Period 3Q14/9M14
Actual vs. Expectations Within house expectation. The group reported 3Q14 core net profit (NP) of RM10.5m, bringing its 9M14 core NP to RM44.4m (after excluding the one-off provision of RM8m for the discontinuation of its stamp lead frame business in 2Q) which made up 68% and 83% of our and the consensus full-year NP estimates, respectively. We deem the results to be in line as we are expecting a seasonally stronger 4Q14. Note that 3Q is typically the weakest quarter and historically, 9M earnings only made up of c.64-73% of the full year NP during the stable-earnings years.
Dividends As expected, a second interim tax exempt DPS of 10.0 sen was declared during the quarter, bringing its YTD NDPS to 15.0 sen which implies a dividend payout of 77.7%. We are expecting a total NDPS of 20.0 sen to be declared in FY14.
Key Result Highlights YoY, 9M14 revenue increased by 8% to RM970.0m, led by Asia (+21%) and USA (+4%); covering for the weaker sales in Europe (-12%). While the group’s revenue growth mimicked the pace of recovery in the global semiconductor sales, EBIT improved significantly by c.5x to RM55.7m (vs. EBIT of RM10.9m in 9MFY13) driven by its shift towards better profit margin products coupled with lower commodity material prices and strengthening of USD against MYR.
QoQ, while the third financial quarter is seasonally the weakest quarter, 3Q14 revenue inched up by 2% underpinned by new products such as impact sensor and speed sensor for the Automotive segment and FEM devices ramp for the Smartphones/Tablets (S/T) segment. Meanwhile at the PBT level, adjusted PBT fell 15% which we believe could be due to initial start-up cost.
Outlook We believe the group’s near-term outlook will remain resilient underpinned by strategic product mix, which should continue to lift its margin and sales volume, underpinned by its high-margin products in S/T segment.
Note that the share price has surged by 74% since our OUTPERFORM recommendation back in end-August 2013. Nonetheless, it remains our top pick in the semiconductor space given its resilient earnings outlook as mentioned above. Supporting our case is its attractive potential net dividend yield of c.5% in FY14 and FY15, which could appeal to investors who are seeking exposure in the semiconductor space.
Change to Forecasts We maintain our FY14 and FY15 earnings estimates for now pending further details from a briefing.
Rating Maintain OUTPERFORM
Valuation Our TP of RM4.68 (with upside bias) remained unchanged for now. This is based on a targeted FY14 PBV of 1.2x (which represents +0.5SD above its historical average 3-year forward PBV).
Risks to Our Call Adverse currency fluctuations.
Industry’s recovery faltering halfway.
Source: Kenanga
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