, margins came under pressure, likely at the expense of its sales growth. Mi targets to achieve 50-60% utilisation levels by end 2020. Most of its revenue continues to be underpinned by its assembly and packaging equipment (83% of revenue). The moves into new product segments have been modest at best, potentially explaining the spare capacity. We cease coverage on the stock due to a reallocation of resources. Our last recommendation was a HOLD with a target price of RM1.61.

2019 Results Within Street, Above Our Expectations

Mi reported a stronger 2019 core profit of RM61m (+35% yoy). This was underpinned by revenue growth of 19% yoy and coupled with margin expansion (2019 EBITDA margin jumped 4.7ppts yoy). The latter has been driven by cutbacks in commission fees and other costs. Revenue on the other hand has grown yoy, which is fairly commendable despite the overall weak industry conditions in 2019. Overall, results were in line with street but above our expectations due to the stronger-than-expected revenue in 4Q19.

Sequentially Stronger Earnings, But at Expense of Margins

Sequentially, 4Q19 revenue jumped 44% which contributed to the 27% growth in core profit. Management attributed the revenue growth to demand from its North Asia customers. However, some of this growth appears to be coming at the expense of margins. 4Q19 EBITDA margin contracted 3.1ppts qoq.

Cease Coverage

Due to a refocus of resources, we cease coverage on Mi. Our last call on the stock was a Hold with a target price of RM1.61 (after adjustment for 1 for 2 Bonus Issue; previously RM2.42) based on a target PE multiple of 20x on 2020E EPS). Downside/upside risks: stronger- / weaker-thanexpected orders, higher / lower raw-material prices and a sharp appreciation / depreciation of the RM.

Source: Affin Hwang Research - 21 Feb 2020