Mi Technovation Berhad (Mi) expects a higher earnings per share contribution from its new Semiconductor Solutions Business Unit (SSBU) in FY25-26F.
CGS International (CGS), in a note today (June 14), upgraded Mi from Hold to Add on its foray into new businesses whilst offering attractive valuations, with a higher TP of RM2.90.
With their 3-year FY23-26F EPS CAGR now at 33%, the stock offers an attractive PEG multiple of 0.8x vs. local peers’ 1.6x.
CGS incorporated SSBU revenue contribution of RM30m/60m in FY25/26F, as it has been making inroads in adding more capabilities and manpower to generate sales funnel. The US$30m initial investment for this segment to develop an R&D and manufacturing facility in China saw small revenue generation in 1Q24 through pre-operations.
As the operations ramp up, CGS expects the group to see gradually increasing orders for its power module applications – catering for renewable energy and electric vehicle industries. CGS also likes that China is SSBU’s focus market at the start, as China EVs are likely to keep gaining sales volume market share through its competitive offering vs. non-China EV OEMs. This is supported by CGS’s view on China EV volume growth that will be driven by higher export share, mostly into the EU, even despite the recent import tariff hike on China EVs from 10% to 27-48% by the European Commission effective Jul 2024.
China EVs are also looking to set up production facilities outside China as a mitigating factor to the import tariffs. As the segment’s capability will be expanded into the front-end chip design and back-end packaging design solutions, CGS also thinks this will benefit from the growth in China’s acceleration towards self-sufficiency in its chip production.
CGS’s sales growth assumptions remain at 39%/12%/8% for Mi Tech’s equipment and materials businesses in FY24/25/26F, as they expect them to benefit from the semiconductor industry recovery, especially with regards to mobile & wearables, and high-performance computing.
CGS sees rising sales volumes for Mi Tech’s test handlers and laser compression bonding equipment from key customers in China, Taiwan and South Korea.
The materials segment should also see improving volumes via higher demand for new advanced solder and thermal interface materials serving high-value packaging processes for server applications.
