Period  3Q14/9M14

Actual vs. Expectations Above expectations. The group recorded 3Q14 normalised net profit (NP) of RM27.1m (+150% QoQ; YoY huge reversal vis-à-vis core net loss of RM0.6m in 3Q13), bringing its 9M14 core NP to RM34.5m against our forecast and consensus FY14 NP estimates of RM28.6m and RM36.7m, respectively.

 The positive deviation was mainly due to betterthan-expected average utilisation rate (UR) of c.75% driven by its better-yielding wafer level chip-scale package (WLCSP) and bumping business (at mid-80% UR). With the high average UR holding well above the optimum breakeven level, the additional earnings flowed directly into the bottomline.

Dividends  As expected, an interim tax-exempt dividend of 2.0 sen per share was declared for the quarter reviewed. This represents a dividend payout of c.40% YTD which translates into net dividend yield of 1%.

Key Result Highlights YoY, 9M14 revenue increased by 1% (vis-à-vis 1H14 revenue growth of -3%) despite the termination of non-profitable and ageing products along with the cessation of its European business operations. On a closer look, the turnaround was driven by the 3Q14 revenue which saw +11% YoY growth on the back of higher utilisation rate with strong demand from Communication (amid new smartphone launches and 4G adoption in China) and Automotive (higher adoption of Tyre Pressure Management System-TPMS) segments. With higher operational efficiency as well as better product mix, the group registered a higher 9M14 adjusted EBIT margin of 7.3% (+7ppts).

 QoQ, 3Q14 revenue improved by 9% with seasonal demand seen in MEMs microphone, pressure sensors for smartphones as well as Automotive TPMS. Coupled with higher operational efficiency (UR at c.75% vs c. 70%) and better product mix, EBIT margin doubled to 13.1% vs 6.9% in 2Q14.

Outlook  While the demand momentum spilled into October and November, management estimated flattish 4Q14 revenue (at -5%), offset by dull December period in view of the year-end inventory control.

Change to Forecasts Post-results, we have increased our FY14-FY15 NP estimates by RM11.3m and RM19.9m to RM48.5m and RM55.3m, respectively, following our results update, higher utilisation rate assumption and lower cost of sales.

Rating Upgrade to OUTPERFORM

Valuation  Post-results, we increase our TP to RM2.00 (from (+1SD above its average 3-year mean forward PBV, from previous average band)

Risks to Our Call Lower-than-expected sales and margins.

 Weaker consumer sentiment.

Source: Kenanga