Satisfactory FY15 results reported. The group reported 4Q15 NP of RM9.3m (-41% QoQ; -32% YoY), sending FY15 NP lower (-9.7% YoY) to RM44.3m which was due to a provision for taxation pending confirmation of effective date of new pioneer status. However, netting off the taxation provisioning (RM5.7m), its NP of RM50.0m (+2%) would have come in within our and the consensus’ expectations at 102% and 101%, respectively. On the highlights of the results, while FY15 revenue decreased by 9% amid the slower demand for its MVS, AOI and ECS products, PBT (after excluding forex gains) decreased by a smaller quantum of 2% helped by the stringent cost control coupled with better product mix.

Better outlook in FY2016. We understand from the management that demand for its Machine Vision System (MVS) and Automated Board Inspection (ABI) enjoys even stronger momentum from 4Q15 with sales orders coming from existing and new Original Equipment Manufacturers (OEM), Electronics Manufacturing Services (EMS) providers and Contract Manufacturers (CM) from several countries. Notably, this has bucked the traditionally weaker 1Q trend of the group. On a closer look, at the group’s MVS segment (contributed 33% to the group’s FY15 total revenue), order backlog for its MVS-S stands at 200 systems (2 months) which is much stronger than 4Q15’s 170 systems and 1Q15’s 168 systems. More positively, the group is also close to receiving new Purchase Orders from a profound global semiconductor player for its new undisclosed model, which carries much higher sales value compared to its normal vision systems. Meanwhile on its MVS-T segment, we were positively surprised to gather that 12-15 machines are expected to be delivered in 1Q16 as opposed to only 6 units in 4Q15 or 18 units in FY15. Orderbook and forecast are also encouraging at 6-10 machines in the next two months, hence implying that the demand outlook for this segment has improved significantly in the quarter. On its ABI segment (contributed 64% to the group’s FY15 total revenue), we gather that the backlog stands at RM20m, carried forward from 4Q. This will be supported by a pipeline of new products with potential deals from EMS players, OEM and CM account globally. On its ECS segment (which contributed a mere 3% to the group’s FY15 total revenue), demand for its motion and sensor solution improved QoQ with revenue forecast of c.RM2m in 1Q16. All in assuming all orders in place, this could potentially translate into at least RM50.0m revenue in 1Q16 which could be a tad higher YoY (1Q15 revenue: RM33.3m). Meanwhile, billing and backlog as of 19th February collectively are already making up c.36% of its FY15 revenue, which implies that the FY16 could see a much stronger earnings growth compared to FY15, if 2H16 prospect remains solid. 3-month average bookto- bill ratio also improved to 12-month high of 1.4x. Over the medium term, we are sanguine on the group’s outlook as we understand that there will be replacement demand for c.400 units of AXI in the market over the next three years, of which the group is currently expanding its capacity through its CAMPUS 2.0 to cater for the potential sales.

Retain Trading Buy call with a higher Fair Value of RM3.95 (from RM3.48). Post model updates, we raised our FY16E NPs by 14% to account for higher sales assumption of MVS/ABI/ECS by 5%/22%/3% coupled with higher USD/MYR assumption of RM4.21 (from RM4.00) in FY16E. We have also introduced our FY17E numbers. All in, our revised FV now is RM3.95 based on an unchanged targeted FY16E PER of 14x. Maintain Trading Buy as we see the stock is trading at an undemanding valuation of 12.0x FY16E PER vis-à-vis industry forward average PER of 15.0x. 

Source: Kenanga Research - 3 Mar 2016