This article first appeared in Capital, The Edge Malaysia Weekly on December 5, 2022 - December 11, 2022

Target price: RM3.74 OUTPERFORM

PUBLICINVEST RESEARCH (NOV 29): Despite a weak start, management expects flattish growth for FY23 before seeing a jump in FY24, mainly led by the radio frequency (RF) segment.

Meanwhile, we also expect higher earnings contributions from new product offerings, led by various projects in: (i) the fibre transceiver module; (ii) high-power LED package; and (iii) system-on-module (SOM) as well as new RF double-sided system-in-package (SiP) assembly in the next-generation phone cycles.

Despite seeing a 12.6% year-on-year drop in the top line, Ebitda margin improved from 33.6% to 39.3%. The RF segment dominated group sales, making up 60%, followed by optoelectronics at 33% and generic at 7%. Under the industrial segmental breakdown, smartphones were the biggest sales contributor with 63%, followed by Datacom at 12%, with automotive, industrial and generic making up the remaining 12%, 7% and 6%, respectively.

Management is upbeat on the RF outlook with a strong double-digit growth in FY24, led by new design wins and content value growth, particularly on RF double-sided moulding SiP assembly (25 lines installed) in the next cycle of smartphones. Utilisation for the RF segment was lower at 75% in 1QFY23 as some volume was frontloaded in the past. Management expects stronger utilisation of 85% in 2QFY23 as more sales mix comes in from legacy and a new generation of smartphones that would require a longer testing period due to higher content value.

Management guided that the automotive segment has received more requests, particularly in the sensor and optocoupler products. The SOM assembly division at the P34 and P55 plants is set to see high volume manufacturing for three new products starting from February 2023.

Management shared that its advanced SiP lines would be installed at its 54.5%-owned plant in China, which should be ready by 2H2023.

The group has allocated about RM100 million in capital expenditure for FY23, mainly for industry automated process phase two expansion through its 51%-owned Inari MIT, which is a collaboration with Singapore-based MIT Semiconductor Pte Ltd to provide customised semiconductor process tools and solutions at the P21 plant. Management might consider a spin-off plan in one to two years once the joint-venture company hits RM100 million in revenue in 2023.

Target price: RM2.50 OUTPERFORM

KENANGA RESEARCH (NOV 29): Despite price hikes, Power Root is seeing resilient demand from both the domestic and export markets. The price hikes so far have not dented demand with sales looking stable. It is pushing to grow sales via competitive pricing and focusing on smaller export markets.

We raise our FY23 earnings by 6% to reflect: (i) robust demand growth from both the local and export markets (28% from 21% previously for domestic and 31% from 24% previously for the export market) and (ii) exports recovering up to 88% of the pre-pandemic level for FY23 (from 84% previously).

We also hike FY24 earnings by 2% on similar enhanced demand growth expectations. No change to our conservative Ebitda margins at 16% for both FY23 and FY24 on account of still-volatile raw material prices and inflationary pressures.

We upgrade our call to “outperform” from “market perform” premised on: (i) resilient demand coming from the domestic market; (ii) strong recovery in the export markets; (iii) its ability to pass on rising costs to consumers backed by resilient demand; (iv) competitive pricing and (v) its being shielded from volatility in input costs via forward buying.

Target price: RM2.82 ADD

CGS-CIMB RESEARCH (NOV 25): We reiterate our positive view on Kawan Food after its 3Q2022 briefing, driven by positive sales momentum in 4Q2022 and upcoming new product launches. We expect Kawan Food to record stronger quarter-on-quarter results in 4Q2022 on the back of higher exports, easing labour shortages and margin expansion.

We also expect Kawan Food to benefit from margin expansion, given the decline in input costs (oil palm, flour, and so on) and weaker ringgit against the US dollar.

In addition, Kawan Food is confident that its new product launches scheduled in 4Q2022 will boost sales from the quarter onwards. The new product launches are for both end consumers as well as Horeca (hotel, restaurant and café) customers. However, the company has delayed the upcoming launch of its new plant-based products to 1Q2023 (from 4Q2022) to ensure sufficient production capacity is available. We understand that Kawan Food expects orders from its new export customers to kick off from 2Q2023 onwards, with product testing ongoing.

Kawan Food has recently recruited 60 new foreign workers and is expecting a total of 400 new workers (including the 60 already recruited) to join the company by mid-1Q2023. In our view, the estimated net 30% increase in its workforce by 2Q2023 should allow the company to increase its product offerings.

Target price: RM7.75 BUY

HONG LEONG INVESTMENT BANK RESEARCH (NOV 30): MAHB continued to record recovery in 3QFY22 with lower core loss of RM18 million, with 9MFY22 at -RM252.3 million. The results were below our expectation on slower-than-expected recovery, but within consensus expectation.

We expect continued traffic improvement in Malaysia and Istanbul Sabiha Gökçen International Airport as borders reopen and airlines reinstate capacities to cater for growing demand. MAHB will benefit from higher passenger traffic and improved margins.

We cut our forecasts for loss after taxation and minority interests to RM224 million (from -RM103 million) in FY22; as well as profit after taxation and minority interests (Patami) to RM464 million and RM638 million, from RM523 million and RM657 million for FY23 and FY24, respectively.

Despite the results shortfall, we maintain our “buy” recommendation with a lower target price of RM7.75 (from RM7.85) as we stay positive on MAHB leveraging the recovery of air travel as countries relax their border restrictions while airlines are reinstating capacities to pre-Covid-19 pandemic levels.

Despite traffic recovery of 70%, MAHB is targeting to return to profitability in FY23 to the pre-pandemic level of RM400 million to RM500 million as it continues to improve margins with ongoing cost optimisation measures.

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