MMSV’s share price has performed well with +100% gains YTD. We continue to see the group to benefit from the surging demand of LED lighting in Smartphone and Automotive markets, given its expertise in the customized automation with strong customer profile and strategic portfolio exposure. While earnings prospects appear resilient, we believe the positives have already been priced in. Not Rated with a FV of RM1.11.

Share price surged +100% YTD. Hot on the heels of the strong share price performances among the automated test and vision inspection equipment manufacturers, MMSV has also performed well with YTD gains of +100%, which has also exceeded our previous FV of RM0.95. Looking back to its FY16 financial performances, revenue improved by 14% on the back of higher orders as a result of increase in demand which we believed mainly from the smartphone customers. While GP margin was relatively unchanged at 32.6% (vis-à-vis 32.4% in FY15), NP margin improved by 1ppts to 26.8% boosted by pioneer income of RM1.9m.

Healthy LEDs demand and equipment spending to spur MMSV’s double-digit growth. We see MMSV to benefit from the surging demand of LED lighting in the end market segment given its expertise on LED and semiconductor test and vision inspection solutions that are specifically tailored to meet customers’ various requirements. Our conviction is also premised on the group’s strong customer profiles (which include world-leading LED makers) as well as the strategic portfolio exposure (with Smartphone segment, being the largest contributor followed by Automotive and General lighting). From the Smartphone space, which is being the most lucrative segment and projected to contribute 50% to the group’s FY17 revenue, management noted that the possible introduction of new flashing features into the new flagship models should anchor future growth. Meanwhile, its Automotive segment is also seeing resilient demand underpinned by the proliferation of Daytime Running Lights (DRL) beyond higher class car models as well as the mandatory requirement by the European Union to install DRL in all new cars, alongside higher requirement for the efficiency for test equipment. All in, we believe these could anchor a 2-year revenue CAGR of 20% for the group’s FY17 and FY18.

Not Rated with a Fair Value of RM1.11. All in, we are projecting the group to register FY17E/FY18E NP of RM10.7m/RM12.8m with assumptions being: (i) revenue growth of 20% mainly driven by higher volume machines sold in Smartphone segment (in line with management’s target), and (ii) NP margin of c.25% for better product mixes. By ascribing a targeted PER of 14x (which is the targeted PER of 14x that we ascribed to ELSOFT) on our forecasted FY18E EPS of 7.9 sen, our FV is at RM1.11. A “Not Rated” rating is assigned to the stock as we see a limited upside. We might revisit the stock again should there be any further positive catalyst

Source: Kenanga Research - 18 May 2017