9M17 CNP was in line, so was the second interim net DPS of 3.5 sen. Despite the seasonally weaker sales in 4QCY, which is typical for OSAT players, management is expecting a flat sequential top-line growth (similar sales growth quantum in our forecasts of +2% in USD terms); which we believe will be compensated by the higher margin Communication segment. Post model updates, our FY17E/18E earnings have been tweaked up by 1%. Maintain MP with a marginally higher TP of RM3.90.
Within expectations. The group recorded 3Q17 core net profit (NP) of RM40.0m (+3% QoQ, +5% YoY), bringing 9M17 core NP to RM123.9m (+13%) which made up 71%/66% of our/consensus’ full-year estimates. We deemed the results to be within expectations as typically the group’s financial 4Q will see stronger earning, boosted by the high margin packaging in the Communication segment. Note that the over the past two years, nine-month results only made up only 61%-68% of full year results. As expected, a second interim net DPS of 3.5 sen was declared under the quarter reviewed, bringing YTD total DPS to 7.0 sen. We are expecting the group to declare a total net DPS of 11.0 sen for the year.
YoY, 9M17 revenue increased by 15% (or 8% in USD terms) driven by higher demand in Industrial and Consumer segments. On the other hand, sales weakness from Communication segment had since narrowed to -2% (from 1HFY17 of -5%) helped by the decent volume ramp-up for the packages in conjunction with the launching of new flagship US smart-phones during the end of the quarter. At the operational level, adjusted EBIT improved by 13% on better product mix, further augmented by stronger USD vs MYR. Note that MYR/USD exchanged rate improved by 6% from avg. RM4.09/USD to avg. RM4.35/USD in 9M17.
Meanwhile on QoQ basis, 3Q17 revenue in MYR terms recorded a stronger sequential growth of +5% (USD terms of +6%); with growth seen in all segments, reflecting the stronger seasonality factor. Despite flat EBIT performance of +1% (on higher COGS as a result of adverse forex translation as well as higher labour costs on more public holidays in 3Q resulting in higher paid wages), core NP recorded a similar growth quantum of 3% thanks to its lower effective tax rate (ETR) of 9.8% (vs 2Q17 ETR of 11.2%).
Riding on stronger industry demand. Overall industry continued to show improvement as the global semiconductor sales in September 2017 increased by 22.2%, marking the fourteenth consecutive YoY growth. Despite seasonally weaker sales in 4QCY for typical OSAT players, management is expecting flat sequential top-line growth (similar sales growth quantum in our forecasts of +2% in USD terms); which we believe will be compensated by the continuous volume ramp up for wlCSP amidst the launching of new US flagship smartphone in 4Q17 (fatter margins), thus driving higher growth at the bottom-line level.
Maintain MARKET PERFORM with a higher TP of RM3.90. Post model update, our FY17E earnings have been marginally tweaked up by 1% for house-keeping purposes, thus leading to a marginally higher TP of RM3.90 from RM3.86. This is still based on an unchanged multiple of 15.0x (being the up-cycle valuation) on FY18E EPS.
Risks to our call include: (i) lower-than-expected sales and margins, and (ii) adverse currency exchange to the group.
Source: Kenanga Research - 02 Nov 2017
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