Period 2Q15/1H15
Actual vs. Expectations Above expectations. The group reported 2Q15 core net profit (NP) of RM24.1.m (+21% QoQ, +198% YoY), bringing its 1H15 core NP to RM44.0m (+70%) which made up 59% of our, and 56% of the consensus’ FY15 NP, estimates, respectively.
The key positive deviations were: (i) higher-thanexpected earnings contribution from the high margins products in Smartphone segment and (ii) lower cost of sales.
Dividends As expected, no dividend was declared for the quarter under review.
Key Result Highlights YoY, 1H15 revenue increased by 3% as the lion’s share earnings contributors- Smartphone/Tablets (S/T) (+5.9%) and Automotive markets (+7.7%) offset the pallid sales in PC (-8.4%) and Feature phones markets (-6.4%). Meanwhile, EBIT soared by 65% on the back of higher EBIT margin (+3.5ppts) driven by better yielding products (such as MEMS impact pressure sensors for the Automotive segment and FEM volume production for the S/T segment) coupled with lower commodity material prices and on-going strengthening of USD against MYR.
QoQ, 2Q15 revenue rose by 3% on the back of higher sales in Smartphone segment (+12%), bucking the weak seasonality which should typically be dragged down by the inventory adjustment. Delving deeper, the robust growth in the S/T segment was underpinned by healthy volume production in both LGA and FBGA (for low cost smartphones) as well as Front End Modules (for world-renowned Smartphone brands), amidst the still resilient demand of S/T. At the bottom-line level, core PATAMI improved by 21% with these high margin products driving the yield.
Outlook For FY15, while management anticipates a seasonal softening in 3Q15, it expects stronger earnings in 4Q15, on the back of its new product pipeline for Smartphone (such as Multilevel Interconnect System for the next generation S/T and WLCSP) and Automotive (new impact sensors) segments, to make up for the shortfall.
Change to Forecasts Post-results, we have increased our FY15-FY16 NP estimates by 5-10% to mainly account for the different product mix assumptions and lower cost of sales.
Rating Maintain OUTPERFORM
Valuation Post-results, we raised our TP from RM6.80 to RM7.00 based on a targeted forward PER of 14.3x, a valuation which is broadly in line with the OSAT players in Malaysia.
Risks to Our Call Adverse currency fluctuations.
Industry’s recovery faltering halfway.
Source: Kenanga
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