This article first appeared in Capital, The Edge Malaysia Weekly on December 2, 2024 - December 8, 2024

Target price: RM2.90 Add

CGS INTERNATIONAL (NOV 25): Financial results for 3Q24 came in slightly ahead of expectations on strong revenue growth from both the equipment and materials segments. Mi Tech’s (KL:MI) core net profit of RM21.2 million in 3Q24 (ex-unrealised forex loss of RM28.4 million) rose 40% year on year (y-o-y) on stronger revenue from both its equipment and materials segments, which were up 23% y-o-y and 16% y-o-y respectively, but slightly offset by weaker margins due to the strengthening ringgit versus the US dollar. Core net profit for 9M24 was up 130% to RM68 million and tracking slightly ahead of our/Bloomberg consensus full-year estimates at 78%/80%.

We gathered from its analyst briefing that the equipment business should benefit from the elevated investment cycle as Mi Tech’s key customers continue to refine their production lines to cater for the latest advanced packaging requirements, with key applications including mobile and wearables, high-performance computing and memory. The group has been able to ship a few of its new laser-assisted compression bonding equipment to several Tier-1 customers and we think this could translate into good progress on the qualification stage and drive higher sales volume in FY25-26.

Meanwhile, the materials segment should see improving volumes as an additional three production lines in China (total six now) began operations in 3Q24. We understand that the group is undergoing qualification stages with several key customers in China, targeting generic applications. Its Taiwan materials operation, meanwhile, is pushing its new advanced solder and thermal interface materials, targeting advanced packaging processes for server applications with larger chip sizes.

On the new semiconductor solutions unit (SSBU), the group is on track to complete its first phase of talent recruitments, with a focus on automotive and renewable energy. The group is working with several key global automotive and industrial semiconductor players on advanced packaging design and architecture for power management applications using silicon carbide chips.

We retain our “add” call and Gordon Growth Model-derived target price of RM2.90, premised on its decent technological road map for its equipment business and EPS upside from its new SSBU segment. Based on our three-year FY23-26 EPS CAGR of 33%, the stock offers an attractive PER-to-growth ratio of 0.8 times versus its local peers’ 1.6 times. Downside risks are weak equipment demand and slow ramp-up of its new venture SSBU. Meanwhile, rerating catalysts are stronger-than-expected equipment and materials demand.

Target price: RM1.68 Buy

TA SECURITIES (NOV 25): We anticipate a strong quarter for Aeon (KL:AEON), supported by stronger sales during the festive season and increased foot traffic, which are expected to drive growth in the property management segment. Looking ahead, the property management segment’s top line is poised to grow further in FY24, supported by robust foot traffic during festive seasons. In 4QFY24, all Aeon malls/stores are fully operational, with only minor facelifts underway to enhance the shopping experience and attract more shoppers.

Consequently, we expect the occupancy rate to improve by two percentage points to 95%, alongside a target renewal rate of 90% for FY24. Additionally, we foresee a stable rental revision rate of +9% for FY24, consistent with the previous year. Overall, we expect the Ebit margin to surpass 38% in FY24, compared to 37.9% in FY23. Heading into 4QFY24, we expect the average basket size to rise by 23.9% quarter on quarter to RM68.40/receipt, with revenue anticipated to rebound in 4QFY24 due to heightened festive season sales.

Target price: RM2.07 Neutral

MIDF RESEARCH (NOV 25): We are downgrading our recommendation for D&O (KL:D&O) to “neutral” from “buy” previously with a revised target price of RM2.07 (previously RM3.85). The group posted weak 3QFY24 normalised earnings which was mainly impacted by the unfavourable sales mix. On a cumulative basis, 9MFY24 earnings grew by less than 30% y-o-y.

We view that the pace of earnings recovery was rather tepid, given the low base in FY23. While we expect the LED count per vehicle will steadily increase, the near-term slowdown in global automotive production could potentially cap the group’s earnings growth.

Premised on the slower-than-expected recovery, we adjust FY24 to FY26 earnings by -27.8% to -43.9% as we lower our revenue assumption and profit margin assumption to reflect the change in product mix. Note that we also lower our target PER to 33.4 times (previously 40.8 times), which is the five-year mean, to account for the near-term weakness in the automotive industry.

Target price: RM1.20 Buy

PHILLIP CAPITAL (NOV 26): Overall 1QFY25 results came in at 31% and 32% of our and consensus full-year estimates respectively. This is within our expectations as we expect a slowdown in 2HFY25 due to the completion of selected contracts from Customer A, a China-based data centre operator, including the underground cable project. MN (KL:MNHLDG) declared its maiden interim DPS of 0.15 sen.

We expect sustained earnings momentum in 2QFY25 before tapering off in 2HFY25. The group’s outstanding order book stands at RM601 million (2.4 times FY24 revenue), with 30% from Customer A. We tweak our earnings forecasts by 1% on housekeeping adjustments and imputing 0.3 sen DPS for FY25-27. We reiterate our “buy” rating and RM1.20 target price, based on an unchanged PER of 20 times on fully diluted CY25 EPS.

We like MN as a proxy for Malaysia’s expanding power infrastructure and strategic exposure in the rapidly growing data centre and solar sectors. Key risks to our “buy” call include slower-than-expected project rollouts affecting order book replenishment and unforeseen delays.

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