1H20 stays in red, lower revenue coupled with higher R&D expenses

1H20 posted lower revenue of RM87.3m (yoy:-14.7%) and LAT of RM2.3m, revenue growth in 2Q20 (yoy:+17.3%, qoq:+70.0%) disappoint while margin thinned by higher R&D expenses, 2Q20 return to black but barely breakeven. The anticipated stronger 2Q20 on the back of new cordless Bluetooth headset didn’t materialized, 1H20 revenue only account for 36.6% of our FY20E full year estimate.

2 new product to achieve mass production by 4Q20

The Group continue to co-develop hearable devices with its European design partner and foresee 2 of its current product development project to achieve its mass production timeline by 4Q20.

Maintain 3rd interim dividend despite declining profitability

The group maintained its interim dividend at 0.6 sen per share, ex-date on 9 mar 2020 and payment date on 27 Mar 2020.

Downgrade to Sell recommendation with lower TP of RM0.58

We cut our FY20F /FY21F forecasts to reflect the Group’s slowing revenue growth and increasing R&D cost and do not expect a further recovery until first half of 2021. We downgrade our recommendation to Sell with lower target price of RM0.58 based on P/E of 12.0x on our estimated EPS for FY21F.

Source: Mercury Research - 26 Feb 2020