• Sensor business continued to do well in 4Q20 with the segment accounting for 66% of revenue, which aided the margin expansion
• FY20 results however missed our expectations due to weaker-than-expected performance from its LED segment, due to disruption in raw-material supplies
• Maintain BUY But With a Lower TP of RM3.58

Sensors Accounted for 66% of 4Q20 Revenue

Sensor production volumes remained robust in 4Q20, as volumes were estimated to be some 7% higher qoq underpinned by higher production for its gesture sensors. Volumes for its light and motion sensors remained stable qoq at 30m and 7m units respectively. Overall, a shorter shutdown during the Christmas holidays also aided productivity. Meanwhile the timing devices business benefited from an upward ASP revision. This was, however, negated by a weaker performance at its LED division. While revenue was weaker qoq, EBITDA margins continued to improve due to a better contribution from the sensor division, which accounted for 66% of 4Q20’s revenue. Core profits were, however, weaker qoq due to the lower revenue and higher effective tax rate.

2020 Core Profits Higher by 9% Yoy; Below Our Expectations

Given the seasonally firm 4Q20 results, this lifted full-year 2020 core profits to RM51m or up 9% yoy. Overall, the better performance was driven by the growth in revenue contribution from the sensor business (60% of FY20 revenue vs 49% a year ago) and the resulting uplift in 2020 EBITDA margin, which increased 2 ppts yoy. Results were, however, 8% below our expectations (in line with the street) due to the weaker-thanexpected performance in the LED division. We cut our FY21-22E EPS by 4-6%.

Maintain BUY, TP Reduced to RM3.58

The 2021 outlook looks favourable with a sustained strong sensor production pipeline. Its light, gesture and motion sensors will form a base, having been designed into current models, while there may be upside from new sensors, not merely from its existing customer but also that from a new German customer. There is also potential upside, should qualifications for a new Chinese customer materialize. In anticipation of stronger demand for sensor capacity, management is planning a 30k sf floor space expansion. We project a 27% EPS growth for 2021E, largely to be underpinned by this sensor business. Maintain a BUY but with a lower TP of RM3.58 based on a target PE of 36x or +1SD its 5-year mean. Key downside risks include weaker-than-expected demand for its customers’ products, loss of business; and a stronger RM/US$.

Source: Affin Hwang Research - 25 Feb 2021