Elsoft Research Berhad

$ELSOFT / 0090 (ELSOFT RESEARCH BERHAD)
Research by TA
Buy – TP RM0.58

“Dragged by Weak Demand for Automated Test Equipment"

After revising the earnings forecasts, we reduced the target price from RM0.62 to RM0.58, based on 26x CY25 earnings. Maintain a Buy call on the stock.

Analyst:
Chan Mun Chun
mcchan@ta.com.my

Changes in Sub. S-hldr's Int (Section 138 of CA 2016) - MADAM TAN AI JIEW

SEMICONDUCTOR
$UNISEM / 5005 (UNISEM (M) BERHAD) $MPI / 3867 (MALAYSIAN PACIFIC INDUSTRIES BERHAD) $ELSOFT / 0090 (ELSOFT RESEARCH BERHAD)
Research by TA
Overweight

“Backed by Robust Growth in Memory and Logic”

Overall, we maintain our OVERWEIGHT stance on the semiconductor sector. We expect the sentiment of the semiconductor sector in Malaysia will improve further, backed by an anticipated healthy recovery in global demand and increasing trade diversion opportunities as a result of the China Plus One strategy. Within our universe, we have Buy recommendation on INARI (TP: RM4.30). Meanwhile, we maintain Hold recommendations on UNISEM (TP: RM4.37), MPI (TP: RM41.10), and ELSOFT (TP: RM0.58).

Analyst(s):
Chan Mun Chun
mcchan@ta.com.my

General Meetings: Outcome of Meeting

Change in Boardroom - MADAM TAN AI JIEW

Demand for automated test equipment has yet to recover and this will have an impact on Elsoft Research Bhd, whose earnings in the first quarter of financial year 2024 (1Q24) came in below expectations.

$ELSOFT / 0090 (ELSOFT RESEARCH BERHAD)
Research by TA
Hold – TP RM0.575

“A Slow Start"

After revising the earnings forecasts, we tweaked the target price lower from RM0.59 to RM0.575, based on 24x CY25 earnings. Maintain a Hold call on the stock.

Analyst:
Chan Mun Chun
mcchan@ta.com.my

Quarterly rpt on consolidated results for the financial period ended 31/03/2024

Annual Report & CG Report - 2023

General Meetings: Notice of Meeting

OTHERSProposed Renewal of Share Buy-Back Authority

SEMICONDUCTOR
$INARI / 0166 (INARI AMERTRON BERHAD) $ELSOFT / 0090 (ELSOFT RESEARCH BERHAD) $MPI / 3867 (MALAYSIAN PACIFIC INDUSTRIES BERHAD) $UNISEM / 5005 (UNISEM (M) BERHAD)
Research by TA
Overweight (Maintained)

“On Track to Recovery”

Overall, we maintain our OVERWEIGHT stance on the technology sector. We believe the sentiment of the semiconductor sector in Malaysia will improve gradually, underpinned by an anticipated recovery in global demand and increasing trade diversion opportunities as a result of the China Plus One strategy. Within our universe, we maintain Buy on INARI (TP: RM3.55) and ELSOFT (TP: RM0.59).

Analyst(s):
Chan Mun Chun
mcchan@ta.com.my

DEALINGS IN LISTED SECURITIES (CHAPTER 14 OF LISTING REQUIREMENTS) : Dealings Outside Closed Period

SEMICONDUCTOR
$INARI / 0166 (INARI AMERTRON BERHAD) $MPI / 3867 (MALAYSIAN PACIFIC INDUSTRIES BERHAD) $ELSOFT / 0090 (ELSOFT RESEARCH BERHAD) $UNISEM / 5005 (UNISEM (M) BERHAD)
Research by TA
Overweight (Maintained)

“Strongest YoY Growth Since May 2022”

In January 2024, the global semiconductor saw its strongest YoY sales growth since May 2022. According to the Semiconductor Industry Association, global semiconductor sales during the month stood at USD47.6bn (-2.1% MoM, +15.2% YoY) versus December 2023’s of USD48.7bn. This marked YoY sales recovery for the 3rd consecutive month, signalling that it could be the beginning of a new upcycle. The substantial YoY improvement was largely driven by China (+26.6% YoY), Americas (+20.3% YoY), and Asia Pacific/All Other (+12.8% YoY). As the global semiconductor market is on track to recovery, the market growth is projected to continue over the remainder of the year, with annual sales forecasted to increase by double-digits in 2024, largely fuelled by robust double-digit growth from memory and single-digit growth from discrete, sensors, analogue, logic and micro.

Analyst(s):
Chan Mun Chun
mcchan@ta.com.my

$ELSOFT / 0090 (ELSOFT RESEARCH BERHAD)
Research by TA
Hold - TP of RM0.59

"Still Dragged by Soft Demand"

Despite ongoing market uncertainties, the group is looking forward to seeing a recovery in 2024. We expect earnings to improve especially in 2H2024, alongside an anticipated recovery in the global demand for semiconductor.

Analyst(s):
Chan Mun Chun
mcchan@ta.com.my

ELSOFT - Notice of Book Closure

Quarterly rpt on consolidated results for the financial period ended 31/12/2023

Second Interim Dividend

@portoftheyear
$HEVEA / 5095 (HEVEABOARD BERHAD) 25%
$ELSOFT / 0090 (ELSOFT RESEARCH BERHAD) 25%
$KOBAY / 6971 (KOBAY TECHNOLOGY BERHAD) 25%
$BIOHLDG / 0179 (BIOALPHA HOLDINGS BERHAD) 25%

This is my entry for 2024 Stockbit Portfolio of the Year.

Semiconductor sector
$INARI / 0166 (INARI AMERTRON BERHAD) $UNISEM / 5005 (UNISEM (M) BERHAD) $MPI / 3867 (MALAYSIAN PACIFIC INDUSTRIES BERHAD) $ELSOFT / 0090 (ELSOFT RESEARCH BERHAD)

$ELSOFT / 0090 (ELSOFT RESEARCH BERHAD)
Research by TA Securities
Hold – Target Price RM0.58

“Results Missed on Weaker-Than-Expected Demand”

- In all, we maintain our Hold recommendation on Elsoft with an unchanged TP of RM0.58 based on a PE multiple of 24.0x against CY24F EPS. Maintain Hold. We would view rerating catalysts to include stronger than-expected demand for its ATE and burn-in systems, as well as traction with the acquisition of Xyrius, and the commercialisation of embedded controllers designated for peritoneal dialysis machines.
- Key risks include lower-than-expected demand for ATE and geopolitical tensions weighing on economic growth and disrupting supply chains.

Analyst:
Wilson Loo, CFA
wilsonloo@ta.com.my

Quarterly rpt on consolidated results for the financial period ended 30/09/2023

$ELSOFT / 0090 (ELSOFT RESEARCH BERHAD)
Research by TA Securities
Hold – Target Price RM0.58

“Weak Demand Weighs on Earnings”

- Corresponding to our earnings upgrade, we arrive at a slightly higher TP of RM0.58 (previously RM0.575) based on a PE multiple of 24.0x against CY24F EPS. Maintain Hold. We would view rerating catalysts to include stronger-than-expected demand for its ATE and burn-in systems, as well as traction with the acquisition of Xyrius, and the commercialisation of embedded controllers designated for peritoneal dialysis machines.
- Key risks include lower-than-expected demand for ATE and geopolitical tensions weighing on economic growth and disrupting supply chains.

Analyst:
Wilson Loo, CFA
wilsonloo@ta.com.my

ELSOFT - Notice of Book Closure

Quarterly rpt on consolidated results for the financial period ended 30/06/2023

First Interim Dividend

Semiconductor
Research by TA Securities
Neutral

"10th Month into the Chip Downcycle"

Up to May 2023, the semiconductor industry is 10 months into a cyclical downcycle. During the month, global semiconductor sales came in at US$40.7bn (+1.7% MoM, -21.1% YoY), versus April 2023’s of US$40.0bn (+0.3% MoM, -21.6% YoY). In all, we maintain our Neutral stance on the semiconductor sector. We have recommendation
of Buy on $MPI / 3867 (MALAYSIAN PACIFIC INDUSTRIES BERHAD) (TP: RM32.15; 26.0x CY24F EPS; on par with 5-year mean), Hold on $INARI / 0166 (INARI AMERTRON BERHAD) (TP: RM2.95; 28.0x CY24F EPS; on par with 5-year mean) and $ELSOFT / 0090 (ELSOFT RESEARCH BERHAD) (TP: RM0.575; 24.0x CY24F EPS; -2.0SD to 5-year mean), and Sell on $UNISEM / 5005 (UNISEM (M) BERHAD) (TP: RM2.60; 22.0x CY24F EPS; on par with 5-year mean). Note that we have upgraded our recommendation on Elsoft from Sell to Hold given its improved risk reward potential following recent share price weakness.

Analyst:
Wilson Loo, CFA
wilsonloo@ta.com.my

Change of Registrar - SECURITIES SERVICES (HOLDINGS) SDN BHD (PENANG)

A boring weekend and sharing a simple post. My thoughts on 2023 and Beyond.

The first half of 2023 has been great for the US market, but not so much for the Malaysian market. These are just some personal thoughts on the matter:
1. Investors, especially foreign investors, still have concerns about the stability of the current government and the potential impact of the upcoming state election in August.
2. After nine months, we haven't seen significant policies that can effectively stimulate our economy yet
3. Poor economic data is negatively affecting our currency, the ringgit. However, it's interesting to note that we have seen an increase in Foreign Direct Investment (FDI) from 54 billion to 84 billion in Q1 of 2023. We should delve into the economic interpretation of this data in another discussion. If the FDI continues to hold, improves the current account, and reduces the trade deficit, we may see a reversal of the situation. Personally, I believe we may experience a rebound after the election.

That being said, personally, I believe the following sectors show promise moving forward when our local market (KLCI) catch up with our regional markets in the 2h of 2023:
1. Semiconductor Sector: I have been closely tracking global semiconductor sales, and they have experienced a consecutive decline for 14 months until May 2023 when they finally started to tick up. Typically, the downtrend cycle for the past 15 to 20 years has lasted around 15 to 20 months, and the subsequent uptrend is usually of a similar duration. Therefore, we may be only a quarter away from reaching the peak of the overall semiconductor sector's downtrend. However, it's important to note that this analysis is based on an overall basis and does not delve into individual sub-sectors such as memory and logic. Currently, the decline in the semiconductor sector can be attributed to memory chips.

Personally, liking $UNISEM / 5005 (UNISEM (M) BERHAD) $MI / 5286 (MI TECHNOVATION BERHAD) and AEM Holdings (SG). Sharing two charts that need no further elaboration. One thing for sure is that, there has been lacking of investment in the OSAT sector for the past 10 years and Unisem has doubled their capacity (which if everything goes well, we may see the revenue and profit doubling as well). MI wise, whats interesting is more on the material segment rather than equipment segment. If semiconductor were to rebound, the front-end, material and osat will start to rebound first before the equipment segments.

$ELSOFT / 0090 (ELSOFT RESEARCH BERHAD) , Elsoft is indeed quite interesting, especially considering their track record and the availability of their recently developed medical devices that are currently undergoing the "testing" phase. One notable aspect is that during the favorable period of 2018, their Gross Margin was around 58%, which is on par with Vitrox. It's intriguing to imagine the potential if Elsoft can turn around and reach their peak performance. Despite not being profitable, they have consistently generated high-quality Free Cash Flow (different from normal FCF) over the past 10 years..

2. Turnaround - Not a conventional pick, but given some good pick that @Ryunanda has gotten it right for RGB international, thought to share some potential turnaround companies. One that i am watching KLSE-RGTBHD and $ASIAPLY / 0105 (ASIA POLY HOLDINGS BERHAD). RGT Berhad acquisition of Topdegree is interesting (involved in precision of test sockets) and Asiapoly recent expansion coupled with slowing down of freight cost, worth watching.

3. Value - Personally this may sound boring but liking KLSE-ULICORP , $BJFOOD / 5196 (BERJAYA FOOD BERHAD) KLSE-INNATURE . Personally, was initially skeptical when examining BJFood, but after reviewing the numbers, I find it quite intriguing. They have managed to generate a significant amount of Free Cash Flow (FCF), with a reported 240 million in 2022. This translates to an FCF margin of 24%, which is impressive. Additionally, the price-to-FCF ratio is only 5.

Moving on to Ulicorp, it is known for its slow and reputable management. Despite their conservative approach, they offer a solid 5% dividend yield. Furthermore, the company has a net cash position of 50 cents per share, while currently trading at 0.96 cents.

Sharing my short thoughts for everyone. Good day.

Change in Boardroom - PROF TAN SRI DATO' DR CHUAH HEAN TEIK