Rest of the surge comes from demand in 5G, IoT, HPC and automotive industries

by ANIS HAZIM / Pic by BLOOMBERG

MI TECHNOVATION Bhd’s revenue surged 77% year-on-year (YoY) to RM114 million for the third quarter of 2021 (3Q21), mainly driven by contributions from the semiconductor material business unit (SMBU) following the completion of its acquisition of Taiwan-based Accurus Scientific Co Ltd in April.

Public Investment Bank Bhd (PublicInvest) research analyst Chong Hoe Leong stated that Mi’s semiconductor equipment business unit (SEBU) sales remained at RM64 million making up 56.4% of the group’s topline.

“The flattish sales growth was mainly attributed to the change in customer order trend where some orders were deferred to the subsequent quarters to suit customers’ capital expenditure (capex) spending timing and revised new capacity schedule which was locked-in in the past quarter in anticipation of the full lock-down,” Chong wrote in a note yesterday.

The remaining sales were also contributed by SMBU which made up of RM49.8 million on stronger demand from customers who are in 5G, Internet of Things (IoT), high performance computing (HPC) and automotive industries.

According to the analyst, Mi’s bottomline jumped 66% YoY. During the quarter, the group’s earnings rose from RM13 million to RM21.6 million on the back of equal contribution from both equipment and material businesses.

Meanwhile, its SEBU earnings fell 21.5% YoY to RM10.2 million as pre-tax margin slid from 20% to 15.8% due to higher costs in materials, logistics and stiffer price competition from China.

The company’s semiconductor material business saw the first full quarterly earnings contribution of RM11.4 million on the back of 22.9% pre-tax margin.

“There were some additional expansion-related expenses incurred for the operations in Taiwan, Korea and China,” he noted.

The analyst views positive prospects for Mi as its Korean operation saw its maiden sale of laser-assisted bonding machines after two years in product development.

With the sales, it is now qualified as one of the laser-assisted bonding providers in the high performance chip segment.

In China, it has secured pilot orders for a new product segment, test handler solutions, following the recent acquisition of a 22.64% stake in China-based Talentek Microelectronics (Hefei) Ltd.

Mi’s semiconductor business in Taiwan has successfully shipped the first two fully local-assembled vertically integrated series to customers.

Its new solder ball plant in Ningbo, China, has also obtained a temporary occupation permit and a pilot run has commenced preparing samples for its customers evaluation.

PublicInvest maintained its ‘Outperform’ call on Mi with an unchanged target price (TP) of RM5.78 based on 45 times financial year of 2022 earnings per share (EPS).

CGS-CIMB research analyst Mohd Shanaz Noor Azam noted that Mi’s revenue in 3Q21 fell by 2.8% quarter-on-quarter (QoQ), mainly due to lower contribution from the SEBU business due to changes in customers’ capex spending cycle as some orders were pulled ahead to 2Q21 in anticipation of lockdown measures in Malaysia.

“However, this was largely offset by stronger contribution from the SMBU which nearly doubled from RM26.6 million in 2Q21 to RM49.8 million in 3Q21.

“In spite of this, core net profit in 3Q21 fell by 25% QoQ mainly due to higher fixed cost arising from expansion in Taiwan, Korea and China, and unfavourable sales mix as SMBU tends to have lower margins compared to SEBU,” he noted in a report yesterday.

For the first nine months of 2021, Mi’s revenue and core net profit jumped 77% and 38% YoY, respectively, due to higher equipment demand, especially from China.

The group also declared a first interim dividend per share of three sen per share, in line with the analyst expectation.

The analyst expects Mi Equipment China to present promising prospects with the recent investment in Talentek.

“It has secured pilot orders for new test handler solutions, which are expected to generate revenue in 4Q21F onwards,” he stated.

Mi recently raised RM295.4 million cash proceeds through the issuance of 75.75 million new shares at RM3.90 per share. The company invested RM29.4 million of the proceeds to acquire a 22.6% stake in Talentek.

“We believe this investment will put the group in a better position to participate in the China semiconductor ecosystem expansion, specifically in the semiconductor final test segment,” he added.

CGS-CIMB Research revised down Mi’s EPS by 10%-12% to reflect EPS dilution from the new share issuance and lower margins from SMBU.

“We reiterate ‘Add’ with RM5.20 TP as we roll over valuations to end-2022. Our TP is based on 36 times calendar year of 2023 price-earnings (P/E), 0.5 standard deviation above the Malaysian automated test equipment sector’s three-year historical mean P/E of 32 times,” he further said.