1Q17 CNP was in line. Absence of DPS was also as anticipated. Management is guiding for stronger USD sales QoQ with spill-over momentum from 1Q17. While FY17 appears to be a good year for the group stemming from the potential wlCSP volume ramp-up amidst the launching of new flagship smartphones in 2H17, we believe the positives have already been priced in. No changes to our forecasts. Maintain MP with an unchanged TP of RM3.55.

Within expectations. The group recorded 1Q17 core net profit (NP) of RM44.9m (-12% QoQ, +29% YoY) which made up 26%/27% of our/consensus’ full-year estimates. As expected, no dividend was declared under the quarter reviewed.

YoY, 1Q17 revenue increased by 13% (or 7% in USD terms) driven by higher demand in Industrial and Consumer segments. On the other hand, sales from Communication segment still remained soft as we understand that the major volume ramp up for the segment’s packages will only be seen closer to the 2H17 in conjunction with the launching of new flagship US smartphone. At the operational level, adjusted EBIT improved by 30% on better product mixes, further augmented by stronger USD vs MYR. Note that MYR/USD exchanged rate improved by 6% from avg. RM4.19/USD to avg. RM4.45/USD in 1Q17.

Meanwhile on QoQ basis, 1Q17 revenue skidded by 1% (or 3% in USD terms), which was reflective of the seasonally weaker quarter. While adjusted EBIT decreased by 18% on operational deleveraging as well as unfavorable product mixes (lesser contribution from Communication and Automotive segments), CNP dropped by a narrower quantum of 12%, eased by a lower effective tax rate.

Poised well to ride on the uptrend. Overall industry continues to show improvement as the global semiconductor sales in February 2017 increased by 16.5%, marking the seventh consecutive YoY growth which is also the largest YoY growth since November 2010. Meanwhile, our channel checks also revealed that the equipment manufacturers are seeing higher demand from their end-customers. Taking these as positive signs, we believe the spill-over effect will also be reflected in the Malaysian back-end Semiconductor players. Management is guiding for a stronger sequential growth which we believe is highly possible; to be supported by the potential volume ramp up for wlCSP amidst the launching of new flagship smartphones in 2H17. On top of that, we also reckon that the prevailing strong USD also augments its net exporter’s earnings profile.

Maintain MARKET PERFORM with an unchanged TP of RM3.55. As our earnings assumptions are still intact, we made no changes to our FY17E/FY18E CNP. While FY17 appears to be a good year for the group stemming from the potential volume ramp up for wlCSP amidst the launching of new flagship smartphones in 2H17, we believe the positives have already been priced in. Maintain MARKET PERFORM with an unchanged TP of RM3.55. The ascribed PER is based on an unchanged multiple of 15.0x, which is an upcycle valuation.

Risks to our call include: (i) lower-than-expected sales and margins, and (ii) adverse currency exchange to the group.

Source: Kenanga Research - 26 Apr 2017