While CNP was in line, the record-high 1Q17 revenue was a positive surprise. Absence of DPS in this quarter was expected. For the new projects, while it is still being negotiated, the fruition of nurturing growth with its existing major clients are already crystallizing with meaningful orders expected to be secured for the next few quarters. We made no changes to our FY17E/FY18E earnings. Maintain OUTPERFORM with an unchanged TP of RM2.87 (based on 15.0x FY18 PER).

Within our expectation. A decent 1Q17 CNP of RM9.0m was reported (- 64% QoQ; +396% YoY), making up 14% of our full-year estimate. We deem the results to be within expectation as 1Q typically only made up 5- 17% of the past two years? CNP. Note that 1Q17 CNP has been adjusted for (i) net allowance of impairment on receivables (+RM0.8m), and (ii) net reversal of inventories (-RM3.2m) as well as other immaterial items amounting to <RM1m. Meanwhile, absence of DPS was also expected for this quarter.

YoY, revenue improved by 35% driven by its lion?s share in the manufacturing segment (+37%). On a closer look, while the strong quantum of growth can be partly attributed to the low base in 1Q16, one should take note that this 1Q17 revenue was a record-high first quarter that the group has ever achieved thanks to the continuing orders (for both EMS activities as well as raw wire and cable products) from its existing customers. At the bottom line, despite of higher ETR, core NP soared by 396% on better operation leveraging as well as continuous yielding improvement on lower wastage. QoQ, 1Q17 sales dropped by 16% on weaker seasonality. Due to operational deleveraging, unfavourable product mixes coupled with higher ETR, core NP dropped by 64%.

Extended its positive surprises from 4Q16 to 1Q17. While FY16 appears to be a muted one for the group given a series of unfortunate events, the group managed a swift turnaround to a record-high 4Q16 CNP which made up for the shortfall in 9M16. Fast forward to 1Q17, while CNP was within our expectation, the record revenue was a positive surprise to us, which once again showcased its strength as an integrated EMS player that continues to push its limits of capability. For the new projects, while it is still being negotiated (with one coming close to be secured), the fruition of nurturing growth with existing major customers are already showing positive results with meaningful orders expected to be secured for the next few quarters; largely at the expense of its competitors.

Maintain OUTPERFORM with an unchanged TP of RM2.87. As our earnings drivers are still intact, we made no changes to our FY17E/FY18E earnings. The group?s superior margins, advanced manufacturing capabilities as well as strong parentage support from Foxconn Technology Group remained as key investment merits.

Risks to our call include (i) slower-than-expected sales, (ii) loss of orders from its key customers, and (iii) adverse currency translations.

Source: Kenanga Research - 29 May 2017