2QFY20 CNL of RM0.57m brings 1H20 CNL to RM3.03m. We deem this within expectation as we expect a strong 2HFY20 that will be able to meet our full-year CNP forecast of RM15.7m. Revenue rose 10.6% QoQ, showing positive recovery from the previous quarter which was plagued by the MCO. Having all capacity back online since June as well as the new customer on board, we expect 3QFY20 to return to the black. We keep our earnings forecasts and maintain MARKET PERFORM with a higher Target Price of RM1.45.

Within expectation. The group recorded 2QFY20 CNL of RM0.57m which is an improvement from 1QFY20 (last quarter’s) CNL of RM2.46m, bringing 1HFY20 CNL to RM3.03m. We deem this to be within expectation as we anticipate a stronger 2H that will be able to meet our full-year CNP forecast of RM15.7m.

Results’ highlight. 2QFY20 revenue rose 10.6% QoQ to RM111.4m as the group managed to recover marginally from the movement control order (MCO) restriction in the previous quarter. 1HFY20 revenue fell 36% YoY to RM212.1m with decline seen across all segments. The electronic manufacturing services (EMS) segment (> 70% of group sales) fell 37% YoY. Revenue from raw wire and wire harness fell 27% YoY and 43% YoY, respectively.

Returning to the black. We expect the 3Q to return to the black as the group has resumed to full capacity since June. The group is currently working aggressively to clear backlogs as well as new orders for 3Q. Currently, the workforce has resumed to 90% (vs. 75% in June) and the group is still looking to hire more operators in anticipation of new orders.

With regards to its new customer, the group has been working hard to get the new equipment qualified via remote inspection. The group is seeing very positive progress and expects to commence operation next month with contribution to be seen in 4Q and more significantly in FY21. Recall that the Covid-19 outbreak halted the qualification progress in April due to travel restriction, causing a delay in work commencement.

We keep our earnings forecasts as we expect a strong 2H to surpass the minimal losses in the earlier two quarters. With the plant running at full capacity to clear backlogs coupled with new orders flowing in, we believe the group will be able to meet our FY20E CNP of RM15.7m.

Maintain MARKET PERFORM with a higher Target Price of RM1.45 (previously RM1.22). To reflect a positive recovery in the 2H, we base our valuation on a higher 14x FY21E (previously 12x), in line with its 5- year mean.

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

Source: Kenanga Research - 17 Aug 2020