Period  1Q14

Actual vs. Expectations Above expectations. The group reported a 1Q14 net profit (NP) of RM17.8m, making up 59% and 54% of our and the consensus full-year NP estimates.

 The key positive deviation was the better than expected EBIT margin on the back of higher operational efficiency with a successful shift towards better profit margin products as well as the strengthening of USD towards MYR.

Dividends  As expected, a tax-exempted interim dividend per share (DPS) of 5.0 sen (1Q13: 5.4 sen DPS less tax) was declared for the quarter. We are expecting the group to declare a total DPS of 20.0 sen in FY14.

Key Result Highlights YoY, the 1Q14 revenue increased by 4% to RM330.6m, led by the Asia and Europe segment (both grew at +5% respectively) covering for the flat growth in the USA segment (+1%). While the group’s revenue growth is inching up in tandem with the modest pace of recovery in the global semiconductor sales, the EBIT improved significantly by more than 6x to RM25m (vs. EBIT of RM4.1m in 1QFY13) with fruition seen in its successful shift towards better profit margin products coupled with lower commodity material prices as well as strengthening of USD against MYR.

 QoQ, the 1Q14 revenue merely inched up by 1% as the better sales in the USA (10%) and Europe (4%) segments were offset by the weaker sales in the Asia segment (-5%). Despite the flat top line growth, EBIT rebounded by 63% with better overall EBIT margin seen at 7.6% (vs 4.7% in 3Q13) as a result of lower direct material cost and strengthening of USD against MYR.

Outlook  We believe the group’s near-term outlook will remain resilient underpinned by its strategic product mix, which continued to lift its margin and sales volume underpinned by its high-margin products in smartphones/tablets segment.

 Although the share price has surged by 20% since our OUTPERFORM recommendation back in end-August, it remains as our preferred play in the semiconductor space given its resilient outlook as mentioned above as well as its attractive potential net dividend yield of c.7% in FY14, which could appeal to investors who are seeking for refuge in the semiconductor play.

Change to Forecasts We maintain our FY14 and FY15 earnings estimate for now (with upside bias) pending further details from the briefing today.

Rating Maintain OUTPERFORM

Valuation  Our TP of RM2.94 (with upside bias) remained unchanged for now. This is based on a targeted PBV of 0.8x (which represents -0.5SD below its historical 3-year mean).

Risks to Our Call Adverse currency fluctuations.

 Industry’s recovery may falter halfway.

Source: Kenanga