Period

2Q15/1H15

Actual vs. Expectations

Within expectations. The group recorded 2Q15 core net profit (NP) of RM28.4m (+32% QoQ; +161% YoY), bringing 1H15 core NP to RM50.0m (+586%) which made up 46% of both our and consensus’ estimates. Note that the 2Q15 core NP of RM28.4m has been adjusted for the non-core amounts of: (i) grant income of RM0.168m, (ii) provision for receivables and slow moving inventories totalling RM0.55m, and (iii) gain on disposal from Unisem Test (Sunnyvale) Inc, amounting to RM3.3m.

Dividends

Above expectations. An interim tax-exempt dividend per share (DPS) of 3.0 sen (2Q14: nil) was declared for the quarter under review. We were previously expecting no dividend to be declared in 2Q15 (previously expecting FY15E DPS of 6.0 sen). Key Result

Highlights

YoY; 1H15 revenue increased by 21% with stellar sales recorded in all segments. In particular, Communication recorded the steepest growth of 33% amid new major smartphone launches and 4G adoptions in China. Meanwhile, core EBIT margin leapt by 6.5ppts to 10.5% mainly helped by better product mixes with high utilisation rates in fat margin products such as Advanced packaging- wlCSP (c.85%), Leadless (c.70%) and Test (c.70%). As a result, core EBIT almost tripled to RM60.9m.

QoQ, 2Q15 revenue increased by 7% due to normalisation from the low base in 1Q15 (seasonality weakness). While USD/MYR currency only improved by 1.4% from average RM3.59 in 1Q to average RM3.64 in 2Q (as quoted by management), the group’s core EBIT managed to improve by 1.6ppts to 11.3%, suggesting that the group is running on a higher operational efficiency.

Outlook

Industry experts forecast global semiconductor sales to record mid-single digit growth in 2015 even from a high base in 2014; with Communications and Automotive segments being the key drivers. Over the long-term, Smartphones are forecasted to register a 5-year revenue CAGR of high single-digit.

Meanwhile on the group’s guidance, management is guiding for a flat to 5% QoQ top line growth in USD (a similar growth quantum in our forecasts; +3%); with decent growth in its Communication (amid major phones launching) and Automotive (continued demand in TPMS) to offset the softness in PC segment (power management).

Change to Forecasts

Post-update, our FY15E-FY16E core NP estimates were marginally trimmed by 0.4%-1.1%. We have also increased our FY15E-FY16E DPS to 10.0 sen (from 6.0 sen), representing 65-76% payout ratio, which translates into 4.2% net dividend yield (on the assumption of healthy free CF of RM100m-RM138m in FY15E/FY16E).

Rating

Maintain MARKET PERFORM. While the group’s near-term prospect appears promising, we believe most of the positives have been priced in (implying FY16E PER of 15.4x), thus capping its potential upside.

Valuation

Post earnings revisions, our TP has been marginally trimmed to RM2.37 (from RM2.40), based on an unchanged targeted PER of 15.5x, a valuation which is broadly in line with OSAT players in Malaysia.

Risks to our call

Higher-than-expected sales and margins.

Favourable currency exchange to the group.

Source: Kenanga Research - 31 Jul 2015