Period     2QFY13/6MFY13

Actual vs.  Expectations   The group reported a 2QFY13 net profit (NP) of RM2.4m, narrowing its total 6MFY13 net loss to RM20.3m. Excluding the exceptional item (which was on account of the recognition of fire damages of a total RM24.9m), the 1HFY13 adjusted net profit of RM4.6m only accounted for c.15% of ours and the consensus full year estimates respectively.

Dividends    No dividend was declared for the quarter under review.

Key Result Highlights    YoY, the 1HFY13 revenue declined by 19.5% amid the ongoing slow orders trend coupled with the high base effect of 1HFY12 (mainly boosted by the strong recovery in orders then post the Thai flood period back in 2QFY12). Although the group’s LBIT narrowed to -RM18.9m (from –RM23.0m), it was still in the red due to the recognition of asset losses of RM24.9m from the fire incident at its main factory located in Klang (during 1QFY13). Recall that the group had submitted claims of RM50.1m to the insurer (for insurance coverage for the business interruption and asset losses). However, the insurance compensation claim above has not been recognised yet as the adjusters are still evaluating the claim although an interim claim of RM11m was paid in April 2013. Stripping out the exceptional loss of RM24.9m, the adjusted PAT would have been RM4.6m (compared to RM10.7m a year ago). 

QoQ, the 2QFY13 revenue merely inched up by 3.5% as the decent growth in its HDD segment (+17%) and industrial/automotive segment (+6%) was offset by a weaker revenue from its camera customers (-8%). Meanwhile, at the bottom line, if we were to measure based on an adjusted basis, the adjusted PAT would have grown to RM2.4m from RM2.2m on the back of the slight improvement in the adjusted EBITDA margin of 29% (+1ppts) and better revenue growth.

Outlook    While we are cautiously optimistic on the sector recovery at the US side based on the recovering global semiconductor sales data provided by SIA, we believe that the short-term outlook for the group could still be overshadowed by slower orders amidst the prolonged global economic uncertainties as well as the impact from the implementation of the minimum wage policy in Malaysia.

Change to Forecasts    We are leaving our earnings estimates unchanged for now pending further details from the company’s result briefing today.

Rating  Maintain UNDERPERFORM 

Valuation     Our TP of RM0.60, which is based on a targeted PER of the minimum wage policy.

Risks    Higher labour cost arising from the implementation  of 5.3x (near to -1SD below the 3-year forward PER mean), remains unchanged for now.

Greater losses arising from the fire incident.

Adverse currency translation.

Sluggish PC and electronics demand.

Source: Kenanga