Period

4Q15/FY15

Actual vs. Expectations

Above expectations. The group recorded 4Q15 core net profit (NP) of RM61.5m (+54% QoQ; +100% YoY), bringing FY15 core NP to RM151.4m (+123%) which made up 125%/115% of our/consensus’ estimates. (Please refer to the “Results highlight” for details on core NP adjustment).

The positive deviations were mainly due to: (i) betterthan- expected EBIT margins on better product mix (higher revenue contribution from fat margins wlCSP and leadless), and (ii) lower-than-expected effective tax rate on tax allowances and incentives.

Dividends

Within expectation. A final tax-exempt dividend per share (DPS) of 4.0 sen (4Q14: 4.0 sen) was declared for the quarter reviewed, bringing FY15 NDPS to 10.0 sen which translates into a net dividend yield of 4.5%. Key Result

Highlights

YoY; FY15 revenue increased by 21% with stellar sales recorded in all segments. In particular, Communication recorded the steepest growth of 31% amid new major smartphone launches and 4G adoptions in China. Meanwhile, core EBIT margin leapt by 4.7ppts to 13.9% mainly helped by: (i) 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 well as (ii) favourable currency translation (USD/MYR currency improved by 19% from RM3.27/USD in FY14 to RM3.91/USD in FY15. As a result, core EBIT almost doubled to register RM179.4m.

QoQ, 4Q15 revenue increased by 7% in MYR terms (but flat in USD terms at +0.5%) masked by favourable currency translation. Note that USD/MYR currency improved by 5.6% from avg. RM4.05 in 3Q to avg. RM4.28 in 4Q. That said, core NP superseded the revenue growth by 47.3% on the back of better product mixes in the group’s revenue portfolio as well as the much lower effective tax rate of 5.9% (vs.12.1% in 3Q15).

Outlook

While industry experts forecast global semiconductor sales to record low-single digit growth in 2016, management targets a mid-single digit growth in USD terms, to be driven by the continued demand for its advanced packaging (wlCSP and MIS packages) for Smartphone and Automotive application. Meanwhile, for quarterly guidance, management is pointing to a weaker QoQ top line growth in USD terms (-8% to -12%) on seasonality weakness.

Change to Forecasts

Post results update, we increased our FY16E NP by 10% to account for product mix changes as well as lower tax rates assumption. We also introduced our FY17E numbers.

Rating

Maintain MARKET PERFORM. While the group’s nearterm prospects appear promising, we believe most of the positives have been priced in (implying FY16E/FY17E PER of 10.8x/11.5x), thus capping its potential upside.

Valuation

Post earnings revision, our TP has been raised to RM2.47, based on a targeted PER of 12.0x, a valuation which is broadly in line with average industry forward valuation of OSAT players in Malaysia.

Risks

Higher-than-expected sales and margins.

Favourable currency exchange to the group.

Source: Kenanga Research - 24 Feb 2016