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Wednesday, January 20, 2021

Riverstone - Valuations Turning Attractive; Upgrade to BUY

Upgrade Riverstone (SGX:AP4) to BUY as valuation becomes attractive again after share price correction on vaccine news.

  • Firm ASP and demand trend in FY21F; order visibility extends till December 2021.
  • Mass availability of vaccines will take time; new COVID-19 strain raises risk.
  • Riverstone's FY20F/21F/22F earnings forecast adjusted by -16%/+19%/+4% on revision to ASP assumptions.

Riverstone's Valuations Turning More Attractive

Current Riverstone P/E at -1SD of its 5-year average.

  • We had downgraded Riverstone to HOLD in November 2020 (Riverstone - DBS Research 2020-11-10: Time To Take A Breather) when Riverstone's share price was near S$2. Since then Riverstone's share price has corrected by close to 50%.
  • At current level, P/E valuation for Riverstone is becoming more attractive, trading at 7.3x FY21F earnings, which is near -1SD of its 5-year P/E average.

Bumper dividend expected from Riverstone.

  • Riverstone could declare a bumper dividend on the back of exceptionally high profits driven by strong demand and high ASP in year 2020. Dividend per share could more than double to 5 cents in FY20F, based on 40% payout ratio, as compared to 2.42 cents in FY19.

Firm ASP and Demand Trend; Order Visibility Extends Till December 2021

  • ASP and demand trend have been firm despite the positive developments on the vaccines for COVID-19. The ASP for both healthcare (HC) and cleanroom (CR) gloves has increased by about 10% m-o-m on average since April 2020. The increase in November and December was even steeper at about 15% m-o-m. For January and February 2021, the increase in ASP is about 5% to 10%, based on our channel checks.
  • Going forward, ASP could remain firm, barring any steep increase in raw material prices, as demand is still expected to be strong.
  • Riverstone’s order visibility has further extended to till December 2021, from our last update in November of till June 2021. Prices for HC gloves are negotiated monthly, hence prices are not fixed. For CR, prices are now negotiated every two months or quarterly, vs every six months to a year before the pandemic.

Mass Availability of Vaccines Will Take Time; New COVID-19 Strain Raises Risk

Positive vaccines development negative for “COVID beneficiaries”.

  • The world has cheered the positive vaccines development over the last few months. In contrast, share prices of “COVID beneficiaries” like Riverstone were hammered. Riverstone's share price plummeted from a high of S$2.45 in August 2020 to a low at close to S$1 in December.

Low vaccine acceptance rates; new COVID-19 strain raises risk.

  • While the availability of COVID-19 vaccines is good news, it would still take time for life to return to near normal. Low vaccine acceptance rates or distribution delays due to production or logistical difficulties could delay the return to normalcy. Vaccine acceptance appears significantly lower in the US with only ~47% of people surveyed by the Associated Press planning to get the vaccine and 27% being unsure.
  • The emergence of a new COVID-19 strain in the UK that is “70% more transmittable” also raises the risk of a resurgence in COVID-19 community transmission. Several countries have imposed new lockdown measures arising from the surge in in new COVID virus cases and virus mutation.

Sustainable glove demand post-COVID with hygiene still a key concern.

  • Hence, the demand for gloves is expected to sustain as hygiene will still be a key concern. Even if a COVID-19 vaccine is developed, we do not expect demand to taper off immediately.

Beyond FY21F, cleanroom to provide earnings resiliency for sustainable growth.

  • Riverstone’s CR gloves segment contributes ~25% to 30% to total revenue and ~50% to gross profit. Even if demand for the more volatile HC gloves tapers off, demand for CR gloves should be more stable. The CR glove segment has also experienced growth in demand from the technology and manufacturing industries such as lenses, batteries and semiconductors.
  • As the market leader in the high-end CR glove space, Riverstone is poised to benefit from the diversified income streams which allow the group to ensure earnings resiliency for sustainable growth over the longer term.

Riverstone - Earnings Forecast & Recommendation

Expect ASP in FY21F to rise by an average of 35% y-o-y, vs our flat assumption previously.

  • We have adjusted our ASP assumptions, expecting ASP for both HC and CR in FY20F to increase at an average of 60% y-o-y, vs our previous assumption of +70%.
  • For FY21F, given that demand is still expected to be strong while supply remains tight, and the ASP for January and February are still on a rising trend, we now project ASP to increase 35% y-o-y, vs our previous flat assumption.
  • For FY23F, ASP could decline by 35% y-o-y.

-16%/+19%/+4% earnings forecast adjustment for Riverstone in FY20F/FY21F/FY22F.

  • On the back of the ASP adjustment, coupled with slightly lower margins on higher raw materials, we have adjusted our Riverstone's earnings forecast for FY20F/FY21F/FY22F by - 16%/+19%/+4%.
  • Our target price for Riverstone is still pegged to 12.8x, the average P/E over the last 5 years, in line with our valuation methodology for peers in our coverage. However, we have rolled forward our valuation base to blended FY21F/FY22F earnings to capture the post COVID-19 impact. As such, our new lowered target price offers potential upside of 37%.
  • In terms of share price performance, Riverstone's share price has moved in tandem with peers Hartalega and Kossan Rubber but underperformed Top Glove's share price, Supermax and UG Healthcare's share price.
  • Upgrade Riverstone to BUY.

Source: DBS Research - 11 Jan 2021

Fortress Minerals Ltd. – Ore Production Almost Doubled This Quarter

3Q21 results were better than expectations. Revenue was up 150.9% YoY, PATMI up 477.9% YoY. 9M21 PATMI formed 77.5% of our FY21e forecast.

3Q21 sales volume increased a stellar 93.8% YoY on the back of increased domestic demand for steel.
Maintain BUY with a higher TP of S$0.47, up from S$0.28. We raise FY21e PATMI by 69.2% to capture its 3Q outperformance. Our TP remains pegged to 11x FY21e, the industry average. Catalysts are expected from a 50% jump in production in FY21e and iron ore prices (Platts Iron Ore Index, IODEX 65% Fe CFR North China) remaining above US$110/DMT. The company announced a proposed US$30mn acquisition of Malaysia iron ore and copper producer.

The Positives

+ Continued volume growth. Iron ore concentrate volumes sold increased 93.7% YoY in 3Q21. This translated to revenue growth of 150.9% YoY. Volume and revenue were both lower QoQ due to monsoon disruptions to production that typically occur at year-end.

+ Spike in margins. Gross margins increased from 57.7% to 75.1% in 3Q21. Revenue for the quarter more than doubled, driven by higher prices for high-grade iron ore concentrates. Their ASP was a record US$110.06/DMT as iron ore prices reached a 7-year high. Average unit cost was also lower YoY through increased iron ore production.

+ Operating cash flow increased 7x. 3Q21 operating cash flow of US$11.7mn was 7x the US$1.6mn achieved a year ago. Net cash slightly dipped from US$9.9mn to US$9mn while FCF turned around from -US$328k in 3Q20 to US$10.4mn in 3Q21.

The Negative

– Nil.

Proposed acquisition of Malaysian subsidiary of Monument Mining Ltd

Monument Mining Ltd (MMY CN, Not Rated) is an established Canadian gold producer that operates gold mines. It also acquires, explores and develops other base metals. FML has entered into a conditional sale and purchase (SPA) agreement with the company for the acquisition of the entire Monument Mengapur (MMSB). MMSB owns a 100% stake in the Mengapur copper and iron project in Pahang, Malaysia. Cash consideration is US$30mn. FML will pay a royalty fee of 1.25% of gross revenue from all products produced at Mengapur to Monument Mining.

Other than magnetite, Mengapur contains a significant amount of copper, gold and silver resources. FML will mine only magnetite for the production of its iron ores. Ores containing other materials encountered during mining will be stockpiled for future use.

With this acquisition, FML’s magnetite resources will surge from 7.18mn tonnes from its Bukit Besi mine as of February 2020 to 17.93mn tonnes. Geochemical analysis and metallurgical tests have proven that the Mengapur magnetite is extremely similar to that from the Bukit Besi mine, which has demonstrated to be economical. FML’s Buki Besi mine has been able to yield consistently-high-grade magnetite iron ore concentrates.

Mengapur is strategically located 65km away from the Kuantan port, the main bulk iron ore export port on Malaysia’s East Coast. It is also within close proximity of the two largest steel mills in Malaysia, both of which are FML’s customers.

Mining leases and environmental approvals for open-pit mining have been obtained. With its existing processing plants and other facilities, the Mengapur site is ready for development. It is immediately available for magnetite production after refurbishment.

This is the company’s first proposed acquisition. If executed according to plan, it should help transform FML into a regional player in iron ores, coupled with its efforts to explore and develop iron ore assets across Malaysia. Mengapur should also complement FML’s existing portfolio of advanced iron ore projects.


Iron ore prices are expected to taper down in 2021 as supply balances out demand. We expect them to drop from the current US$190/DMT (Platts IODEX 65% Fe CFR North China) to the region of US$110/DMT. This would translate to lower ASPs of US$95/DMT for FML, from US$110.06/DMT in 3Q21. However, FML’s revenue should still increase with higher iron ore volumes sold following its announcement of an offtake agreement in September 2020. Operating expenses are also expected to be stable with the help of improved economies of scale.

Maintain BUY with higher TP of S$0.47 from S$0.28

We maintain BUY with a higher TP of S$0.47, up from S$0.28, after we increase FY21e PATMI by 69.2% to factor in its 3Q21 outperformance. We continue to peg the stock at 11x FY21e PE, the industry average. We expect production to jump 50% in FY21e and iron ore prices (Platts Iron Ore Index, IODEX 65% Fe CFR North China) to remain above US$110/DMT, providing stock catalysts.

Source: Phillip Capital Research - 18 Jan 2021

Tuesday, January 19, 2021


芯东西 芯东西头条2021/01/19

作者 | 汤之上隆
编辑 | Panken





















(2)1995-2000年:随着Windows 95发布,这是一个半导体增长放缓的时代。虽然2000年因IT泡沫而格外突出,但汤之上隆决定将这一年作为奇点而忽略。












2010年世界人口金字塔的70亿人中,发达国家有约10亿人,新兴国家的中产阶层有约20亿人(如图7右侧所示)。剩下的40亿人是贫困阶层(Bottom of the Pyramid,BOP)。









































来源:EE Times Japan

Silkroad Nickel enters into exclusive partnership with Ganfeng Lithium, Ganfeng Lithium to invest US$15 mil

Felicia Tan Published on Mon, Jan 18, 2021 / 6:54 PM GMT+8 / Updated 13 hours ago

Catalist-listed Silkroad Nickel, an established producer of laterite nickel ore based in Morowali, Central Sulawesi, Indonesia, has entered into an exclusive term sheet on Jan 15 with Ganfeng Lithium.

Ganfeng Lithium is one of the world’s largest lithium compound producers and its shares are dual-listed on the Shenzhen Stock Exchange and Hong Kong Stock Exchange.

The term sheet provides for the offtake of future raw materials, the funding for upstream and downstream expansion, and potential strategic partnership initiatives in the electric vehicle (EV) battery space between both companies.

Under the agreement, Ganfeng Lithium will invest in Silkroad Nickel a three-year convertible bond with a principal amount of US$15 million ($19.9 million) which bears interest at a rate of 7% per annum.

Ganfeng Lithium has the right to convert the entire principal amount into new shares amounting to a 25% stake in either FE Resources, Silkroad Nickel’s wholly-owned subsidiary in Singapore, or its Indonesian subsidiary PT Anugrah Tambang Sejahtera.

Ganfeng Lithium has a call option to subscribe for additional new shares in either subsidiary upon conversion of the bond.

The aggregate equity interest in FE Resources or PT Anugrah that Ganfeng acquires through the conversion of the convertible bond shall not exceed 50%, and Ganfeng will enter into a 10-year ore offtake contract with PT Anugrah for the supply of at least one million tonnes per annum.

Indonesia, as one of the world’s largest producers of nickel ore, is on an EV growth trajectory from nickel ore producer to EV producer in the next five years.

According to Silkroad Nickel, the company stands to benefit and capitalise on booming EV trends around the region through the partnership with Ganfeng Lithium.

“We are pleased to announce and embark on this exclusive partnership with Ganfeng Lithium, a world leader in lithium-ion batteries and electric vehicles. As the demand for EV accelerates across the world, Indonesia has emerged as a key player in the global EV ecosystem and we are excited to be part of this exciting supply chain,” says Hong Kah Ing, executive director and CEO of Silkroad Nickel.

“We are particularly pleased to partner with such an established and experienced player like Ganfeng Lithium, with operations across the world and best-in-class technology and experience, and we look forward to an exciting new chapter of growth,” Hong adds.

Shares in Silkroad Nickel closed flat at 43 cents on Jan 18.

Sunday, January 17, 2021

老派 vs 新潮/拿督刘明

上个星期的文章刊出后,有读者留言说我的文章很Old school , 他的意思应该是说我思想陈旧腐朽,举的例子都是陈年旧事。







而我上一期专栏的思维,就是围绕着“你以为”这个课题,借用历史(若谷歌和微软20 年前发生的事能称为历史的话)和自身经验来阐述这论点,怎么就成了老古董old school 了?

现代人读书不求甚解,遇事不追究原因始末就妄下结论,一句old school 就以偏概全,好不潇洒!

Old school泛滥成灾

Old school 这词什么时候流行甚至泛滥成灾已不可考,但似乎很好用。


最近有几宗颇大的期货询问,我们整班好朋友被一位年轻人大骂old school , 只因我们当中有人坚持要把某些细节弄清楚,以免将来发生争执。


现在是一个凡事讲究速成的时代,人们基本上已经失去了耐心,但为求万无一失,动作稍微慢一点,就被归类为落伍old school 。

其实,这些人眼中鄙视的old school 背后,是我们祖宗千百年遗留下来的智慧财产,它们代表着:原则、信念、经验、诚实、善良,尊师重道等美德。



被标签为old school 的线下实体商店还是大有可为,以前的o2o (offline to online) 线下到线上变成了online to offline 线上到线下,阿里的盒马鲜生就是一例!


和朋友谈起此事,他愤慨地说:这不是old school 或new school 之争,这是个人修养问题,借old school 这课题,企图掩盖自己情商之不足。











其实,动辄标签别人old school ,不止没有任何意义,也显得他自己思想狭隘,理由很简单,因为所有事情都是万变不离其宗。


结果时间证明,被标签为old school 的线下实体商店还是大有可为,虽然经营方式也许有点不同。

以前的o2o (offline to online) 线下到线上变成了online to offline 线上到线下,阿里的盒马鲜生就是一例!


上一回马来西亚Lazada 总裁周南和我在同一电视节目亮相时,主持人问他,供应商应该如何面对产品同质化,价格太过透明等问题,他的回答非常有见地。


产品差异化,是避免自己深陷红海的其中一个策略,这是千古不变的定律,谁敢说它old school ?


但这是我们中小企业终其一生都不可能达成的任务,所以,我说与其谈new school 的大数据,不如干脆把时间精神用在有温度的old school, 就是crm (客户管理系统)上,让客户感觉到我们的用心。





功力深厚的old school 主播vs 肤浅幼稚的网红,且看谁能笑到最后。


New school 利用科技,把圆的世界刷平,我们绝对认同!

但科技背后的old school 智慧,才是让它走的更远的原因。



后记:我满口old school,看来还真old school。但假如你自认很new school ,别只会批评,行动起来吧,让全世界看看你如何用new school 改变世界!


Saturday, January 16, 2021

Mi Technovation Berhad – A ride with tremendous growth prospect

Author: The1994Investor | Publish date: Fri, 15 Jan 2021, 10:56 PM

Established since 2012, MI is an emerging leader in equipment manufacturing for advanced semiconductor packaging. Their clients comprises of outsourced assembly and testing (“OSAT”) companies and integrated device manufacturers (“IDM”).

In this article, we introduce and discuss the growth prospect of MI, why we are optimistic about the Group, and whether it is worthwhile at its current price.

MI operates via three business units, as follows:

1. Semiconductor Equipment (“SE”) – The bread and butter of the Group

MI is principally involved in the design, development, manufacture and sale of wafer-level chip scale packaging (“WLCSP”) machines as well as providing after sales services and sale of related spare parts and components.

Its flagship products are the MI Series WLCSP sorting machines, which make up more than 90% of its total sales. In addition, four other series, namely, Ai, Li, Vi and Si have also been developed and commercialized. The table below provides brief information of the respective series:

2. Automation & Robotics (“Robotics”)

Under the Robotics segment, MI has three products, namely, Oto Series (specialized in artificial intelligence (“AI”) enabled machines), Kobot Series (a mobile robot), and Engeye Series (an AI product to perform data mining, AI analysis, and decision-making to assists engineers and operations to respond to and prevent the possible excursions).

This is a relatively new segment, started contributing in December 2019. For the first 9 months of 2020, its sales totaled RM3.3m, contributed by the newly launched KOBOT series and OTO series.

3. Semiconductor Materials and Components (“SMC”) – yet to make any contribution

In 2019, MI designed and developed the PH Series, an in-house designed pick & place precision module that has been qualified and is ready for production.

On 8 Oct 2020, the Group inked a Memorandum of Understanding (MoU) with Taiwan-based Accurus Scientific Co (“Accurus”) and its shareholders for the acquisition of 99% equity interest in Accurus. Accurus’ principal activities are manufacturing solder spheres, which are widely used for Advance Packaging in the semiconductor industry.

As at 9MFY2020, MI’s revenue by business units is mainly contributed by SE, 98%, followed by Robotics, 2%. Within the semiconductor industry value chain, MI operates as a semiconductor packaging equipment and material manufacturer.


During MI’s IPO in June 2018, the Group raised a total of RM190.8m, of which RM140.0m / 73% was allocated for construction of new factories cum office buildings to accommodate for higher production capacity.

From the remaining RM50.8m, RM36.7m was budgeted for working capital requirements, RM6.0m for research & development (“R&D”) and RM8.1m to defray listing expenses. Table below illustrates MI’s utilization of the funds to-date.
1 RM55m was for building construction whilst RM10m to purchase Computer Numerical Control (“CNC”) machines. Completed since May 2019, Home 1 currently houses the operation of SE business unit. It has a gross production space of 90,000 sq ft, a 4-fold increase in capacity to 45 machines per month. Management estimates a 50% – 60% utilization rate at end-2020.
2 Completed since January 2020, Home 2 with a production space of 90,000 sq ft house the operation of Robotics business unit. Management estimates a 40% utilization rate by end-2020.
3 On 11 September 2019, MI announced to partially re-allocate funds initially budgeted for construction of Home 2 towards setting up new engineering centers in Taiwan, Korea and China. The Company decided to scale down total floor space area of Home 2 from 250,000 sq ft to 100,000 sq ft, after careful consideration of the market conditions.

These overseas centers will keep MI on top of evolving technology trends and provide them direct exposure to top technology players, as well as access to a deeper pool of talents to develop products and know-how.

As part of the Group’s 10-year business roadmap, these centers are tasked to undertake the development of different series under the SE business unit i.e. Home 1 will focus on Mi Series, Taiwan operations will focus on Vi Series, and Suwon, Korea will focus on Ai Series, etc.

For more information on the Group’s long-term strategy, you may refer to The Breakfast Grille podcast, which was presented by Noelle Lim from BFM featuring the CEO of MI, Mr. Oh Kuang Eng on 5 January 2011.

Significant investment in R&D. As at 31 March 2020, MI’s R&D team comprises 99 personnel. As at FYE2019, MI has been granted 5 patents, 21 patents pending, and a further 2 in the drafting stage. Being an equipment developer cum owner, its superior proprietary technology would act as an effective barrier to entry and shield the Group from the duplication of its designs, systems and methods by potential competitors.
Tremendous growth expected from the Robotics segment. Albeit seeing only a small contribution over the last few quarters, Management sees tremendous growth in this segment for years ahead. Management has recently revised up its target for the capacity utilization rate from 25% to 40% by end-2020. This poses a strong signal to the encouraging demand in the near-term. They estimate production capacity to increase in stages and will be instrumental to its growth plans for the next 3 years.
Tier-1 clientele. MI has been able to secure three Tier-1 OSATs, notably, Advanced Semiconductor Engineering Inc (“ASE”), Amkor, and United Test and Assembly Center Ltd (“UTAC”). Local OSAT customers under their belt includes Inari and Unisem. The Group also has a strong presence amongst the IDMs from US.

As of end-2019, MI has approximately 53 active customers, with its five largest customers accounting for 59.5% of its FY19 revenue. The success in securing and retaining global customers is a testament of its product quality, customer service and proven track record.
Horizontal growth strategy with acquisition of Accurus. Solder spheres are widely used for advance packaging such as Ball Grid Array and wafer level packaging in the semiconductor industry. Besides, Accurus also involves in metal surface treatment, metal forming of aluminum, copper and tin-based solders, as well as electronic parts and components assemblies.

The acquisition provides an opportunity for MI and Accurus to establish business integration for wider product portfolio within the same distribution channel and value chain. This is in line with MI’s business plan to expand into business activities that are complementary to its existing business.

Table below summarizes Accurus’s past 3 years financial results.

The purchase price of RM217m was proposed to be settled via issuance of 74.25m new MI shares at RM3.65 per share. The acquisition was valued at 16.22x PE multiple of Accurus’s FY2019 results (peers valuation range between 21x – 46x). The lower acquisition value (industry mean was 29.4x) may be to consider for the inconsistent PAT margin over the years.
Promising industry outlook. US-based Semiconductor Equipment & Materials International (“SEMI”) forecast the assembly and packaging equipment segment to grow 8% to USD3.4bn in 2021, driven by advanced packaging capacity build-up. It also said the semiconductor test equipment is expected to increase by about 13% in 2021 on the back of 5G demand. In terms of region, SEMI expects China, Taiwan and South Korea to be the top semiconductor manufacturing equipment markets in, making up for 68.7% of the global semiconductor markets.
Surplus capacity is available to ramp up production when demand increases. As of end-2020, Home 1 & 2 utilization rate is estimated at about 60% and 40% respectively. MI has plenty of room for growth in the near term, whenever market demand increases. Furthermore, the Group is already building new manufacturing plants in China and Taiwan to prepare for future growth.


Over the past 5 years, MI’s revenue grew at a cumulative average growth rate (“CAGR”) of 16.1% p.a. Growth was steadier in the recent 3 years as demand became stronger and more consistent. The dip in FY2016 results was mainly owing to the cyclical nature of the semiconductor industry. During 2016, orders were lower as customers delay production plans.

Profitability-wise, MI’s gross and net margins were strong and consistent over the years, recording between 38% – 54% and 27% – 39% respectively. Its operating model is proved resilient as they do not sacrifice on margins despite the strong revenue growth. As a measure of efficiency, the Management sets a target for its gross and net margins to be maintained within the range of 40% – 50% and 20% – 30% respectively.

MI is currently enjoying a low tax rate, as its SE unit (Mi Equipment (M) Sdn Bhd) has successfully renewed its pioneer status for a further 5 years, up to 17 January 2024.

Growth over the years were mainly contributed by its SE unit and its top exporting countries are Taiwan, China, Korea and USA etc.
Note: FCF = CFO less ‘Net cash flow from investing activities’

MI generates healthy and consistent cash flow from operations (“CFO”), with an average CFO to Net Income of about 0.6x. The slightly below average CFO to net income ratio was due to the increasing trade receivables in recent years as business grew. Comfort drawn on the fact that most of MI’s clients are top-tiers OSAT and IDM players in the market. The Group has incurred minimal impairment on trade receivables over the years.

Cyclical nature of the semiconductor industry.
Stiffer competition. The Group could see margin pressure for its machinery in the event there are new entrants or change of packaging equipment in the technology field.
Highly dependent on semiconductor spending. Weak consumer confidence and slowdown in the 5G roll-out would force the fabless companies and integrated circuit fabricators to push back their CAPEX spending.
Sensitive to foreign exchange exposure. MI’s sales are predominantly priced in USD and it has been a beneficiary of the strong USD over 2016 – 2019. Based on a sensitivity analysis, every 10% change in USD will affect the Group’s bottom-line by about RM10.7m or 15% – 20% of our FY20 estimated earnings.
Requires constant R&D for innovation. Failure to keep up with industry R&D could see them being phased out in the technological race.
Fluctuations in material costs. The Group’s cost of sales comprises raw materials, direct labour costs, subcontractor costs and factory overheads. Raw materials account for at least 60% of the total cost of sales. The raw materials consist of i) high speed and precision motors, ii) cameras and lenses, iii) maintenance free grade sliders and bearings, iv) precision fabrication parts for both aluminum and steel tools.
Increased operation cost (completion of Home 1 & 2) may cause margin to depress in the near term, given additional / new sales expected from SE & Robotics segments may not achieve its economies of scale yet.
High market expectations have been priced-in, with its current valuation at about 40x PE on its 1-year forward results (FY2021).


The founder, Mr Oh Kuang Eng controls the Group via a personal stake of 68.8%.

Institutional investors in MI include, Namal Ltd, PMB Shariah, Kenanga, Areca Equitytrust Fund, JPMorgan, Oregon, Ocular Asia Fund etc.

Based on the Top 30 shareholder listing, institutional investors hold a total stake of about 7% in MI only.


Table below compares MI to its peers within the automated test equipment and / or other technology equipment segment.

Comparisons may / may not be relevant to MI. Nevertheless, we have included them for purpose of reference.

Overall, given MI’s strong profitability, promising demand outlook and in-place capacity for growth, we would value MI within a PE range of 40x – 50x.

At a median of 45x PE, MI’s price/earnings to growth (“PEG”) ratio would be equivalent to 1.0x, on our base-case assumption that FY2021 earnings per share (“EPS”) to grow by 45% (FY2020 PAT estimated to close at RM54.4m). A PEG of 1.0x is deemed reasonable when valuing growth stocks like MI.

According to the Management, its current order visibility is around 8 weeks (2 months), which is considered healthy.

MI’s PE during FY2018 – FY2020 ranged between 14.5x – 38.9x. We applied a higher forward PE to consider for the promising industry outlook, low interest rate environment, and the relatively high valuation priced by the market on the industry.

1. FY2021 Revenue assumed to grow between 15% – 25%. For the past 5 years, Mi’s grew at a 5-year CAGR of 16%. Annualizing 9MFY2020 results, Mi is expected to close at RM220m, a 15% growth from FY2019. We expect growth to accelerate in years to come as demand for Mi’s machines should increase as 5G technology and industrial 4.0 commercialized across the globe.
2. GP margin assumed to range between 45% – 50% on the worst – best case scenario. Mi’s 5-year average margin has been 47.1%. Mi has an internal GP margin target of 40% – 50%.
3. Operating cost assumed to increase by 15% / RM6m in FY2021. Past 3 years operating cost grew at a CAGR of 19%, however, the rate of increase declined to 15% in FY2020. We expect the increase in operating cost to reduce as the company expansion in Home 1 & 2 has completed in FY2020.
4. EBIT margin assumed to range between 26% – 33% on the worst – best case scenario. Mi’s 5-year EBIT range was 24% – 39%. 9MFY2020 EBIT margin recorded 23.8%.
5. Interest income from short term investments is expected to reduce from an average of RM3m per year to RM2m given the low interest rate environment and utilization of funds for capital investments purpose.
6. Mi is enjoying a low tax rate as its SE unit (Mi Equipment (M) Sdn Bhd) has successfully renewed its pioneer status for a further 5 years from 18 January 2019 to 17 January 2024. Past 5 years effective tax rate has been lower than 2%.
7. Net margin assumed to range between 27% – 33% on the worst – best case scenario. Mi’s 5-year average net margin was 47.1%, in line with its internal target of 40% – 50%. Mi’s 9MFY2020 net margin achieved only 25% due to an increase in operation cost – post expansion of Home 1 & 2
8. 10% margin of safety was applied to consider the expected decline in net margins in the near term.
9. 20% dividend payout has been the company’s dividend payout ratio over the years, since its listing in 2018.

At the closing price of RM4.16, MI is valued at about 40x PE on assumption that 1-year forward (FYE2021) earnings to achieve RM79.2m – base case assumption (PAT was RM40.8m for the 9MFY2020 results).

Friday, January 15, 2021

AT Glove (0072) - Second glove factory (5th Step)

AT Systematization Bhd dealt with Seacera Porcelain Sdn Bhd to acquire industrial land for RM10.5 million for the construction of a second glove factory.

Industrial land located in Larut & Matang (Taiping) is 72,770 square meters in size.

Deal is expected to be completed within 60 days and will be satisfied in cash, cementing its entry into the glove making business, which started last year to capitalise on the unprecedented global demand for gloves due to the Covid-19 pandemic.

For the journey, it estimated that the Chemor factory will have an estimated capacity of 63,000 pieces per hour by the end of the month.

Second factory will have the same efficiency as its maiden Chemor-plant with almost 800,000 square feet (72,770 square meters) with up to 60 double former lines which translates to 35,000 pieces per hour for each line.

Before the second factory announcement, it was expected to have an output of 2.6 billion pieces per annum. With the second factory, it is estimated to have an output of 18 billion pieces per annum.

With new strains and mutations affecting the global economy, and a general increase in awareness for hygiene and protection, the global demand will likely find a plateau and last for a while to come.

Given the group’s recent CE certification award, he related that the group has been inundated with contract order enquiries.

Against the backdrop of a third wave of the pandemic in Malaysia, the managing director noted that the sector is hampered by disruption in supply from stop/start orders of key production lines.

With further supply disruptions on the horizon, AT will look to take advantage of spot prices in the short term while it builds production capacity to handle the enquiries.

AT Systematization rose one sen or 5.71% to 18.5 sen for a market capitalisation of RM782.38 million.