Period     3MFY13/1Q13

Actual vs. Expectations     The group’s 1QFY13 normalised net loss of RM9.7m (50% YoY) came in below expectations, mainly dragged down by a weaker revenue number on the back of a lower sales volume amid the typical seasonal weakness of the quarter.

Dividends     No dividend was declared as expected. For the full financial year, we expect the group to declare 2.0 sen DPS, implying a 2.3% dividend yield.

Key Result Highlights     YoY, the 1QFY13 revenue decreased by -2.7% as the decent growth in the USA (+146.7% to RM7.5m) and Europe (+1.7% to RM3.0m) segments was offset by a lower revenue in the Asia segment (-4.5% to RM239.3m). Nonetheless, despite the weaker revenue performance, the group managed to narrow its LBIT (Losses before Interests and Taxes) with the rationalisation of certain low margin and unprofitable product lines.

QoQ, its 1QFY13 revenue dropped by -7.3% as weaker revenue in the Asia segment (-8.6%) erased off the decent growth contributed by USA (+42.0%) and Europe (+23.1%) segments. However, the 1QFY13 normalised net losses widened to RM9.7m (from a normalised net profit of c.RM2m in 4QFY12) amid the quarter’s seasonal weakness coupled with a market inventory adjustment, which contributed to the weaker revenue.

Outlook      While we are cautiously optimistic on the sector recovery, we believe that the near-term outlook for local tech companies could continue to be overshadowed by a sluggish PC demand coupled with the prolonged global economic uncertainties.

We believe that the industry recovery is likely to be seen only in 2HCY13, underpinned by a recovery in the global chip demand amid a better global economic condition.

Change to Forecasts     We have reduced our FY13-FY14 sales forecast by 9.0%-10% to RM1.06b and RM1.23b to account for the pallid demand package testing services amid weak consumer spending in the E&E market.

As a result, our FY13 and FY14 NP estimates have been revised down by 10%-11% to RM16.0m (from RM17.7m) and RM23.6m (from RM26.3m) respectively.

Rating    Maintain MARKET PERFORM

Valuation     Our TP is also lowered to RM0.95 (from RM0.99 previously) based on lower targeted 0.63x of FY13 PBV (which is at a -1SD below its historical 3-year mean forward PBV).

Risks     Foreign currency exchange rate.

The industry’s recovery may falter halfway.

Source: Kenanga