Period  2Q14/1H14

Actual vs. Expectations The group reported a 2Q13 net profit (NP) of RM10.3m, bringing its 1H14 NP to RM12.7m which made up 56% of our full-year estimate. We deem the results to be within expectation as we are expecting a weaker 2H on expectations of lower earnings in its equipment manufacturing and precision engineering segments amid the lacklustre HDD demand.

Dividends  No dividend was declared for the quarter under reviewed.

Key Result Highlights  YoY, despite the lower sales in Equipment Manufacturing (-56%) and Precision Engineering (-59%) segments amidst the dwindling HDD demand, 1H13 revenue increased by 20%, underpinned by the new sales recognition in the Aerospace segment following the acquisition of Avitron Private Limited. EBIT grew by 35% on the positive spillover effect from the higher revenue as well as the better sales mix which drove up the overall EBIT margin.

 QoQ, 2Q13 revenue soared by 52% with improvement seen across all the segments. Worth noting, the better performance in the Aerospace segment in this quarter (+14%) reflects betterthan-norm sales as the Group was able to fulfil its backlogged orders. With better top line growth coupled with the lower operating cost, EBIT improved by three folds to RM12.6m.

Outlook  With lacklustre PC demand that will lead to the deferment of capex budget on the overall HDD industry, we are of the view that the group’s equipment manufacturing and precision engineering segments’ performances could remain subpar in the near-term. Nonetheless, we believe the impact should partly be mitigated by its resilient aerospace segment.

Change to Forecasts We leave our earnings estimates unchanged at this juncture.

Rating Maintain MARKET PERFORM

Valuation  We maintain our TP of RM2.51. This is based on a targeted FY14 PER of 15.2x (representing a +1.0SD

level above the 1-year forward PER mean, for its strong parentage – Temasek and sustainable growth from the aerospace segment).

Risks to Our Call  Fluctuation in foreign currencies and the cyclical nature in parts of its businesses.

Source: Kenanga