This article first appeared in The Edge Malaysia Weekly on August 9, 2021 - August 15, 2021
PENANG-based MI Technovation Bhd is one of the largest semiconductor-related companies and equipment vendors in the country, with a market value of RM3.5 billion.
The company — together with ViTrox Corp Bhd, Greatech Technology Bhd and Pentamaster Corp Bhd — are known as the Big Four automated test equipment (ATE) manufacturers listed on Bursa Malaysia.
But MI Technovation executive director and group CEO Oh Kuang Eng is making it clear that the company is not resting on its laurels and has already outlined a 10-year roadmap — which started in 2019 — to becoming a diversified semiconductor solutions provider.
Incorporated in 2007, the company sold its first machine in 2010 and went public eight years later.
“MI Technovation is a well-structured company. We know exactly what we intend to accomplish and execute every year, every 2½ years, every five years and every 10 years. We will not venture into a new business without proper long-term planning,” Oh, who was an equipment technology and automation engineer with Hewlett-Packard, tells The Edge in a virtual interview.
Oh, 51, says he does not want MI Technovation to be known as just another local ATE company, but instead, as a multinational semiconductor company with four major business pillars.
“Today, we have two main business units, namely semiconductor equipment and semiconductor materials. By 2029, another two new business units will come into the picture, and MI Technovation will become one of the most complete semiconductor companies in Malaysia.
“We have a very big dream. As our company name suggests, we want to be known as a technology innovation company. Even though we may not achieve 100% of what we want, we will give it a go. If you think about it, a 10-year period is not very long. In other words, our growing path will be very steep,” he says.
A graduate of Universiti Malaya with a Bachelor of Engineering (Mechanical), Oh has over 25 years of experience in the semiconductor industry, specialising in semiconductor automated equipment and process development.
As at April 8, Oh held a 67.16% controlling stake in MI Technovation. His wife Yong Shiao Voon, a 52-year-old Singaporean, also sits on the board as executive director and chief financial officer.
Among the company’s top 30 shareholders are UBS AG Singapore, AIA Bhd, Hong Leong Value Fund, Hong Leong Balanced Fund, Public Islamic Select Treasures Fund and Tokio Marine Life Insurance Malaysia Bhd.
For its equipment business, the group produces wafer level chip scale packaging sorting machines, vision inspection machines, final test handlers, assembly machines, wafer fabrication tools and testing instruments. It has a business presence in Malaysia, Taiwan, South Korea, China and the US.
It is worth noting that MI Technovation had earlier this year ventured into the semiconductor materials business by acquiring Taiwanese firm Accurus Scientific Co Ltd for RM271 million. The acquisition was satisfied via the issuance of 74.25 million new shares at RM3.65 apiece.
With business presence in Taiwan, China and Singapore, Accurus Scientific is involved in the manufacturing of solder spheres, which are widely used in advanced packaging such as ball grid array and wafer level packaging in the semiconductor industry.
“Today, a smart phone processor is so small but so powerful thanks to advanced packaging, in which the solder ball plays a very important role. Starting from next year, we believe the materials business will contribute about 30% to our group’s turnover, while the remaining 70% will come from the equipment business,” says Oh.
MI Technovation generated a net profit of RM54 million on revenue of RM229 million in the financial year ended Dec 31, 2020 (FY2020).
After reporting a weak first quarter ended March 31, 2021 (1QFY2021), with a net profit of merely RM3.51 million — down 65% from RM10.29 million a year ago — the company has quickly rebounded. It posted a net profit of RM26.1 million in 2QFY2021, representing a 44% year-on-year or 644% quarter-on-quarter increase.
Oh says there is good reason for the big drop in 1QFY2021 bottom line, attributing it to one-off operating expenses including employees’ bonus and welfare payments amounting to RM7.7 million to meet its employees’ immediate financial needs during the Covid-19 pandemic.
“We need to offer long-term value for our shareholders with reasonable profits and investment returns. But at the same time, we must avoid any form of labour exploitation. We need to be kind to our employees, we need to reward them and we need to take good care of them, so that they will be more motivated to work harder,” he explains.
The stronger financial performance in 2QFY2021 was partly attributed to the maiden contribution from Accurus Scientific, whose financial results were consolidated into those of MI Technovation following the completion of the acquisition on April 19.
For perspective, Accurus Scientific made up 23% of MI Technovation’s top line and 10% of its profit before tax in 2QFY2021.
Oh highlights that with the acquisition of Accurus Scientific, MI Technovation has become the first and only semiconductor company in Malaysia to be involved in both the equipment and materials businesses. “You can’t find another local peer that is as aggressive as us. Over the years, many equipment players have wanted to diversify into the materials business, while many materials players have wanted to venture into the equipment business, but none of them have made it.”
With both the equipment and materials businesses, Oh says MI Technovation can now provide its customers with one-stop solutions. “If you have problems with equipment, you can come to us. If you have problems with materials, you can also come to us. We believe we now have the upper hand over our competitors. That’s why an American smartphone maker and a smartphone chip designer are willing to work with us,” he continues.
Oh says the two business units are a perfect fit for MI Technovation to capture a bigger market share, noting that a lot of synergies can be derived from its acquisition of Accurus Scientific, which has its own technology and capability in designing, as well as equipment to produce solder balls.
“That’s why the major shareholders of Accurus Scientific are willing to take up our shares instead of cash. They are not cashing out. They want to be in the same boat as us,” he adds.
For its upcoming third business unit, Oh reveals that MI Technovation will be looking at businesses related to high-tech advanced packaging and development, advanced solutions and services, as well as specific semiconductor manufacturing processes.
“I can’t divulge the details at the moment but we have already started working on it. We now have a research and development (R&D) team specifically looking at developing the third business unit. And if the timing is right, we might also acquire a company to accelerate our business diversification,” he says.
With its existing equipment and materials businesses, Oh opines that MI Technovation should be able to develop a new, advanced packaging technology.
“We want to introduce a game-changing product to the market. We do not want to be a market follower, which can only compete on price. That’s not what we want to do,” he says.
On the fourth business unit, Oh says the company will be looking at commercial electronic products for the mass market, with high-technology content.
He cites a British multinational corporation (MNC) best known for its vacuum cleaners and hair dryers. “These household products have already existed decades ago, but why is its brand still so famous today? It’s all about putting new technology into old applications, which could result in something that is totally different. The combination will increase the performance of the household products, and more importantly, enhance the user experience. That’s why the company can sell at such a premium price, but it still drives the market crazy and everyone is buying it.”
Oh anticipates that in years to come, there will be more technology elements in household products such as microwaves, air conditioners, fans, kettles and washing machines.
Shares of MI Technovation have gained 5% year to date to close at RM4.25 last Wednesday, giving it a market capitalisation of RM3.5 billion. The stock is currently trading at a historical price-earnings ratio (PER) of 67 times. Against its consensus target price of RM5.16, which reflects 45 times forward PER, it has an upside potential of 21%.
According to research analysts, potential catalysts for MI Technovation include its earnings-accretive acquisitions, new equipment launches, a weaker ringgit against the US dollar, as well as its organic capacity expansion.
The company’s strong share price performance since its listing in 2018 propelled Oh into Forbes’ Malaysia’s 50 Richest list for the first time in 2020. He was ranked 50th with a net worth of US$255 million last year, before climbing to 41st place with a wealth of US$410 million this year.
“To be honest, I don’t read too much into the Forbes list. I focus more on building the company and developing the businesses. I appreciate what Forbes did. To me, it’s just a recognition, not an achievement. I have a bigger dream. I want to make sure that MI Technovation can grow from a Malaysian technology company to become an MNC,” says Oh.
“I grew up in Malaysia, I am educated in Malaysia, I started a business in Malaysia, and we take pride in what we do. If you think about it, Taiwan is strong in the global semiconductor sector. Psychologically, it is not easy for a Taiwanese company like Accurus Scientific to accept the fact that it is now under a Malaysian parent,” he adds.
On the company’s share price and stock valuation, Oh acknowledges that MI Technovation needs to continue to do a good job and let the market value the company accordingly. Hopefully, he says, the group’s robust earnings performance will be reflected in its share price.
“We cannot look at the share price first and then go back to our business fundamentals. I understand that some investors expect us to deliver good results every quarter, but we don’t want to be driven by the market. We want to be driven by our roadmap and master plan. If you look at our corporate history, we are still a relatively young and fast-growing company. There will be more to come from us,” he says.
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