4QFY21 CNP came in within expectation at RM38.6m (+108% QoQ; +27% YoY), bringing FY21 CNP to RM110.5m (+123 YoY%). This represents 100% of our and 96% of consensus full-year estimates. Expanded capacity in Plant 1 during 4QFY21 assisted the group to achieve a 23% YoY revenue growth while FY21 revenue surged 47% YoY. D&O has started renovation works for Plant 2 and aims to commence operation in 2QFY22 as LED demand remains elevated owing to a slew of EV launches this year. Maintain OUTPERFORM with a lower TP of RM5.60 on lower valuation to account for weakened investment appetite in the tech space.

Within expectations. 4QFY21CNP came in within expectation at RM38.6m (+108% QoQ; +27% YoY), bringing FY21 CNP to RM110.5m (+123% YoY). This represents100% of our and 96% of consensus full year estimates.

QoQ, 4QFY21 CNP doubled to RM38.6m on a 48% increase in revenue to RM257.7m owing to the expanded capacity in Plant 1 that has been operational since October 2021, allowing the group to handle its seasonally stronger fourth quarter as well as catching up on the backlogs due to the 24-day plant shutdown in 3QFY21. YoY, revenue for 4QFY21 jumped 23% while CNP grew at a larger quantum of 27% on the back of improved margins despite having recently expanded its capacity. This further illustrates the group’s capabilities in terms of expanding its business and improving profitability at the same time. Cumulatively, FY21 CNP leapt 123% to RM110.5m on a 47% increase in revenue to RM846.5m on rising demand for its automotive LEDs for both fuel and electric powered vehicles.

Looking to continue the momentum. Despite the recent capacity expansion in 4QFY21 to maximise the production output in Plant 1, D&O is showing no signs of slowing as the group has begun pulling in equipment for Plant 2 since January 2022 and is targeted to commence operation in 2QFY22. We learnt that the swift expansion was in line with the strong orders that the group is experiencing from its key customers, driven by a slew of electric vehicle models that are slated to launch in 2022 on top of the existing LED demand for fuel powered vehicles. Order visibility has been extended until May 2022 and the group has built up its inventory to avoid any supply chain disruption, suggesting that 1QFY22 may still experience elevated sales, minimising the seasonal impact.

We maintain our FY22E CNP of RM148.1m and introduce FY23E CNP of RM171.0m, representing 34% and 16% growth, respectively.

Maintain OUTPERFORM with a lower Target Price of RM5.60 (previously RM6.60) based on lower 45x (previously 53x) FY22E PER at +1SD to its 5-year mean to reflect the weakening investment appetite in the technology space as a result of macro factors such as rising interest rates and geopolitical conflict between Russian and Ukraine.

Risks to our call include: (i) disruption of components supply, (ii) replacement/obsolescence of LED technology, (iii) adverse currency fluctuations

Source: Kenanga Research - 25 Feb 2022