This article first appeared in Capital, The Edge Malaysia Weekly on August 9, 2021 - August 15, 2021

Target price: RM5.20 ADD

CGS-CIMB RESEARCH (AUG 2): Revenue in 2Q21 surged 2.7 times quarter on quarter (q-o-q) to RM117 million, a record quarter for sales delivery owing to increased equipment delivery by the semiconductor equipment business unit (SEBU) on the back of robust industry demand, as well as the maiden contribution from the semiconductor material business unit (SMBU) following the completion of the Accurus Scientific acquisition on April 19. Accurus accounted for RM26.6 million or 22.6% of the quarter’s revenue. Overall, Mi Technovation’s core net profit rose 2.2 times to RM25 million in 2Q21, from RM11 million in 1Q21.

For the six-month period, revenue and core net profit jumped 77% and 46% year on year (y-o-y) respectively,  owing to higher equipment demand — especially from China, in line with the country’s focus on investing in its domestic semiconductor industry’s ecosystem and reducing its dependence on imports.

We forecast stronger 2H21 sales and earnings delivery, driven by robust industry demand as market research group Semi expects the worldwide semiconductor equipment market to register 34% y-o-y growth in new capital expenditure to US$95 billion in 2021. Meanwhile, the Semiconductor Industry Association projects record sales of US$527 billion (+20% y-o-y) for the global semiconductor industry this year. We believe this bodes well for Accurus, which supplies materials such as solder spheres used in the integrated-circuit chip assembly and packaging process. In addition, we see upside potential from favourable foreign exchange movements. Based on the group’s sensitivity analysis, a 10% depreciation in the ringgit against the US dollar lifts its net profit by an average of 15%.

Mi Technovation plans to carry out a private placement exercise with the issuance of up to 10% of shares that could raise up to RM271 million for it to expand its SEBU and SMBU businesses. We gather that the group has identified potential targets for the M&A exercise that will help strengthen its SMBU portfolio and diversify its exposure beyond mobile devices into the automotive segment. The group is also exploring partnerships with established semiconductor suppliers in China that could provide it with bigger opportunities to participate in the growth of the country’s semiconductor ecosystem.

Target price: RM9.80 OUTPERFORM

KENANGA RESEARCH (AUG 2): Despite the implementation of Movement Control Order 3.0 with workforce restricted to 60%, Unisem managed to deliver 2QFY21 core net profit (CNP) of RM54.6 million. This brings its 1HFY21 CNP to RM100.1 million, which is in line with our and street’s expectation of 43% and 46% of the full-year estimate.

Looking ahead, we expect the positive momentum to flow into 3QFY21, with q-o-q growth likely to be seen, thanks to solid demand from key customers in Chengdu, China. To cater for the surge in orders and forecasts from customers, the group started the Phase 3 expansion in Chengdu in early July. Expected to be completed by 4QFY22, this will double its current floor space in the Chinese city.

Over at the Ipoh site, the utilisation of its packages is at optimal levels, with the exception of the bumping facility, which is still at suboptimal levels due to insufficient wafer loading from customers. However, the group is confident that the overwhelming demand at its Chengdu operation will be able to offset the shortfall. The group has proposed a one-for-one bonus issue of shares, which will be finalised by end-October.

Target price: RM2.50 SELL

TA SECURITIES (AUG 3): Pecca announced that the group had proposed to acquire a 51% stake in Rentas Health Sdn Bhd for a purchase consideration of RM100 million. The purchase will be satisfied via a combination of RM50 million cash and issuance of 11.9 million new shares in Pecca at RM4.17 apiece to Teoh Zi Yuen. Rentas is principally involved in the supply of medical equipment, which includes Covid-19 test kits, personal protective equipment and related products.

We are neutral on the acquisition. Note that the group was in a net cash position of RM68.5 million as at March 31. The RM50 million cash consideration will reduce its cash pile substantially and Pecca may have to gear up to fund the acquisition. Meanwhile, our back-of-the-envelope calculation reveals that the acquisition may increase Pecca’s FY22 earnings by 34.3% with the profit guarantee of RM23 million after considering the increase in interest cost for the acquisition. While the acquisition will help Pecca extend its product range and provide an additional revenue stream, the profit guarantee of just one year and no proven operating track record may expose the company to some business risks.

Target price: RM1.40 BUY

UOB KAY HIAN RESEARCH (AUG 2): Kerjaya Prospek has secured a contract worth RM139 million from Damansara Peak Sdn Bhd, a subsidiary of Eastern & Oriental Bhd. The contract covers the construction and completion of substructure works, main building works and all associated external works for a proposed three-storey, 54-unit villa in Damansara Heights, Kuala Lumpur. The works are expected to commence on Sept 1 and will take 30 months to complete.

We are optimistic that Kerjaya Prospek will continue to clinch more private jobs. With the gradual reopening of the economy, we can expect more contracts to be awarded soon. There is no change in our target price of RM1.40, which implies a 2021 PER of 14.3 times. Given its lower reliance on government projects and its ability to clinch private sector jobs, Kerjaya Prospek is deemed a safer bet among its peers amid the current political climate. We also like the company because of its superior margin, high order-book cover and strong net cash position of RM168 million (as at end-March).

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