Period

3Q15

Actual vs. Expectations

Above expectations. The group reported 3Q15 core net profit (NP) of RM30.2m (+25% QoQ; +188% YoY), bringing its 9M15 core NP to RM74.1m (+104%) which made up 89% of our, and 82% of the consensus’, FY15 NP estimates, respectively.

The key positive deviations were: (i) higher-thanexpected revenue (likely on the back of Smartphone segment), and (ii) higher EBIT margins on the back of better product mix.

Dividends

As expected, a second interim tax exempt dividend of 13.0 sen per share was declared, bringing YTD DPS to 20.0 sen, spot on with our estimate. This implies a net dividend yield of 3.1%. Key Result

Highlights

YoY, 9M15 revenue increased by 5% as the decent growth in Asia (+15%) and Europe (+23%) segments counter-balanced the weaker sales seen in USA segment (-25%). We are not overly concerned over the weakness in the USA segment as we understand that this was due to the relocation of two of its customers’ bases from USA to Asia and Europe. Meanwhile, EBIT leapt by 92%, driven by its better yielding products (such as MEMS impact pressure sensors for the Automotive segment and FEM volume production for the Smartphones/Tablets (S/T) segment) coupled with lower commodity material prices and ongoing strengthening of USD against MYR.

QoQ, 3Q15 revenue rose by 4% with better sales contributed by all three geographical segments. Note that the stronger quarterly earnings bucked the weak seasonal period which should typically be dragged by inventory adjustment and shorter working months. With the favourable currency translation as well as the better product mix, EBIT margin advanced by another 2.1ppts, sending EBIT to RM44.1m (+24%).

Outlook

We believe that the group’s near-term outlook will remain resilient, driven by Communications and Automotive segments, where the group has a balanced exposure for both. (c.38% for Smartphones and c.22% for Automotive segment as of 2Q15)

For FY15, management expects stronger earnings in 4Q15. This will be underpinned by its new product pipeline for Smartphone (such as Multilevel Interconnect System for the next generation S/T and wlCSP) and Automotive (new impact sensors) segment.

Change to Forecasts

We leave our FY15-FY16 earnings estimates unchanged (with upside bias) for now pending further details from the briefing today.

Rating

Maintain OUTPERFORM

Valuation

We maintain our TP of RM7.60 for now. This is based on a targeted PER of 15.5x over FY16E EPS of 48.8sens, a valuation which is broadly in line with OSAT players (average: 15.0x) in Malaysia.

Risks to Our Call

Weaker than expected sales and margins.

Adverse currency fluctuations.

Source: Kenanga Research - 30 Apr 2015