| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
Despite experiencing a decline in its latest interim financial year (IHFY26) core profit and revenue, a prominent semiconductor firm is navigating near-term headwinds, particularly in its radio frequency (RF) segment. Investment bank TA Securities maintains a ‘BUY’ recommendation, forecasting a stronger recovery in FY27 driven by robust growth in the datacom photonics segment and strategic expansions.
Performance Review Amidst Headwinds
For IHFY26, the company recorded a 16.8% year-on-year (YoY) decline in core profit to RM115.6 million, aligning with a 14.2% drop in revenue to RM632.6 million. This weaker earnings performance was primarily attributed to reduced loadings across both the RF and generic segments. Specifically, the core RF segment saw a significant 20.7% YoY contraction, to RM385.9 million, resulting from softer low- to mid-range assembly volumes and a shift in key customer product mix.
Strategic Growth and Future Outlook
Looking ahead, the near-term weakness in the RF segment is expected to persist, keeping it lacklustre through FY26. However, upcoming smartphone model launches in the second half of 2026 (2H2026) are anticipated to provide a lift to loadings. Management projects a stronger recovery in FY27, primarily fueled by the robust expansion of the datacom photonics segment, supported by increased volume ramp-up from key customers. To accommodate this anticipated demand, the company’s P34 plant is currently undergoing further expansion.
The FY27 revenue mix is projected to shift, with optoelectronics increasing its contribution to 38% (from approximately 30% a year earlier), alongside 55% from RF and 7% from generic segments. This rapid expansion in optoelectronics is driven by wafer fabrication expansion by key customers in Singapore and increasing demand for power chips and optical interposers in data centre applications. Additionally, the group is poised to benefit from trade diversion opportunities, with increased activity expected from US customers in power management and testing services for automotive and edge AI products.
Lumileds Acquisition Progresses
The proposed acquisition of Lumileds Holding B.V. remains on track, with the company actively fulfilling the relevant terms and conditions. Management anticipates the transaction will be completed by the end of 3QFY26, further solidifying the company’s market position.
Analyst Recommendation
TA Securities maintains its ‘BUY’ recommendation on the stock with an unchanged target price of RM2.00. This valuation is based on a PE multiple of 28.0x CY26F EPS, incorporating a 3% ESG premium, reflecting confidence in the company’s long-term prospects despite current challenges.
