Period

1Q16

Actual vs. Expectations

Above expectations. The group reported 1Q16 core net profit (NP) of RM46.9m (+37% QoQ; +136% YoY), which made up 36%/38% of our and the consensus’ FY15 NP estimates.

The key positive deviations were: (i) higher-thanexpected EBIT margins on the back of lower cost of sales (which we believe was driven by better yielding products) as well as (ii) lower-than-expected effective tax rate (due to tax exemption on statutory income granted to Malaysian subsidiary of the Group).

Dividends

As expected, a first interim single-tier dividend of 8.0 sen was declared for the quarter under review. We are expecting total DPS of 20.0 sen to be declared for FY16 which implies a net dividend yield of 3.1%. Key Result

Highlights

YoY, 1Q16 revenue increased by 18% with better sales contributed by all three market countries. Meanwhile, EBIT leapt by 134%, which we believe was 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. Note that USD/MYR currency improved by a quantum leap of 27.0% from average RM3.19/USD in 1Q15 (3QCY14) to RM4.05/USD in 1Q16 (3QCY15).

QoQ, 1Q16 revenue rose by 4% as the robust growth in USA and Europe segments counterbalanced the weaker sales in the Asian segment. Augmented by the favourable forex translation, PBT margin advanced by another 3.7ppts (to 16.4%), sending PBT to RM63.3m (+34%). Note that USD/MYR currency improved by a quantum leap of +10.9% from average RM3.66 in 4Q15 (2QCY15) to average RM4.05 in 1Q16 (3QCY15).

Outlook

Although industry experts have turned more conservative by forecasting global semiconductor sales to record low-single digit growth in 2015 and 2016 (from mid-single digit growth assumption previously), the Communication and Automotive segments are still seen to be the key drivers.

We believe the group’s near-term growth will be sustained by both of these segments, where the group has a balanced exposure for both. (c.38% for Smartphones and c.22% for Automotive segment as of 4Q15).

Change to Forecasts

We leave our FY16E-FY17E earnings estimates unchanged for now (with positive bias) pending further details from the briefing today.

Rating

Maintain OUTPERFORM

Valuation

We maintain our TP of RM8.28 for now (with positive bias) based on a targeted PER of 12.0x, a valuation which is broadly in line with OSAT players.

Risks to Our Call

Weaker than expected sales and margins.

Industry downturn

Adverse currency fluctuations.

Source: Kenanga Research - 18 Nov 2015