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Since our initial coverage of MI back on 13 January 2021, MI’s share price has increased from RM4.16 to an all-time high of RM5.52, before declining sharply to RM3.30 at the point of writing. The decline was following the poor 1Q2021 results and overall weak sentiment on technology counters for their lofty valuation.

This article provides an update on MI’s latest quarter results, acquisition of Accurus Scientific Co Ltd, progress on its overseas expansion plan, and the new automation and robotics division.

UPDATE ON LATEST QUARTER (JAN – MAR) RESULTS

Compared to the immediate preceding quarter, MI’s revenue and PBT dropped by RM13.4m / 20% and RM11.4m / 77% respectively in 1Q2021.

Geographically, Taiwan and USA showed an increase in revenue by RM11.8m, however, China, Korea and South East Asia decreased by RM25.1 million. The lower revenue was partly due to the typical purchase cycle where Q1 was traditionally lower in capital expenditure.

According to the management, the significant decrease in operating profit by RM17.4 million was caused by lower revenue, higher warranty provision, and logistic cost for CIF shipment. There were also several one‐off operating expenses incurred during the quarter, as follows:

  • Employee bonus and welfare of RM7.7m to cater for employees’ immediate financial needs during the pandemic;
  • R&D expenses of RM1.7m;
  • Write-off of intangible assets of RM1.6m; and
  • Professional charges of RM1.0m for M&A exercise.

Excluding these one-off expenses, MI’s revised operating profit would close around RM12m (22% margin), a more comparable figure in terms of margin to the preceding quarter. The Group PBT of RM3.3m was after considering foreign exchange gains of RM3.0m.

Compared against the same quarter in FY2020, we note that MI’s revenue did improve by RM19m / 53% on the back of strong demand from the China and USA market.


SNAPSHOT ON FY2020 (JAN – DEC) FULL YEAR RESULTS

During FY2020, the Group’s revenue grew 20% while profits declined by 8.6%. The decline was due to an increase in operating costs after moving to the new factory at Batu Kawan and higher sales & marketing costs.

Despite the decline, MI’s gross and net margins remain within the Management’s targeted range of 40% – 50% and 20% – 30% respectively. Having in mind that FY2020 was unprecedented with uncertainties and challenges brought by the Covid-19 pandemic.

During the year, Taiwan remains as the largest contributor, accounting for 37.8% of the Group’s revenue, followed by China, 28.9% and Korea, 13.5%.


CORPORATE UPDATES

Semiconductor Equipment Business Unit (“SEBU”)

  • Setting up of overseas engineering centres

    To-date, engineering centres in Taiwan and Korea have been completed and have since commenced operations. Affected by the pandemic, the completion of MI’s third overseas engineering centre in Suzhou, China was delayed to June/July 2021.

    R&D plans were devised for each engineering centre to enable their focus on specific product segments.

  • Development on product portfolio

    Mi Series wafer level chip scale package (“WLCSP”) sorting machine remains as the Group’s flagship product, especially the Mi40 model launched in 2019.

    During FY2020, the Group also recorded sales for its latest Vi Series model, capturing opportunities from the high-end flip chip as well as SiP and 2.5D packages on the silicon defects inspection process.

    For the next 2 years, the management has indicated plans to emphasize boosting capacity utilisation. More aggressive sales and marketing strategies will be implemented, on top of continuous development and release of new products.

Semiconductor Material Business Unit (“SMBU”) – Acquisition of Accurus Scientific Co Ltd (“Accurus”)

At MI’s Extraordinary General Meeting (“EGM”) on 2 February 2021, resolution for the proposed acquisition of 99% equity stake in Accurus was duly passed with 99.9% of the poll voting for the resolution. The total purchase consideration of RM271m is to be satisfied via the issuance of new MI’s shares at RM3.65 issue price.

To recap, Accurus, based in Taiwan, incorporated in 1998 is principally involved in the manufacturing and sales of solder spheres (aka solder balls). Accurus also designs, develops, manufactures, and sells adhesive dispenser machines and solder ingots which are semi-finished materials for solder spheres and solder paste.

For the next 1 – 3 years, Accurus had laid out its expansion and diversification plans including to:  

  • Increase production capacity by 40% to produce up to 3.64 trillion pieces of solder spheres. This would be achieved once the ramp up is complete at its new manufacturing facility in Ningbo, China. The facility should have completed in 1Q2021.
  • Venture into the manufacturing and sale of copper core solder spheres. As a start, Accurus had purchased two copper core solder sphere production lines to cater for an annual production of 6 billion pieces. Manufacturing of copper core solder spheres is expected to commence in 3Q2021.
  • Venture into the manufacturing of ESD bottles. ESD bottles are used for the storage of solder ingots. Manufacturing of ESD bottles is expected to commence in 4Q2021.

The acquisition of Accurus was completed with consideration shares listed and quoted on Bursa on 21 April 2021. With the acquisition of Accurus, MI has indirectly penetrated the semiconductor material supply chain. Having both equipment and material technology/know-how, the management is optimistic about its growth prospects as the Group transforms into a total solution provider and has access to a wider network of semiconductor players across the region.

Moving forward, the management indicated plans to adopt a two‐pronged strategy to boost its prospects i.e. organic growth with optimisation of processes, reallocation of resources, and new product offerings coupled with inorganic growth through mergers and acquisitions.

Automation and Robotics Business Unit (“ARBU”)

ARBU was set up to explore a wider business scope beyond the semiconductor industry, serving as an incubator for transforming technological ideas into successful commercial products.

ARBU has commenced operation in the new facility at Batu Kawan since 2Q2020. During FY2020, the ARBU recorded a revenue of RM7.6m from the sale of its OTO and KOBOT series.

For purpose of better collaboration and efficiency, the management has recently decided to consolidate the Automation (Oto Series) and Robotics (Kobot Series) into SEBU.

The very first unit of a fully integrated system of Mi, Oto and Kobot series for WLCSP sorting machine was delivered in April 2021, marking MI as one of the pioneer in offering “man‐free” manufacturing solution in the industry for die sorting process.

Mi Autobotics will remain its focus on Artificial Intelligent Technology development i.e. 3D face recognition. The business will focus on software and application‐based products with teams to be set up in China, Singapore, and India in the near future.


MANAGEMENT OUTLOOK

The management is optimistic about the Group’s prospect anchored by SEBU which management estimates to deliver around 70% of the Group’s revenue. The remaining 30% is to be contributed by SMBU, post-consolidation of Accurus.

The management is estimating a double-digit growth from both SEBU and SMBU. Demand is expected to remain strong, led by countries like China, Taiwan and Korea.


VALUATION UPDATES

We refrain from providing an update on MI’s valuation in the near term, as we prefer to do so only with better clarification in its next quarter results, post-consolidation of Accurus’ financials.

Having said that, we favour the Group’s business model, management team and execution track record thus far. We are optimistic of the Group’s business and industry prospect despite the near-term headwinds facing the Group. Recent headlines of TSMC committing $100bn to grow capacity over 3 years and South Korea committing $450bn to invest in semiconductor manufacturing and research further strengthen our outlook on the industry. Strong ramp-up in China shouldn’t be ignored as they forge on its 2025 vision of being the World’s semiconductor powerhouse.

In the near term, we expect higher operation costs to put pressure on MI’s performance. Nonetheless, we deem the aggressive expansion plan undertaken by the Management as timely and bold given the semiconductor industry is at the start of the next “supercycle”.

As guidance on MI’s valuation, a 30x – 40x PE based on MI’s FY2020 full-year profit of RM54m combined with Accurus’s FY2019 full-year profit of NTD117m (RM17m) would value MI’s share price at a range of RM2.58 – RM3.45.

https://klse.i3investor.com/blogs/The1994Investor/2021-05-18-story-h1565123902-MI_Well_Positioned_But_Expect_Short_Term_Headwinds.jsp

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