Mi Equipment positive on the sector despite US-China trade war

Oh: Consumers will continue to buy gadgets and they can easily switch between brands.

Despite the growing uncertainties in the global economy, especially given the escalating trade war between China and the US, Mi Equipment Holdings Bhd remains optimistic on the prospects of the semiconductor industry.

As Mi Equipment group CEO and executive director Oh Kuang Eng sees it, the encouraging outlook of the global semiconductor will continue to be driven by the growing demand for electronic products, which in turn, supports the demand for semiconductors and related equipment.

“The global supply chain structure for the semiconductor industry is very entrenched and cannot be easily changed in the short-term due to capex invested and the lengthy pre-qualification process,” Oh explains.

“Furthermore, consumer demand for electronic gadgets is inelastic. Consumers will continue to buy gadgets and they can easily switch between brands,” he says in an email to StarBizWeek.

On that note, Oh says he does not expect the rising global trade tensions to have any material impact on Mi Equipment in the short term.

“The impact (of global trade war) may be felt more immediately by commodities, raw materials or agricultural players who are directly affected by the tariffs,” he reckons.

“However, if the policies sustain for the medium term, new investments in the semiconductor industry may be geographically restructured. If that happens, Malaysia may be a beneficiary,” he points out.

Mi Equipment derives the bulk of its revenue from overseas market. For instance, last year, foreign markets accounted for 83% of its revenue, with about 64% of sales coming from Northeast Asia.

The Penang-based group is principally involved in the design, development, manufacture and sale of wafer-level-chip-scale-packaging (WLCSP) sorting machines, with inspection and testing capabilities. These machines are used by companies in the semiconductor industry.

Besides that, Mi Equipment is also involved in the provision of maintenance services and technical support for WLCSP sorting machines, as well as the sale of related spare parts and components.

Mi Equipment is set to unveil its new 10-year roadmap to chart its growth by the end of this year.

Concerning the new roadmap of the company for the next decade from 2019 to 2028, Oh reckons that it is important to put forth a strategy to direct the group towards its long-term goals.

“We strongly believe that planning is key to keep our focus and achieve our desired outcome,” he explains.

At present, Oh is the single-largest shareholder in Mi Equipment, with a 68% stake.

Bullish stock

Mi Equipment’s shares have been on a tear since making its debut on the local bourse on June 20.

From an initial offering price (IPO) of RM1.42, the counter has since more than doubled in recent weeks. This easily puts it as one of the best-performing stocks in recent days.

Mi Equipment, which is the first company to be listed on the Main Market of Bursa Malaysia this year, saw its shares close 22 sen down at RM3.10 on Thursday.

That offers an upside of about 12.6% to the revised target price of Affin Hwang Capital, the only brokerage that covers Mi Equipment currently.

Last week, Affin Hwang Capital raised its 12-month target price for Mi Equipment to RM3.49 from RM2.57 previously, while reaffirming its “buy” recommendation on the counter.

Affin Hwang Capital said the new target price was based on its revised earnings estimates for the company from financial year ending Dec 31, 2018, to 2020, as well as a higher price-earning multiple of 20 times the estimated earnings for 2019, compared with 17 times previously.

“We remain positive on Mi Equipment as a proxy to growth in the adoption of wafer level packaging,” the brokerage explains in its recent report.

Affin Hwang Capital notes the successful delivery of Mi Equipment’s Li- and Si-series of sorting machines in the second quarter of this year represents a significant breakthrough for the company.

“We had initially thought that most of Mi Equipment’s newer products were primarily at the development stage and built for its customers for demo purposes only,” it points out.

The brokerage posits that the quicker-than-expected penetration into these new market segments - the fan out wafer level packaging equipment segment (Li-series) and testing equipment segment (Si-series) – represents goods news to Mi Equipment, as it will enable the group to grow its orderbook backlog for these new equipment.

In addition, Mi Equipment will be able to make full use of its new Bayan Lepas factory capacity, once it comes on stream in the first quarter of 2019.

“This should at the same time quash concerns over under-utilisation at its new plant,” it says.

Following the earlier-than-expected release of Mi Equipment’s Li- and Si-series of sorting machines in the previous quarter, the group is now setting its hope for the commercialisation of its Ai-series machines next by the fourth quarter of this year.

According to Oh, the Ai series is currently undergoing customers’ qualification process.

“The Ai series, which is a bonding machine, will further enhance our positioning in the assembly and packaging equipment segment,” he says.

“With our new machine series coming into the market, and the bigger capacity in 2019 with our new Bayan Lepas factory targeted to be operational in the early second quarter of next year, we expect to increase our market share in the near future,” he adds.

At present, there is no close local competitor for Mi Equipment, as the company is one of the largest WLP players domestically, and possibly one of the largest in the Southeast Asia from a sales volume perspective.

On a global front, Mi Equipment’s competitors comprise advanced semiconductor equipment makers such as ASM, Muhlbauer and Ueno Seiki.

Be that as it may, Mi Equipment boasts four out of five largest outsourced semiconductor assembly and test companies (OSATs) globally as its key customers.

For the first half of 2018, Mi Equipment posted a net profit of RM23.12mil, or 6.21 sen per share, on revenue of RM87.77mil.

In its filings with Bursa Malaysia last month, the group noted that the strong US dollar has worked in its favour.

Thus far, Mi Equipment has declared a first interim dividend of three sen per share for 2018.

The group has a proposed dividend policy of paying out at least 20% of its annual audited profit after tax attributable to the shareholders of the company.

Between 2014 and 2017, Mi Equipment’s revenue registered a compounded annual growth rate (CAGR) of 32.6% from RM74.3mil to RM173.3mil.

The group’s net profit, on the other hand, grew at a CAGR of 47.7% from RM18.4mil in 2014 to RM59.3mil last year, with profit margin widening from 24.8% in 2014 to 34.2% in 2017.