November 21, 2020

ASEAN Technology POSITIVE (Upgrade)

Riding a new wave; U/G to POSITIVE

POSITIVE on MY and SG tech sectors Analysts U/G both Malaysia Technology Hardware and Singapore Technology Kevin Wong sectors to POSITIVE (from NEUTRAL). We adopt a positive growth outlook (603) 2082 6824 for the tech sector due to: (i) rollout of 5G networks; (ii) ramp-up of [email protected] semiconductor components and equipment; (iii) development of sub- Gene Lih Lai, CFA sectors such as Internet of Things (IoT), artificial intelligence (AI) and (65) 6231 5832 electric vehicles (EVs); and (iv) Industry 4.0. These should bode well for [email protected] OSATs, ATE/automation manufacturers and EMS/precision engineering companies.

Technology Catching the 5G wave We believe the sector will ride an imminent upcycle, as indicated by the positive growth outlook for the global semiconductor industry. The World Semiconductor Trade Statistics (WSTS) projects global semiconductor

market to grow by 6.2% YoY to USD452b in 2021 (2020: +3.3% YoY) while

SEMI (the global industry association) estimates global semiconductor manufacturing equipment sales to grow 11% YoY to USD70b in 2021 (2020: +6% YoY). This upcycle would also be driven by the rollout of 5G MKE: Tech coverage in MY and SG networks across key cities - accelerated by the growing number of 5G- Regional Stock BB Ticker Rec. Price TP U/D enabled devices (i.e. and IoT) and high adoption rates of 5G (%) by key countries (i.e. China, US and South Korea). Specifically, we expect OSAT Inari INRI MK Buy 2.62 3.40 29.8 semiconductor equipment component and module suppliers, OSAT Globetronics GTB MK Buy 2.87 3.30 15.0 companies and ATE/SLT manufacturers to be key beneficiaries of such a Semiconductor equipment/automation favourable outlook, attributed to rising supply and demand for advance ViTrox VITRO MK Sell 15.06 11.60 -23.0 chipsets and components (i.e. sensors). This, in turn, would also lead to Greatech GREATEC MK Hold 9.10 8.90 -2.2 AEM AEM SP Buy 3.24 5.05 55.9 higher spending and stronger demand for semiconductor equipment. UMS UMSH SP Buy 1.01 1.41 39.6

EMS/precision engineering Rise of new tech sub-sectors V.S. Industry VSI MK Hold 2.40 2.45 2.1 Venture VMS SP Buy 19.06 23.27 22.1 We also anticipate growth from up-and-coming tech sub-sectors – namely Hi-P Int’l HIP SP Buy 1.47 1.23 -16.3 IoT, EVs and AI. Although such sub-sectors would deem to be more niche Frencken FRKN SP Buy 1.04 1.39 33.7 Valuetronics VALUE SP Hold 0.58 0.58 0.0

(relative to the larger core semiconductor market), we believe there are Note: U/D = upside/downside to TP selective opportunities for semiconductor equipment/ATE manufacturers Source: Maybank KE, Factset (as at 20 Nov 2020) while the booming of any tech sub-sectors would generally entail demand for components and chipsets. Elsewhere, we believe the progressive transition into Industry 4.0 would benefit automation companies.

MY and SG: Valuations and Top Picks Our Malaysia technology universe (semicond) is trading at an average forward PER of 35x. We think the rich valuations are justified by the potential earnings growth catalysts and upsides – in tandem with the sector’s upcycle. This is also on the back of strong domestic equity fund

flows. For Malaysia, our Top Pick is Inari and we have upgraded Globetronics to a BUY. The Singapore technology universe is trading at 12x, around 1.5 SD higher than 6-year mean. Top picks include Frencken, Venture, UMS and AEM.

THIS REPORT HAS BEEN PREPARED BY MAYBANK KIM ENG RESEARCH SEE PAGE 73 FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS ASEAN Technology

Table of Contents

Investment Thesis Summary ...... 3 1. Investment Thesis ...... 7 2. Risks ...... 19 3. Valuations ...... 20

Companies

AEM Holdings (AEM SP) ...... 23 Frencken Group Ltd (FRKN SP) ...... 28 UMS Holdings (UMSH SP) ...... 33 Valuetronics (VALUE SP) ...... 38 Venture (VMS SP) ...... 43 Globetronics Technology (GTB MK) ...... 48 Greatech Technology (GREATEC MK) ...... 54 Inari Amertron (INRI MK) ...... 60 ViTrox Corp (VITRO MK) ...... 66

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ASEAN Technology

Investment Thesis Summary

Key macro indicators are supportive of growth The World Semiconductor Trade Statistics (WSTS) forecasts global semiconductor market to grow by 6.2% YoY to USD452.3b in 2021 and global fab equipment spending to increase by 13% YoY in 2021. A growing global semiconductor industry would broadly benefit the OSATs (outsourced assembly and test; e.g. Inari, Globetronics) and ATE manufacturers (automated test equipment; e.g. ViTrox), namely for the sensor and IC (i.e. non-memory) products; and suppliers of semiconductor modules/components (e.g. UMS, Frencken).

5G: The next big thing An increasing roll-out and adoption of the 5G network would heighten prospects for the OSAT companies and ATE manufacturers due to the expected increase in supply and demand for newer and more sophisticated components and equipment. This would also be driven by stronger sales of 5G devices, namely 5G smartphones. Due to the complexity of 5G applications, it would also drive demand for system-level test – of which AEM is a beneficiary

Resilient demand for semiconductor equipment/ATE and automation The growing global semiconductor market goes hand-in-hand with growing demand for semiconductor equipment. SEMI forecasts global sales of semiconductor manufacturing equipment to grow by 11% YoY to USD70b in 2021. We see UMS and Frencken as beneficiaries of this as their customers AMAT and ASML are among the largest and most critical fab equipment suppliers globally. Meanwhile, SEMI also projects the assembly and packaging equipment segment to grow by 8% YoY to USD3.4b in 2021 - driven by advanced packaging capacity build-up and on the back of a growing semiconductor test equipment market. Elsewhere, we are in view of automation solutions provider to benefit from the Industry 4.0.

Up-and-coming segments as added boosters We expect the tech sector to also benefit from other growing segments/industries, such as Internet of Things (IoT), automotive and electric vehicles (EV), artificial intelligence (AI), and medical/healthcare/life science. We believe this would drive demand for myriads of advanced products (i.e. electronics, devices) and services (i.e. cloud, data centres) which would benefit companies of the areas of OSAT, ATE, robotics/automation and EMS/precision engineering.

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ASEAN Technology

Fig 1: Malaysia and Singapore: peer comparison Company BBG FYE MKE MKE Share Market P/E P/B Div

code Rec TP price cap yield

(Month) (LC) (LC) (USDm) (x) (x) (%)

OSAT CY19A CY20E CY21E CY21E CY21E

Inari Amertron INRI MK 6 Buy 3.40 2.62 2,105 48.3 38.7 28.0 6.8 3.0 Globetronics GTB MK 12 Buy 3.30 2.87 470 41.8 35.3 28.1 6.0 2.8 Malaysian Pacific Ind. MPI MK 6 NR - 23.40 1,200 31.6 28.4 26.1 3.1 1.3 Unisem UNI MK 12 NR - 5.68 1,019 60.7 32.2 25.3 2.6 1.6 KESM Industries KESM MK 7 NR - 10.12 106 129.2 111.6 30.5 1.2 1.0 Average 62.3 49.3 27.6 4.0 1.9

Semiconductor equipment/automation CY19A CY20E CY21E CY21E CY21E

ViTrox Corp VITRO MK 12 Sell 11.60 15.06 1,737 99.9 62.3 48.0 10.5 0.5 Greatech GREATEC MK 12 Hold 8.90 9.10 1,392 99.4 62.8 36.9 12.9 0.0 Pentamaster PENT MK 12 NR - 4.93 858 43.4 47.3 34.3 6.4 0.3 Mi Technovation MI MK 12 NR - 4.10 751 50.2 52.5 33.7 6.7 1.2 Aemulus AMLS MK 9 NR - 0.70 103 - - - - - Elsoft Research ELSR MK 12 NR - 0.64 105 - - - - - MMS Ventures MMSV MK 12 NR - 0.72 36 - - - - - VisDynamics VHB MK 10 NR - 0.47 20 - - - - - AEM AEM SP 12 Buy 5.05 3.24 667 16.5 9.8 9.0 3.2 2.8 UMS UMSH SP 12 Buy 1.41 1.01 403 16.1 11.1 8.9 1.7 3.0 Micro-Mechanics MMH SP 6 NR - 2.62 271 - - - 5.6 5.2 Average 73.2 56.2 38.2 9.1 0.5

EMS/precision engineering CY19A CY20E CY21E CY21E CY21E

V.S. Industry VSI MK 7 Hold 2.45 2.40 1,109 24.3 25.2 18.6 2.7 2.4 ATA IMS AIB MK 3 NR - 2.33 686 24.0 18.3 14.8 2.9 2.3 SKP Resources SKP MK 3 NR - 1.96 599 20.9 15.5 13.7 3.0 3.6 D&O Green Tech DOGT MK 12 NR - 1.48 414 55.8 56.9 34.4 4.6 0.8 JHM Consolidation JHMC MK 12 NR - 2.07 282 34.9 38.9 24.1 4.3 1.4 P.I.E. Industrial PIE MK 12 NR - 2.14 201 22.5 33.2 21.5 - 2.6 Venture Corp VMS SP 12 Buy 23.27 19.06 4,127 15.2 18.6 15.2 2.0 3.9 HI-P Int'l HIP SP 12 Buy 1.23 1.47 971 14.7 14.5 12.5 1.7 3.4 Frencken FRKN SP 13 Buy 1.39 1.04 330 9.4 10.8 8.8 1.2 3.4 Valuetronics VALUE SP 3 Hold 0.58 0.58 188 7.7 8.7 10.5 1.0 3.8 Sunningdale Tech SUNN SP 12 NR - 1.51 216 24.3 15.1 15.1 0.8 5.3 Average 23.1 23.2 17.2 2.4 3.0

Note: As at 20 Nov 2020 Source: Company data, Bloomberg, Factset, Maybank Kim Eng

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ASEAN Technology

Fig 2: MKE: Malaysia Technology Sector overview Stock Description of business Thesis What to watch out for Inari Amertron OSAT company with diversified offerings of We have a strong earnings growth outlook, attributed to its  2021: Potentially stronger demand from Broadcom and (INRI MK, BUY, TP MYR3.40) products/services across various end-customers/usages (i.e. RF division. We expect favourable and sizeable demand from strong sales of Broadcom’s end-customer’s 5G smart devices, commercial electronics, data centres and its key RF customer (Broadcom) in anticipation of the end- smartphones. automotive). Main segments are RF, optoelectronics and customer’s strong sales of their new 5G smartphones. There  2021: Increasing production and utilisation for new and generic. Key services include wafer processing, assembly, are also medium to long-term growth catalysts from existing customers at Inari’s newest P34 plant. package testing and back-end processes. Has facilities in onboarding of new customers/products.  2021/2022 and beyond: On-boarding of new customers Malaysia (Penang), China (Kunshan) and the Philippines (Clark Field). and products. Globetronics OSAT company with key segments of sensors (i.e. smart Globetronics capitalises on the growing usages of smart  2021: Stable volume loading of sensor products and (GTB MK, BUY, TP MYR3.30) devices), quartz crystal timing devices, SSL/LED (i.e. laser devices, increasing adoption of Internet of Things and improving/normalising volume of laser light products. light), and semiconductor/IC (i.e. die processes, inspection), automotive lighting. Near-term earnings would be largely  2021 and beyond: New products and customers, such as Facilities are in Penang and Kuala Lumpur, Malaysia. supported by stable and optimal volume loading of their gas sensors and new generation sensors. sensor products, while growth catalysts would be derived from new products/customers. ViTrox ATE manufacturer for the semiconductor and electronics We expect earnings to remain stable and resilient,  2021: Higher deliveries due to pent-up orders in 2020, (VITRO MK, SELL, TP packaging industries – namely offering automated vision attributed to its broad portfolio, which spans across multiple attributed to the pandemic. Increasing orders in tandem MYR11.60) inspection equipment and SoC embedded electronics industries and a myriad of past and current customers with the upcycle of the global semiconductor industry. devices. ViTrox's core products are Machine Vision System globally. ViTrox’s growth bodes well with the growing global  Beyond 2021: New production facility to cater for stronger (MVS), Automated Board Inspection (ABI) and Electronics semiconductor industry (i.e. increasing demand for demand. Communication System (ECS). Primary production facility is semiconductor equipment). These include upcycle of the in Penang, Malaysia. global industry, mass deployment of 5G networks and increasing demand for 5G devices, among others. Greatech Automation solutions provider (factory automation). Two key Greatech is poised for more job wins in the near future -  2020-2021: Transfer of listing onto the Main Board of (GREATEC MK, HOLD, TP products are Production Line System (PLS) and single-use backed by its commendable portfolio of customers and Bursa Malaysia. Completion of new factory in Batu Kawan, MYR8.90) automation machine. Primarily serving customers who are in sizeable orders, i.e. PLS for First Solar and Lordstown Penang, Malaysia. the solar, life science/medical, semiconductor and electric Motors. Earnings growth catalysts would come from new PLS  2021: At least two new customers for PLS orders. vehicle industries. Production facilities are in Penang, orders and M&A. Malaysia.  2021 and beyond: Greatech is targeting eight new customers from the life science/medical, semiconductor and electric vehicle industries. V.S. Industry Top 5 EMS in ASEAN with offerings of tooling, plastic Near to medium-term earnings growth would be largely  2021: Increasing orders for its key customers, i.e. UK (VSI MK, HOLD, TP MYR2.45) injection, PCB assembly and complete product assembly. organic, in view of its recently secured sizeable customers based, US based, coffeemaker and pool cleaner products Key products are floorcare, beauty care, coffee machines, (i.e. Victory and Customer Y) and improved outlook for customers. Commencement of production for Victory and pool cleaning and sanitising equipment. Production facilities existing customers’ orders. VSI is also a beneficiary of the Customer Y. are in Johor, Malaysia. trade war, due to increasing diversification of production  2022 and beyond: Sizeable earnings contribution from out of China and into the Southeast Asia. Victory and Customer Y.

Source: Company data, Maybank Kim Eng

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ASEAN Technology

Figure 3: MKE: Singapore Technology Sector overview Stock Description of business Thesis What to watch out for Venture EMS++; high mix, high complexity, low-to-mid volume. We believe VMS may be entering a new earnings upgrade  2021: Continually conducive end-markets environment for (VMS SP, BUY, TP SGD23.27) Customers largely industrial in end markets like analytical & cycle, as a breadth of products from its R&D labs enter VMS for launch of new products into high-volume life science, medical, networking, retail POS, printing and manufacturing in 2021. Customers, especially in life-science, manufacturing. Potential margin uplift as new products, consumer, etc. medical technology and networking are also optimistic about with better value-add typically command better pricing. end-markets and new products. Consensus FY21E revenue expectations for customers appears to have bottomed out. Valuetronics Fully integrated EMS; customers range from consumer Earnings recovery delayed to FY23 as customers postpone  FYMar21 and beyond: Vietnam expansion plans are on (VALUE SP, HOLD, TP electronics to industrial and commercial electronics. >90% diversification plans away from Valuetronics due to track (i.e. moving to a new plant in 1QCY20, new facility SGD0.58) capacity in China. disruptions caused by Covid-19. Amid tariffs, some by 2021); no further loss of customer allocation; pace of customers have reorganised their supply chains, which has new customer wins to rebuild revenue base. resulted in Valuetronics losing the US allocation for these customers' products. We expect diversification efforts in Vietnam will provide a long-term source of growth. Hi-P EMS - key capabilities in plastics, metals machining and Hi-P is guiding for FY20E earnings to be flat YoY,  2020: Update in management's guidance on revenue and (HIP SP, BUY, TP SGD1.23) assembly. Highly consumer electronics focused. Apple makes demonstrating earnings resilience despite an increasingly earnings direction YoY; demand dynamics of its customers' up 40-50% of revenue. competitive pricing environment.We believe stronger-than- (e.g. Apple) products. expected volumes for the key wireless customer's new  2021: Recovering end-markets - in particular whether smartphones, and neutral or appreciating USD may provide consumer sentiment is upbeat in 2Q20 ahead of the 2021 upside for 2H20 earnings. holiday-season. AEM Semiconductor back-end equipment manufacturer. IP owner AEM is a beneficiary of 's increasing focus on various  2021: Favourable FY21 revenue guidance. Intel continuing (AEM SP, BUY, TP SGD5.05) of its product suite packaging and testing technologies as mission-critical chips to launch market leading products and defend/ win back become more and more complex, leading to lengthening test market share. Intel continuing to spend on back-end times to ensure product reliability. We continue to see technologies, such as testing. Continued traction with FY21E to be a growth year from new products launched in new and potential customers. FY20E (e.g. , new test handler for Intel, etc.). Next catalyst is FY21 revenue guidance in Jan-21. UMS Precision engineering and assembly for front-end Beneficiary of global semiconductor capex spending recovery  2020: AMAT’s customers affirming capex guidance. AMAT (UMSH SP, BUY, TP SGD1.41) semiconductor equipment manufacturer through key customer Applied Materials. is still constructive of current outlook and its expectation that FY21 can be sustained or be even better than FY20.  2021: Continuation of recovery in 2020, recovery in memory investments approaching full swing Frencken Precision engineering and module assembly for end-markets We expect Frencken to resume earnings growth from FY21E  2020: Outlook for customers across various segments. (FRKN SP, BUY, TP SGD1.39) such as semiconductor equipment, analytical, medical, onwards, propelled by a breadth of new products with Upside swing factors are i) return of elective surgeries; ii) industrial automation and automotive, etc. greater design value-add across various segments. Frencken resilience in automotive; and iii) bumper capex from is usually the sole source for critical but non-core products Seagate. in Mechatronics (80% of revenue), boosting stickiness. We  2021: Continued strength from semiconductor, as well as expect margins to expand as management continue to a breadth of new products from other segments execute on improved mix and cost control. Cyclically, c.70% of revenues (semiconductor/ analytical/ automotive) are in varying degrees of recovery/ upswing.

Source: Company data, Maybank Kim Eng

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ASEAN Technology

1. Investment Thesis

1.1 Key macro indicators are supportive of growth

The World Semiconductor Trade Statistics (WSTS) in its latest report forecasts global semiconductor market to grow by 3.3% YoY in 2020 and 6.2% YoY in 2021 to USD426.0b and USD452.3b respectively, from USD412.3b in 2019. We take this as a positive signal for the recovery-cum- growth of the global semiconductor market, despite the COVID-19 pandemic.

Fig 4: WSTS: global semiconductor market by regions

Americas Europe Japan Asia Pacific Total (YoY; RHS) (USD'b) (%) 500 31.8 35.0 450 30.0 400 21.6 25.0 350 13.7 20.0 300 9.9 15.0 250 6.2 10.0 4.8 3.3 200 0.4 -0.2 1.1 5.0 -2.7 150 0.0 100 -5.0 -12.0 50 -10.0

0 -15.0

2021E 2020E

2010A 2013A 2015A 2017A 2019A 2011A 2012A 2014A 2016A 2018A

Source: World Semiconductor Trade Statistics (WSTS), Maybank Kim Eng

Fig 5: Global semiconductor monthly sales

(USD'b) YoY (RHS) Monthly semiconductor sales (LHS) 45 30% 40 25% 35 20% 15% 30 10% 25 5% 20 0% 15 -5% 10 -10% 5 -15%

0 -20%

Jul '13 Jul '17 Jul Jul '12 Jul '14 Jul '15 Jul '16 Jul '18 Jul '19 Jul '20 Jul

Jan '12Jan '13Jan '14Jan '15Jan '16Jan '17Jan '18Jan '19Jan '20Jan

Sep'12 Sep'13 Sep'14 Sep'15 Sep'16 Sep'17 Sep'18 Sep'19

Mar Mar '12 Mar '16 Mar '20 Mar Mar '13 Mar '14 Mar '15 Mar '17 Mar '18 Mar '19

Nov '14 Nov '18 Nov Nov '12 Nov '13 Nov '15 Nov '16 Nov '17 Nov '19 Nov

May May '12 May '13 May '14 May '15 May '16 May '17 May '18 May '19 May '20

Source: SIA, WSTS, Maybank Kim Eng

Zooming into the product breakdown of the global semiconductor market, WSTS expects market growth to be primarily driven by Integrated Circuits (IC) products - forecasting +5.3% YoY in 2020 and +6.3% YoY in 2021. Following that, WSTS estimates all products (discrete semiconductor, optoelectronics, sensors and IC), including all IC products (analog, micro, logic and memory) to grow 1-11% YoY in 2021. Such uptrend would broadly indicate rising demand for the respective components.

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ASEAN Technology

Fig 6: WSTS: global semiconductor market by products

Discrete Semicon. Optoelectronics Sensors IC Total (YoY; RHS)

(USD'b) (%) 31.8 500 35.0 450 30.0 400 21.6 25.0 350 13.7 20.0 300 9.9 15.0 6.2 250 4.8 3.3 10.0 200 0.4 -0.2 1.1 5.0 -2.7 150 0.0 100 -12.0 -5.0 50 -10.0

0 -15.0

2021E 2020E

2010A 2013A 2015A 2017A 2019A 2011A 2012A 2014A 2016A 2018A

Source: World Semiconductor Trade Statistics (WSTS), Maybank Kim Eng

Fig 7: WSTS: global semiconductor market – integrated circuit products

Analog Micro Logic Memory

100% 90% 25% 24% 28% 27% 29% 28% 28% 32% 80% 36% 40% 35% 36% 70% 60% 32% 34% 31% 34% 33% 33% 33% 50% 32% 30% 28% 31% 31% 40% 30% 24% 26% 25% 22% 23% 22% 22% 19% 20% 19% 20% 17% 19% 10% 17% 17% 16% 16% 16% 16% 17% 15% 15% 16% 14% 14%

0%

2020E 2021E

2012A 2013A 2014A 2018A 2019A 2010A 2011A 2015A 2016A 2017A

Source: World Semiconductor Trade Statistics (WSTS), Maybank Kim Eng

Notwithstanding an indirect volume impact (due to the large scale and the diversity of the supply chain of the semiconductor industry), we believe such anticipated positive industry trend would broadly benefit the OSATs (outsourced assembly and test) and ATE (automated test equipment) manufacturers, namely the sensor and IC (i.e. non-memory) products. Product exposures of respective technology companies within our coverage are detailed on pages 5-6.

Meanwhile, despite the cyclical nature of the semiconductor industry, we believe the uptrend in the output of wafers will continue in the long run. This would be attributed to the ever-growing demand for electronic components and products, particularly with the emergence of selected technologies such as 5G, IoT and AI, among many others. According to a local media report in Oct 2020, Apple’s main chipmaker, TSMC (2330 TT, SP NTD488.00, Not Rated) said 5G smartphones require 30-40% more chip contents than .

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Fig 8: Global silicon wafer shipments 2018 2019 2020E 2021E 2022E 2023E

MSI (Millions of Square Inches) 12,541 11,677 11,957 12,554 13,220 13,761 YoY 8.00% -6.90% 2.40% 5.00% 5.30% 4.10%

Source: SEMI, Maybank Kim Eng

Fig 9: TSMC: quarterly wafer shipment (12” equivalent wafers)

Quarterly wafer shipments (LHS) YoY (RHS) (thousand) 3,500 200%

3,000 150% 2,500 100% 2,000 50% 1,500 0% 1,000

500 -50%

0 -100%

3Q97 1Q99 1Q01 3Q02 1Q06 3Q07 3Q09 1Q11 3Q14 1Q16 1Q18 3Q19 1Q97 1Q98 3Q98 3Q99 1Q00 3Q00 3Q01 1Q02 1Q03 3Q03 1Q04 3Q04 1Q05 3Q05 3Q06 1Q07 1Q08 3Q08 1Q09 1Q10 3Q10 3Q11 1Q12 3Q12 1Q13 3Q13 1Q14 1Q15 3Q15 3Q16 1Q17 3Q17 3Q18 1Q19 1Q20 3Q20

Source: TSMC, Maybank Kim Eng

According to SEMI’s latest projections, global fab equipment spending is expected to increase by 8% YoY in 2020 and 13% YoY in 2021. The pandemic has increased demand for chips from various segments/areas such as communications, IT infrastructure, personal computing, gaming and healthcare electronics. This is also supported by the rising demand for semiconductors for data centre infrastructures and server storage along with the buildup of safety stock as US-China trade tension intensifies. We believe this bodes well with the overall macro trend, which points to favourable growth in 2021-2022. We see UMS (through customer Applied Materials) and Frencken (through customers ASML, Applied Materials and more) as key beneficiaries of the fab equipment spending growth.

Fig 10: Global fab equipment spending

Source: SEMI

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Fig 11: Semiconductor inventory cycle vs. UMS and AMAT semiconductor revenues YoY

YoY 120% 40%

100% 30%

80% 20%

60% 10%

40% 0% 20%

-10%

0%

4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20

-20% -20%

-40% -30%

UMS semicon sales YoY AMAT semicon sales YoY Inventory cycle (Intel, TSMC, Micron, SK Hynix) -60% -40%

Source: Bloomberg, FactSet, Companies, Maybank Kim Eng

1.2 5G: The next big thing

As 5G has been dubbed the next big wave in technology and telecommunication/network, we expect the deployment of 5G networks to progressively take place across major cities/countries in the coming years. This is because 5G offers major benefits, such as providing reduced latencies, lower performance degradation and significantly faster network speed. This, in turn, would translate into heightened prospects for the OSAT companies and ATE manufacturers due to the expected increase in supply and demand for newer and more sophisticated components and equipment. According to Ericsson, there have been more than 75 5G commercial launches globally and the most extensive coverage build-outs in 2019 were in the US, China, South Korea and Switzerland.

From the Ericsson Mobility Report (Jun 2020), we learnt that Ericsson: (i) forecasts 190m 5G subscriptions globally by end-2020 and 2.8b subscriptions by end-2025 (around 30% of all mobile subscriptions); (ii) expects a significantly faster uptake for 5G subscription as compared to LTE (launched back in 2009); and (iii) LTE to remain the dominant mobile access technology by subscription in 2020-2025 but subscriptions to peak in 2022. Ericsson expects key driving factors for the growth of 5G subscription are China’s earlier engagement with 5G (relative to 4G/LTE) and earlier availability of 5G devices.

Separately, by 2025, Huawei expects: (i) 2.8b 5G users globally; (ii) 5G networks will cover 58% of the world’s population; and (iii) 6.5m 5G base stations installed globally. Huawei also expects the rollout of 5G networks to take only three years (2019-2022) vs five years for 4G networks (2009- 2014) and 10 years for networks (2001-2010). The faster rollout would be partly supported by the availability of more 5G-ready devices (i.e. smartphones) and increase in investment in 5G equipment in various industries, such as automotive and IoT.

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Figure 12: Mobile subscriptions by technology (in billion)

Source: Ericsson

In the near term, we believe key beneficiaries of the gradual rollout of 5G networks are OSAT players with sizeable exposure to flagship smartphones, namely Inari with about ½-¾ of its revenue contributed by the radio frequency (RF) division with Broadcom as its key customer. Globetronics also has exposure to 5G-related components for end-consumers (i.e. smart devices) and industrial usages. Throughout the rollout phase of 5G networks, we also expect the ATE manufacturers to benefit via growing demand for newer testing equipment that caters to new 5G-related parts/components, among others (details on page 13).

The rollout of 5G is also expected to enable increased complexity in mission-critical applications, spanning across communications, consumer electronics, automotive and healthcare. This increased complexity has resulted in unprecedented challenges in chips testing. As semiconductor nodes decrease and the implementation of heterogeneous packaging becomes mainstream, we observe that system-level test (SLT) is also increasing in popularity. This is driven by the need to increase test coverage reliably in devices where design-for-test techniques leave hundreds of millions of transistors untested. AEM, having served Intel in SLT since the early 2000s, is a leader in this space.

The deployment of 5G networks and infrastructure will also benefit contract manufacturers like Venture, through its customers such as Keysight (test and measurement), Broadcom, Lumentum and Marvell (networking and communications products).

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Fig 13: List of 5G-capable smartphones (launched/announced/speculated) Brand Model Brand Model Brand Model Apple iPhone 12 series Sony 1 II ASUS ROG Phone 3 Xiaomi Black Shark 3 ASUS Zenfone 7 Moto Z2 Force Xiaomi Black Shark 3S ASUS Zenfone 7 Pro Pro 5G 4a 5G Motorola Edge Plus Honor V30 .2 5G Xiaomi Mi 10 Ultra Lite OnePlus OnePlus 8 Pro Xiaomi Mi Lite Honor 30 Pro Plus OnePlus 8 Xiaomi Mi Mix Alpha Honor X10 OnePlus 7T Pro 5G Xiaomi Mi Mix 3 5G Honor X10 Max OnePlus 7 Pro 5G Xiaomi Poco F2 HTC HTC U20 5G* Pro Xiaomi K30 Pro HTC Desire 20 Pro* 3 Pro 5G Xiaomi Redmi 10X Huawei Huawei Enjoy 20 Plus Oppo Reno 10x Zoom 5G Xiaomi Redmi 10X Pro Huawei MatePad Pro 5G Oppo Ace 2 Xiaomi Mi 9 Pro 5G Realme X50 ZTE Axon 10s Pro X 5G Realme X50m Axon 10 Pro 5G Pro 5G Axon 11 SE 7 Note 20 Axon 20 Pro Ultra Nubia Red Magic Huawei Nova 7 SE Ultra Nubia X 5G Lite Samsung Galaxy S20 Plus Others 17 Pro Pro Samsung Galaxy S20 TCL 10 5G Huawei P40 Pro Plus 5G Vivo iQOO 5 Pro LG LG V60 ThinQ 5G 5G Vivo iQOO Z1 LG V50 ThinQ Samsung Galaxy Flip 5G LG Velvet Vivo X50 5G Pro LG Velvet Samsung Galaxy Z Fold2 5G Vito X50 5G Pro Plus 5G 5G

* Rumoured/speculated Note: List is not exhaustive; list was published on 23 Sep 2020 Source: Digital Trends

Fig 14: VLSI expects SLT spend to be 4.4x faster than functional test in 2020-24 period, from increasing need for more reliable test coverage

Source: Keysight

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Fig 15: Keysight, a customer of Venture, is positive about long-term growth prospects through these verticals

Source: Keysight

1.3 Resilient demand for semiconductor equipment/ATE and automation

SEMI forecasts global sales of semiconductor manufacturing equipment (by original equipment manufacturers) to grow 6% YoY to USD63.2b in 2020 and by 11% YoY to USD70b in 2021. Specifically, SEMI projects the assembly and packaging equipment segment to grow 10% YoY to USD3.2b in 2020 and 8% YoY to USD3.4b in 2021 - driven by advanced packaging capacity build-up. This is also on the back of the semiconductor test equipment market, which SEMI estimated to grow by 13% YoY to USD5.7b in 2020 and continue the growth momentum into 2021 due to increasing adoption and demand for 5G. We believe the growing global semiconductor market goes hand-in-hand with growing demand for semiconductor equipment (i.e. wafer fab, assembly and packaging and testers).

November 21, 2020 13

ASEAN Technology

Fig 16: Semiconductor equipment sales

Source: SEMI

Meanwhile, we expect the current Industry 4.0 (IR4.0) will drive and accelerate demand for factory automation, as IR4.0 is mainly centered on integration of manufacturing processes and digital applications (i.e. IoT, AI, data analytics, etc.) to improve efficiency, output and cost management. Notwithstanding a lower correlation with the broad semiconductor market (as compared to ATE), we believe there are still selected opportunities for technology companies with automation-centric offerings. Greatech is a key beneficiary in this area, as it offers production line systems and single-use machines (i.e. testing, assembly) to customers in the solar, medical, EV and semiconductor segments. Meanwhile, Pentamaster also has a sizeable revenue contribution from its Factory Automation Solution segment with various automation solution offerings (i.e. handling, testing, assembly, manufacturing, storage and robotics).

1.4 Up-and-coming segments as added boosters

1.4.1 Internet of Things (IoT)

Despite the widespread implementation and integration of IoT across various industries (such as automotive, medical, industrial and consumer), we believe there is a high importance and focus placed on connectivity (data transmission and data storage), sensors (integration of physical and digital) and processors/chipsets (i.e. AI and machine learning), among others. Hence, the combination of low-latency network/services of 5G networks would bode well for wide-scale implementation of IoT, which has crucial importance for high speed and efficient data transfer and cloud connectivity. Meanwhile, we also believe IoT will drive demand for more advanced sensors and chipsets for IoT applications such as autonomous vehicles, smart homes, integrated medical equipment and lights-out manufacturing (fully automated factory with little to no human intervention; also part of IR4.0).

November 21, 2020 14

ASEAN Technology

Fig 17: IoT connections (billion) 2019 2025 CAGR Wide-area IoT 1.6 5.5 23% Short-range IoT 9.1 19.1 13% Total 10.7 24.6 15%

Source: Ericsson, Maybank Kim Eng

Fig 18: Prognosis of worldwide spending on IoT

(USD'b) 1,200 1,100 1,000 1,000

800 749 686 646 600

400

200

0 2018 2019 2020 2022 2023

Note: Released in Jun 2020; 2021 not available Source: IDC, Maybank Kim Eng

1.4.2 Automotive and Electric Vehicles (EVs)

The growing segments of automotive and EVs would benefit OSAT and ATE players due to rising demand for automotive-related chips. Furthermore, we believe semiconductor content is higher for newer automobiles and EVs. Based on Yano Research Institute’s findings, analog IC (used for electronic circuits like Electronic Control Unit) represents a large part of the automotive semiconductor market, followed by Micro Control Unit, sensors, power semiconductors, and memory IC. Meanwhile, based on Deloitte’s findings in 2019, the cost of semiconductor content, i.e. the components that make up electronic systems, has increased from USD312 per car in 2013 to around USD400.

Fig 19: Revenue of automotive semiconductor market worldwide (USD'b) 70 66 64

60

50 41 40 40 38 32 29 29 30 25 26

20

10

0 2012 2013 2014 2015 2016 2017 2018 2019 2025E 2026E

Source: IHS, Maybank Kim Eng

November 21, 2020 15

ASEAN Technology

The International Energy Agency estimates the global electric vehicle stock (excluding two/three-wheelers) grows by 36% annually, reaching 245m vehicles in 2030 – more than 30x above today’s level (2019E: ~2.8m vehicles). Looking into a sizeable EV market such as China, it has recorded a strong 5-year CAGR of 74% for sales of new energy vehicles, with 1.2m units sold in 2019.

Inari and Globetronics would benefit from an improving automotive industry globally, as the former has exposure to automotive sensor products and the latter has exposure to automotive lighting. Elsewhere, D&O Green Technologies also has a sizeable revenue contribution from its LEDs products for automobiles.

While we believe AEM currently does not have exposure in the automotive space, we see automotive as a potentially lucrative market for AEM’s system level test solutions. This is because AEM’s asynchronous, modular, and massively parallel approach to system level test presents a cost- effective manner in adequately testing mission critical automotive chips that are typically hard to test, given requirements for zero defect and high thermal reliability.

Fig 20: China: Annual sales of new energy vehicles

Battery electric vehicles Plug-in hybrid electric vehicles

1,400,000 1,255,000 1,204,000 1,200,000

1,000,000 777,000 800,000

600,000 507,000

400,000 331,092

200,000 74,763 8,159 12,791 17,642 0 2011 2012 2013 2014 2015 2016 2017 2018 2019

Source: China Association of Automobile Manufacturers (CAAM), Maybank Kim Eng

1.4.3 Artificial intelligence (AI)

Growing demand for AI-based technology will increase demand for AI chipsets – supporting the broad demand for chips and OSAT services globally. This is attributed to growing AI usages such as e-commerce (e.g. recommendation engines), virtual assistance (e.g. speech recognition and understanding) and financial services (e.g. fraud detection, risk assessments). Global Market Insights forecasts the global market value for AI chipsets would grow to over USD70b in 2026, from over USD8b in 2019.

UMS’ key customer, Applied Materials (AMAT), sees AI as a key “trillion- dollar inflection” that it is well positioned to capitalize. This is because AMAT’s core capabilities in materials engineering is critical enabling custom chips for increasingly specialized workloads. Further, AMAT believes chipmakers have to explore new computing architectures and chips via more innovative materials and scaling approaches – in order to overcome current energy constraints caused by current AI training practices.

November 21, 2020 16

ASEAN Technology

Fig 21: AI chipsets global market

Source: Global Market Insights

Fig 22: Much of the data growth in coming years will be from Fig 23: Unless chips become more energy efficient, AI data machine-generated data centre workloads will change the world’s energy equation

ZB 40 Machine generated data - 70% 35 2018-23 CAGR >35ZB 30 Human generated data - 5% 25 2018-23 CAGR 20 15 10 4.5ZB 5 1.5ZB 2.5ZB 0 2017 2018 2019 2020 2021 2022 2023 Human generated Machine generated

Source: Applied Materials, based on forecasts published by Cisco, Intel and Source: Applied Materials

Western Digital

1.4.4 Medical/healthcare/life science

We believe the healthcare sector will continue to provide various opportunities for EMS/precision engineering, semiconductor and technology/automation companies. From a macro perspective, this would be attributed to: (i) a progressively aging population globally (Fig 24); (ii) higher budget/funds allocation for the healthcare sector due to the pandemic; and (iii) technology advancements of healthcare-related equipment. This, in turn, would lead to increasing demand for: (i) medical devices/equipment and its chips; and (ii) automated production solutions for medical devices/equipment, among others.

Meanwhile, Omdia expects the medical end-use market will account for USD5.8b of total semiconductor sales in 2020, roughly 11% of the global industrial semiconductor market and +8.1% YoY.

Key beneficiaries are: (i) Venture, as its earnings are currently supported by devices used to combat Covid-19 (e.g. ventilators, dPCR/qPCR equipment), and also as it launches new products in 2021, (ii) Pentamaster, having acquired TP Concept, a die casting parts and medical machines manufacturer that offers automation/assembly solutions for medical devices/products; and (iii) Greatech, which supplies single-use assembly machines for products such as catheters and syringes.

November 21, 2020 17

ASEAN Technology

Fig 24: World population by age groups of 0-14 and ≥70

Age 0-14 Age ≥ 70 (million) 2,500

2,000

1,500

1,000

500

0

2020 2025 2050 2055 2060 2065 2070 2075 2100 2030 2035 2040 2045 2080 2085 2090 2095

(Year)

Note: Based on United Nations Probabilistic Projections’ World Population Prospects 2019 Source: United Nations, Maybank Kim Eng

Fig 25: Global medtech revenue

Global medtech revenue (LHS) YoY (RHS) (USD'b) 700 8% 595 566 600 538 6% 511 484 457 500 434 405 4% 380 388 400 353 362 370 371 2% 300 0% 200

100 -2%

0 -4%

Note: Published in Sep 2018; Statistic is based on the top 300 medtech companies; Medical technology is used for diagnosis, monitoring, or treatment of diseases or medical conditions, for example Source: Evaluate, Maybank Kim Eng

November 21, 2020 18

ASEAN Technology

2. Risks

2.1 Disruptions from the COVID-19 pandemic

Taking cues from releases of technology and semiconductor-related PLCs’ 1HCY20 earnings and performance review, we understand that the pandemic and lockdowns in respective countries have impacted operations and/or earnings in varying degrees. This primarily involves limited labour availability, supply chain disruptions (i.e. postponement of orders), stringent operational SOPs, and cross-border travel restrictions. If the pandemic worsens, it could increase earnings risks for the sector.

2.2 Earnings risks from a cyclical industry

We believe companies with offerings in the semiconductor supply chain are exposed to cyclical earnings risks (Fig 5 and Fig 9). This would be attributed to various factors such as shifts in supply and demand of end- users (e.g. personal computers, smartphones) and emergence/slowdown of technologies (e.g. cryptocurrency mining, IoT), among many others.

2.3 Delay in 5G rollout

Delays in rollout of 5G networks globally could also result in softened earnings outlook for related PLCs and delaying the sector’s upcycle. Some of the rollout challenges would revolve around hardware (i.e. costs, large- scale installation), technology (i.e. varying 5G technologies among 5G providers) and infrastructure requirements (i.e. overcoming challenges of shorter range for higher frequencies).

November 21, 2020 19

ASEAN Technology

3. Valuations

Fig 26: MKE: CY21E PER and CY21E EPS growth (YoY)

60.0

50.0 ViTrox

40.0 Greatech 30.0

Globetronics Inari PER (x) PER 20.0 V.S. Industry Venture Hi-P 10.0 AEM Frencken Valuetronics UMS 0.0 -20% 0% 20% 40% 60% 80% 100% EPS growth

Source: Factset, Maybank Kim Eng

3.1 Malaysia technology hardware (semiconductor)

Our universe is trading at an average PER of 34x (one-year rolling forward; at +1SD of mean) – on the back of: (i) OSAT – at an average PER of 27x (Inari and Globetronics); and (ii) ATE/automation – at an average PER of 41x (ViTrox and Greatech).

We believe the ATE and automation companies trade at premiums above OSAT companies due to resilient demand and orders for testing and automation equipment, hence having lower cyclical earnings. Meanwhile, despite OSAT companies’ higher cyclical exposure to the broad semiconductor/hardware sector, we anticipate such OSAT players are heading into the sector’s upcycle and this would entail valuations re- rating. All in all, we think the sector’s rich valuations are justified by potential earnings growth catalysts and upsides – in tandem with the sector’s upcycle.

Within the OSAT space, we like Inari (BUY, MYR3.40 TP) for its high earnings exposure to Broadcom via its RF segment/products, which tie in with the anticipated stronger sales of 5G flagship smartphones by a top global maker. We have also upgraded Globetronics to BUY (from SELL; MYR3.30 TP) where our valuations have factored in the sector’s re-rating and expectations for improving near to mid-term earnings outlook. For the ATE/automation space, within our coverage, we have ViTrox (SELL, MYR11.60 TP) and Greatech (HOLD, MYR8.90), which are supported by the growing key areas/segments of semiconductor equipment, IR4.0, IoT, EVs and medical devices.

November 21, 2020 20

ASEAN Technology

Fig 27: MKE: Average Malaysia tech sector (Semiconductor) - 1-year forward PER (x) 40.0 35.0 +1SD: 31.9 30.0 Mean: 26.8 25.0 -1SD: 21.6 20.0 15.0 10.0 5.0 - Dec-15 Dec-16 Dec-17 Dec-18 Dec-19

Note: Average derived from Inari, ViTrox, Globetronics and Greatech (included from end-2019 onwards as it was listed in Jun 2019) Source: Bloomberg, Maybank Kim Eng

Fig 28: MKE: Malaysia OSAT: 1-year forward PER Fig 29: MKE: Malaysia ATE/automation: 1-year forward PER (x) (x) 50.0 50.0 45.0 45.0 40.0 40.0 +1SD: 35.7 35.0 35.0 +1SD: 30.4 30.0 30.0 Mean: 25.1 Mean: 25.3 25.0 25.0 -1SD: 19.7 20.0 20.0 -1SD: 15.0 15.0 15.0 10.0 10.0 5.0 5.0 - - Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19

Note: Average derived from Inari and Globetronics Note: Average derived from ViTrox and Greatech (included from end-2019 Source: Bloomberg, Maybank Kim Eng onwards as it was listed in Jun 2019)

Source: Bloomberg, Maybank Kim Eng

3.2 Singapore

Our Singapore coverage universe is trading at 12x, which is a discount to Malaysian-listed counterparts. We surmise that Malaysian-listed peers tend to be able to command premium valuations due to a combination of:

 Stronger CY21 EPS growth of some Malaysia-listed companies over Singapore-listed ones, in particular Greatech and Inari.  Freer-flow of capital in Singapore. We have observed that Singapore-listed names tend to trade in line or at slight discounts to global peers.  Difference in investment mandates. Funds in Singapore tend to have a regional/ international mandate, while it is not uncommon for Malaysian funds to be domestically focused;  Scarcity of quality growth ideas vis-à-vis other sectors domestically in Malaysia.

In the EMS/ precision engineering space, we favour exposure to VMS (15x FY21E P/E) and Frencken (9x FY21E P/E). While we are excited about signs of an earnings upgrade cycle for VMS, we believe Frencken’s medium-term margin expansion potential is underappreciated, and increasing investor interest could spur meaningful rerating for Frencken over the medium term.

November 21, 2020 21

ASEAN Technology

In the semiconductor equipment space, we remain positive on AEM and UMS in FY21E, and see near-term weakness as opportunities to buy on dips. For UMS, we expect FY21E to be a growth year from the continuation of semiconductor spending recovery – as the memory investments return into full swing. For AEM, we see FY21E as being a growth year from new products introduced in FY20E for a few customers – including Intel.

Our conviction is less for Valuetronics and Hi-P over the next 12 months. Although a Biden-win may pave the way for improving US-China relations, we believe positive earnings effects may take much longer than expected to materialize for Hi-P and Valuetronics – which have significant China footprint. For instance, scarred by the precedent set by President Trump, customers may still consider diversifying sourcing from China into ASEAN sites despite improving US-China relations. This in turn could lead to lower margins – due to less cost efficiency, either a result of reduced scale per site and/or increased fixed costs for both Hi-P and Valuetronics – unless customers are willing to share the burden of additional manufacturing costs.

Fig 30: MKE: Average Singapore tech sector - 1-year forward PER

x 18

16

14

12

10

8

6

4

2

0

Jan 15 Jan 15 Apr 15 Jul 15 Oct 16 Jan 16 Apr 16 Jul 16 Oct 17 Jan 17 Apr 17 Jul 17 Oct 18 Jan 18 Apr 18 Jul 18 Oct 19 Jan 19 Apr 19 Jul 19 Oct 20 Jan 20 Apr 20 Jul 20 Oct

Forward P/E Average +1SD -1SD

Note: Average derived from Venture, Hi-P (2016 onwards as it was lossmaking in 2015), Valuetronics, AEM, UMS, Frencken Source: Companies, FactSet, Maybank Kim Eng

Fig 31: MKE: Singapore EMS/ Precision engineering: 1-year Fig 32: MKE: Malaysia ATE/automation: 1-year forward PER forward PER

x x 18 18 16 16 14 14 12 12 10 10 8 8 6 6 4 4 2

0 2

Jan 15 Jan 15 May 15 Sep 16 Jan 16 May 16 Sep 17 Jan 17 May 17 Sep 18 Jan 18 May 18 Sep 19 Jan 19 May 19 Sep 20 Jan 20 May 20 Sep

0

Jan 15 Jan 15 Apr 15 Jul 15 Oct 16 Jan 16 Apr 16 Jul 16 Oct 17 Jan 17 Apr 17 Jul 17 Oct 18 Jan 18 Apr 18 Jul 18 Oct 19 Jan 19 Apr 19 Jul 19 Oct 20 Jan 20 Apr 20 Jul 20 Oct

Forward P/E Average +1SD -1SD Forward P/E Average +1SD -1SD

Note: Average derived from Venture, Hi-P, Valuetronics and Frencken Source: Companies, FactSet, Maybank Kim Eng Note: Average derived AEM and UMS

Source: Companies, FactSet, Maybank Kim Eng

November 21, 2020 22

3.24

November 21, 2020

AEM Holdings (AEM SP) BUY Share Price SGD 3.24 5G beneficiary 12m Price Target SGD 5.05 (+58%)

Previous Price Target SGD 5.05

Key beneficiary of rising SLT trend; BUY Company Description AEM manufactures equipment used in the System level test is gaining traction, due to rising complexity of chips, semiconductor back-end process and the need to test mission-critical devices reliably. We continue to see AEM as a key beneficiary of this trend, on the back of its strong know- how and track record in this area. We also see FY21E as a growth year,

driven by new products across several customers. Maintain BUY and TP of Statistics SGD5.05 (14x FY21E P/E). 52w high/low (SGD) 4.29/1.37 3m avg turnover (USDm) 14.0 Increasingly complex testing needs boon for SLT Free float (%) 76.9 The rollout of 5G enables increased complexity in mission-critical Issued shares (m) 276

applications – in turn creating unprecedented challenges in chip testing. Market capitalisation SGD895.7M Technology As semiconductor nodes decrease and heterogeneous packaging becomes USD667M mainstream, the need for system level test (SLT) is likely to increase. We Major shareholders: Toh Ban Leng James 5.0% see AEM as a beneficiary of this given their first-mover advantage and Aberdeen Standard Investments (Asia) Ltd 5.0% strong track record serving Intel. VLSI Research projects SLT to grow at a UBS Group AG 4.9% 4.4x faster pace than wafer sort and functional test in 2020-24, driven by Price Performance the need to increase test coverage reliably in chips where design-for-test techniques leave hundreds of millions of transistors untested. 4.50 850 4.00 750

New products are FY21E drivers 3.50 650 Singapore We project FY21E to be a growth year, driven by continued momentum 3.00 550 for new products introduced in 2020 – including for Intel (hybrid project), 2.50 450 Huawei (TMS) and the memory customer (AMPS). This is offset by our 2.00 350 own assumption of reduced HDMT equipment shipments due to potential 1.50 250 high-base effects in 2020. AEM will announce FY21 guidance in Jan-21. 1.00 150 0.50 50 Valuation and risks Nov-18 Feb-19 May-19 Aug-19 Nov-19 Feb-20 May-20 Aug-20 As normalising seasonality patterns may create difficult YoY comparisons AEM Holdings - (LHS, SGD) AEM Holdings / Straits Times Index - (RHS, %) in 4Q20 and 1Q21, we see risks of near-term share price volatility. We -1M -3M -12M believe these are opportunities to BUY on dips, given AEM’s favourable Absolute (%) (10) (19) 78 long-term growth prospects. As SLT gains traction, we also see AEM as an Relative to index (%) (20) (27) 104 M&A candidate. AEM is trading at 5.8x FY21E EV/EBITDA, which compares Source: FactSet favourably to the 7.8x thta peer Cohu bought Xcerra for in 2018. Key risk to our view is if Intel loses more market share than expected, which may result in lower demand for AEM’s equipment.

FYE Dec (SGD m) FY18A FY19A FY20E FY21E FY22E Revenue 262 323 512 517 545 EBITDA 42 70 116 126 134 Core net profit 33 53 91 99 106 Core FDEPS (cts) 12.3 19.4 33.0 36.0 38.7 Core FDEPS growth(%) 3.4 58.3 69.8 9.2 7.5 Net DPS (cts) 3.4 5.1 8.2 9.0 9.7 Core FD P/E (x) 6.7 10.4 9.8 9.0 8.4 P/BV (x) 2.5 4.1 4.4 3.2 2.5 Net dividend yield (%) 4.1 2.5 2.5 2.8 3.0 ROAE (%) 45.5 47.3 53.8 41.3 33.6 ROAA (%) 26.6 29.1 33.3 28.6 25.0 EV/EBITDA (x) 4.0 6.3 6.4 5.2 4.4 Net gearing (%) (incl perps) net cash net cash net cash net cash net cash ESG Consensus net profit - - 92 102 105 Tear Sheet Insert MKE vs. Consensus (%) - - (1.3) (2.8) 0.9

Gene Lih Lai, CFA [email protected] (65) 6231 5832

THIS REPORT HAS BEEN PREPARED BY MAYBANK KIM ENG RESEARCH SEE PAGE 73 FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS AEM Holdings

Value Proposition Price Drivers

. Back-end test-equipment manufacturer that has co- Historical share price trend developed the HDMT handler for a market-leading

chipmaker with a market cap of USD210b. SGD . Leading-edge HDMT technology has helped its core 5.00 12000 customer achieve 2x savings in chip-testing costs. 4.50 . AEM provides strong synergies like field-service 4.00 10000 capabilities and manufacturing scale for the high-tech 3.50 8000 companies that it acquires. 3.00 4 . High single-customer and product risks. 2.50 6000 2.00 3 1 4000 1.50 Share of new revenue sources progressively growing 1.00 1 2000 0.50 SGDm % 5

0.00 0

Jul-18 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Oct-18 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20 Oct-20 600 25 Jan-16 2

500 20 400 AEM SP - Price AEM SP/ FSSTI - (RHS) 15 300 Source: Company, FactSet, Maybank Kim Eng 10 200 1. Announced favourable 1Q17 net profit as HDMT handlers 100 5 delivery pick up momentum. There were also insider purchases. 0 0 2. Announced 2018 guidance for SGD255m in revenue and 2015 2016 2017 2018 2019 2020E 2021E 2022E SGD42m PBT. Precision components Kits Spares Services (ESS) 3. Announced accretive acquisition of Afore, Finnish-based Tools/ Machine (ESS) Afore (MEMS) MEMS test-solutions provider. 4. Novo Tellus distributes AEM shares in-specie to investors; Hybrid project TMS Core customer announces 10nm delay. SLTI Net margin (RHS) 5. AEM’s core customer denies rumours from tech-blog

Source: Company, Maybank Kim Eng SemiAccurate that its 10nm process was cancelled.

Financial Metrics Swing Factors

. We expect 70% YoY earnings growth in 2020E, driven by Upside sustained sales to Intel and contributions from new initiatives and customers. . Revenue expansion from securing new customers or . AEM is not a capex-intensive company. Improved cash- wallet expansion/increased orders from existing flow from 2016 levels has allowed AEM to pursue highly customers. synergistic acquisitions. . Training a batch of engineers during pre-production ramp . Synergistic and accretive acquisitions. up could take 5-6 months. During such time, staff costs . Positive customer-related news flow that could catalyse could be elevated and profitability could temporarily improved orders for AEM, such as capacity expansion or decline. launch of new chips. . Adopted 25% dividend payout ratio policy in 2017. DuPont ROE Downside % x 80 3.00 70 . Order cancellation, delays and earnings misses. 2.50 60 . Emerging technology from rivals that could erode AEM’s 2.00 competitive position with customer(s). 50 . Erosion in the competitive advantages of the core 40 1.50 customer as a result of company specific or industry 30 1.00 related developments. 20 0.50 10 0 0.00 2015 2016 2017 2018 2019 2020E 2021E 2022E ROE Net margin Asset Turnover (RHS) Leverage ratio (RHS)

Source: Company, Maybank Kim Eng

[email protected]

November 21, 2020 24

AEM Holdings

ESG [email protected] Business Model & Industry Issues

. As an equipment maker, AEM is inherently exposed to environmental, workplace safety, and socio-economic risks. AEM has had zero incidences of environmental non-compliance, as well as zero substantiated cases of corruption and legal compliance issues in 2019. . From an environmental and social perspective, AEM screens all of its suppliers. AEM constantly strives to be more efficient with electricity usage, and ensures employees are well trained and remunerated fairly. . AEM is recognised for good transparency with shareholders, while still being able to balance business requirements (e.g. respecting non-disclosure agreements). . AEM has several new products in the pipeline and it is engaging customers for more. In our view, this is the key for economic sustainability, as well as for development of its own employees.

Material E issues Key G metrics and issues

. AEM’s environmental exposure is through energy, water . The board has seven directors, of which one is the and inputs (fabricated parts and electronics). executive chairman, four are independent directors . AEM adheres to all National Environment Agency laws and (57%), and two are non-independent, non-executive. regulations and has not had incidences of environmental All the directors are male. non-compliance over the past 10 years. . The audit & risk management, remuneration, and . Further, AEM’s constant energy-saving initiatives have nominating committees are chaired by independent resulted in energy consumption rising by only 7.5% (in directors. The strategy committee, which works with kWh) in 2019 despite a 23% increase in revenue. management on long-term strategic planning, is . AEM screens suppliers for negative environmental and chaired by the executive chairman. social impacts, including pollutions, biodiversity loss, . Executive chairman Mr. Loke Wai San plans to return to global warming, incidences of child labour, breaches of a non-executive chairman role from 1 Jan-21. customer privacy, and more. All eight key fabrication . Key management compensation (comprising the Board suppliers and 23 key standard part suppliers were found to and senior management) accounted for 27% of staff have no negative environmental or social impacts. costs in 2019 (2018:17%). FY19 profit was 58% higher YoY. . In 2019, AEM won “Most Transparent Company Award,

Material S issues Technology” and was runner up for the “Singapore Corporate Governance Award” by SIAS. AEM regularly updates on its sales guidance and orders received and . AEM values talent retention. One approach is through it’s active in engaging with the investment community. wages. In Malaysia, where around a-third of production . Zero substantiated cases of corruption or legal takes place, AEM’s entry wage for production workers have compliance issues in 2019, to be maintained in 2020. been higher than the minimum wage at least since 2017, . AEM was granted two patents in 2019, and the staff to retain employees. Entry wages are also higher than involved were rewarded. AEM views its considerable minimum wages in the US and China. engineering development revenue as a positive sign of . Workforce diversity. AEM is an equal-opportunities customer satisfaction and relationship. employer. Management are hired from local communities and consists of various nationalities. 86% of management are local across AEM’s footprint globally. . Workplace safety. AEM trains its employees on health and safety work practices. In 2018, there was 1 minor injury. . In 2019, average training per employee was 15.7 hours, or 7,590 hours in total, to equip staff with skills across technical, project management and domains. . Females comprise 22-23% of the total work force, and 19- 23% of new hires since 2017. . Turnover rate per month ranged from 1.1-2.1% in FY17-19. 2020 target is to maintain turnover rate at below 1.5% a month.

November 21, 2020 25

AEM Holdings

FYE 31 Dec FY18A FY19A FY20E FY21E FY22E Key Metrics P/E (reported) (x) 9.2 6.2 9.8 9.0 8.4 Core P/E (x) 6.7 10.3 9.8 9.0 8.4 Core FD P/E (x) 6.7 10.4 9.8 9.0 8.4 P/BV (x) 2.5 4.1 4.4 3.2 2.5 P/NTA (x) 2.5 4.1 4.4 3.2 2.5 Net dividend yield (%) 4.1 2.5 2.5 2.8 3.0 FCF yield (%) 12.2 11.1 7.3 12.9 10.6 EV/EBITDA (x) 4.0 6.3 6.4 5.2 4.4 EV/EBIT (x) 4.1 6.9 6.9 5.6 4.7

INCOME STATEMENT (SGD m) Revenue 262.3 323.1 512.3 517.3 545.4 Gross profit 89.1 130.8 202.9 210.5 224.7 EBITDA 41.9 69.5 115.7 125.7 134.4 Depreciation (1.9) (4.4) (4.8) (4.8) (4.6) Amortisation 0.0 (1.5) (3.6) (3.6) (3.6) EBIT 40.0 63.6 107.3 117.3 126.2 Net interest income /(exp) (0.0) (0.2) 0.8 0.8 0.8 Associates & JV (0.0) 0.5 1.0 1.0 1.0 Exceptionals 0.0 0.0 0.0 0.0 0.0 Other pretax income 0.0 0.0 0.0 0.0 0.0 Pretax profit 40.0 63.9 109.1 119.1 128.0 Income tax (6.5) (11.0) (18.5) (20.3) (21.8) Minorities 0.0 0.0 0.0 0.0 0.0 Discontinued operations 0.0 0.0 0.0 0.0 0.0 Reported net profit 33.5 52.9 90.6 98.9 106.2 Core net profit 33.5 52.9 90.6 98.9 106.2

BALANCE SHEET (SGD m) Cash & Short Term Investments 58.8 107.7 146.7 233.2 297.2 Accounts receivable 21.7 28.0 53.4 42.9 52.7 Inventory 28.2 57.5 79.9 63.0 86.4 Property, Plant & Equip (net) 5.7 6.4 6.6 5.9 5.3 Intangible assets 16.8 19.0 19.0 19.0 19.0 Investment in Associates & JVs 4.2 4.6 5.6 6.6 7.6 Other assets 0.2 4.9 4.9 4.9 4.9 Total assets 135.5 228.0 316.0 375.4 473.0 ST interest bearing debt 0.2 0.0 0.0 0.0 0.0 Accounts payable 36.6 73.1 99.8 85.1 103.0 LT interest bearing debt 0.0 0.0 0.0 0.0 0.0 Other liabilities 9.0 20.0 14.0 14.0 14.0 Total Liabilities 46.0 93.6 113.8 99.0 116.9 Shareholders Equity 89.5 134.3 202.3 276.4 356.1 Minority Interest 0.0 0.0 0.0 0.0 0.0 Total shareholder equity 89.5 134.3 202.3 276.4 356.1 Total liabilities and equity 135.5 228.0 316.0 375.4 473.0

CASH FLOW (SGD m) Pretax profit 40.0 63.9 109.1 119.1 128.0 Depreciation & amortisation 1.9 5.9 8.4 8.4 8.2 Adj net interest (income)/exp 0.0 0.0 0.0 0.0 0.0 Change in working capital (6.2) 2.3 (27.7) 12.6 (15.2) Cash taxes paid (4.2) (5.8) (18.5) (20.3) (21.8) Other operating cash flow 0.0 0.0 0.0 0.0 0.0 Cash flow from operations 31.5 65.8 70.3 118.8 98.2 Capex (4.0) (5.1) (5.0) (4.0) (4.0) Free cash flow 27.5 60.7 65.3 114.8 94.2 Dividends paid (8.4) (10.5) (22.6) (24.7) (26.6) Equity raised / (purchased) 6.0 0.0 0.0 0.0 0.0 Change in Debt 0.3 (0.3) 0.0 0.0 0.0 Other invest/financing cash flow (1.7) (1.3) (3.6) (3.6) (3.6) Effect of exch rate changes (11.0) 0.2 0.0 0.0 0.0 Net cash flow 12.7 48.9 39.0 86.5 64.0

November 21, 2020 26

AEM Holdings

FYE 31 Dec FY18A FY19A FY20E FY21E FY22E Key Ratios Growth ratios (%) Revenue growth 18.4 23.2 58.6 1.0 5.4 EBITDA growth 11.3 65.8 66.4 8.6 6.9 EBIT growth 8.3 58.8 68.7 9.3 7.6 Pretax growth 8.5 59.9 70.7 9.2 7.5 Reported net profit growth 6.4 58.1 71.0 9.2 7.5 Core net profit growth 6.4 58.1 71.0 9.2 7.5

Profitability ratios (%) EBITDA margin 16.0 21.5 22.6 24.3 24.6 EBIT margin 15.3 19.7 20.9 22.7 23.1 Pretax profit margin 15.2 19.8 21.3 23.0 23.5 Payout ratio 27.6 26.0 25.0 25.0 25.0

DuPont analysis Net profit margin (%) 12.8 16.4 17.7 19.1 19.5 Revenue/Assets (x) 1.9 1.4 1.6 1.4 1.2 Assets/Equity (x) 1.5 1.7 1.6 1.4 1.3 ROAE (%) 45.5 47.3 53.8 41.3 33.6 ROAA (%) 26.6 29.1 33.3 28.6 25.0

Liquidity & Efficiency Cash conversion cycle 5.2 5.2 7.9 8.9 9.9 Days receivable outstanding 31.0 27.7 28.6 33.5 31.6 Days inventory outstanding 66.5 80.2 79.9 83.8 83.8 Days payables outstanding 92.3 102.7 100.6 108.5 105.5 Dividend cover (x) 3.6 3.8 4.0 4.0 4.0 Current ratio (x) 2.4 2.2 2.6 3.6 3.9

Leverage & Expense Analysis Asset/Liability (x) 2.9 2.4 2.8 3.8 4.0 Net gearing (%) (incl perps) net cash net cash net cash net cash net cash Net gearing (%) (excl. perps) net cash net cash net cash net cash net cash Net interest cover (x) nm nm na na na Debt/EBITDA (x) 0.0 0.0 0.0 0.0 0.0 Capex/revenue (%) 1.5 1.6 1.0 0.8 0.7 Net debt/ (net cash) (58.5) (107.7) (146.7) (233.2) (297.2) Source: Company; Maybank

November 21, 2020 27

1.04

November 21, 2020

Frencken Group Ltd (FRKN SP) BUY Share Price SGD 1.04 Resilience and diversity 12m Price Target SGD 1.39 (+37%)

Previous Price Target SGD 1.39

BUY for margin expansion potential Company Description Frencken manufactures components and modules for We see Frencken as a proxy to growth trends in 5G/AI, health and various industries including semiconductor, life wellness and population aging through its blue-chip customers. In the sciences, automotive and industrial automation. short term, semiconductor equipment/analytical/automotive end- markets, which form around 70% of sales, should provide cyclical

resilience. Longer-term, we are excited by margin growth potential from Statistics deepening value-add with customers as Frencken launches a breadth of 52w high/low (SGD) 1.24/0.48 products in coming years. Maintain BUY with ROE-g/COE-g TP of SGD1.39 3m avg turnover (USDm) 3.2 (1.6x FY21E P/B). Free float (%) 59.8 Issued shares (m) 426 Market capitalisation SGD443.5M

Technology Deepening engagement with blue chip customers USD330M In its mechatronics segment (c.80% of revenues), Frencken’s market- Major shareholders: leading customers include ASML, Seagate, Thermo Fisher and Philips. GOOI FAMILY 9.4% Mechatronics products tend to be critical, have demanding Micro Compact Sdn. Bhd. 6.2%

requirements, and Frencken is usually the sole source. Frencken is Precico Holdings Sdn. Bhd. 6.1%

currently involved in a breadth of new products across semiconductor, Price Performance

analytical, medical and others slated for launch in coming years. As it 1.30 550 provides greater design value-add, we believe margin expansion 1.20 500 potential is currently underappreciated. 1.10 450

1.00 400 Singapore 0.90 350 Around 70% of revenue in upswing/ recovery 0.80 300 We forecast earnings growth of 21% in FY21E – which we see underpinned 0.70 250 0.60 200 by semiconductor equipment, analytical, and automotive end-markets, 0.50 150 which we estimate account for around 70% of revenues. These segments 0.40 100 are currently in various degrees of upswing/recovery. Balance sheet is 0.30 50 Nov-18 Feb-19 May-19 Aug-19 Nov-19 Feb-20 May-20 Aug-20 clean with net cash to equity of around 8%. Frencken Group - (LHS, SGD) Frencken Group / Straits Times Index - (RHS, %) Risks -1M -3M -12M The key risk to our view is prolonged economic uncertainties that may Absolute (%) 0 9 16 erode the resilience of Frencken’s diversified revenue streams. Frencken Relative to index (%) (10) (2) 33 indicated that the operating landscape remains challenging due to the Source: FactSet

negative effects of Covid-19.

FYE Dec (SGD m) FY18A FY19A FY20E FY21E FY22E Revenue 626 659 619 692 713 EBITDA 71 80 75 87 96 Core net profit 34 47 42 50 56 Core FDEPS (cts) 8.0 11.0 9.8 11.8 13.0 Core FDEPS growth(%) 46.3 36.2 (10.8) 20.8 10.4 Net DPS (cts) 2.1 3.0 2.9 3.6 3.9 Core FD P/E (x) 5.2 8.4 10.6 8.8 8.0 P/BV (x) 0.7 1.3 1.4 1.2 1.1 Net dividend yield (%) 5.1 3.2 2.8 3.4 3.8 ROAE (%) 11.7 15.1 13.5 14.7 14.7 ROAA (%) 7.7 9.6 8.2 9.1 9.4 EV/EBITDA (x) 2.5 4.0 4.8 3.8 3.5 Net gearing (%) (incl perps) 0.6 net cash net cash net cash net cash Consensus net profit - - 42 47 51 MKE vs. Consensus (%) - - (1.2) 6.2 8.7 ESG Tear Sheet Insert Gene Lih Lai, CFA [email protected] (65) 6231 5832

THIS REPORT HAS BEEN PREPARED BY MAYBANK KIM ENG RESEARCH SEE PAGE 73 FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS Frencken Group Ltd

Value Proposition Price Drivers

. Technology hardware manufacturer that specialises in Historical share price trend complex components. . High-mix, low-volume, high complexity for mechatronics SGD segment. 1.40 800 . Customers are sticky, given: i) decades-long working 1.20 700 600 1.00 4 relationships; ii) complementary competencies; and iii) 2 500 mutual dependency (sole-source for some critical 0.80 1 400 products). 0.60 300 1 . We expect Frencken to leverage its relationships with 0.40 200 customers to introduce products with greater value-add, 0.20 3 100

in turn driving margins further. 0.00 0

Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20 Oct-20

FRKN SP - Price FRKN SP/ FSSTI - (RHS) Diverse end markets with room for margin expansion Source: FactSet, Company, Maybank Kim Eng SGDm % 1000 10 1. 1Q17 core net profit doubled to SGD6.1m, driven by strength in semiconductor and analytical subdivisions. 500 5 2. General derating of the Singapore tech sector amid initial US-China tensions. 3. Reported FY18 core net profit of SGD34m (+47% YoY) on 0 0 strength from industrial automation. 2013 2014 2015 2016 2017 2018 2019 2020E 2021E 2022E 4. Reported 3Q19 core net profit of SGD31m (+35%) on Semiconductor Medical Analytical Industrial Automation strength from industrial automation and semiconductor. Others (Mechatronics) Automotive General tech sector rerating amid initial signs of global Consumer & industrial Others (IMS) Tooling Core net margin semiconductor recovery.

Source: Company

Financial Metrics Swing Factors

. Over the medium term, we expect earnings to be driven Upside by revenue growth and margin optimisation through new products and improving efficiencies. . Stronger-than-expected semiconductor and industrial . Net cash balance sheet and strong cash flow should automation contributions in FY20-21E. provide resilience amid economic uncertainties. . Robust margin accretion from new products and . Historically pays out 30% of earnings as dividends. We improving efficiencies. expect this trend to continue. . Improving institutional interest, which could help the stock rerate towards peers’ valuations. EPS, FCF per share and DPS SGD 0.25 Downside

0.20 . Erosion in revenue resilience due to on-going economic

0.15 weakness. . Supply chain disruptions that impede Frencken’s 0.10 production ability and revenue recognition. . Lower-than-expected dividend pay-out. 0.05

0.00 2013 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E Core EPS FCF per share DPS

Source: Company, Maybank Kim Eng

[email protected]

November 21, 2020 29

Frencken Group Ltd

ESG [email protected] Business Model & Industry Issues

. The nature of Frencken’s business in the electronics and automotive manufacturing supply chains exposes it to risks including environmental, workplace safety, and conflict of interest. Frencken has not faced any fines or non-monetary sanctions pertaining environmental nor socioeconomic laws and regulations in 2019. . From an environment perspective, Frencken’s Eco-PVD offering can be seen as a more environmentally friendly approach for automotive coating. While Frencken does not use recycled materials currently, it may do so in the future subject to customers’ requirements. . From a governance and socioeconomic perspective, Frencken is adopting industry best practices, including those set by customers, as these facilitate smooth business.

Material E issues Key G metrics and issues

. Environmental risks - Frencken’s production process . Board consists of six directors, of whom one is an involves non-renewable materials and waste generation. executive director (CEO), one is a non-executive, non- Non-compliance of rules and laws may severely impact the independent chairman, and four are independent environment of local communities. (67%). All directors are male. . In 2019, Frencken had zero fines and non-monetary . The nominating, audit and remuneration committees sanctions for non-compliance with environmental laws are chaired by independent directors. and/or regulations. . Chairman Mr. Gooi Soon Chai’s deemed stake in the . Areas for potential improvement include i) increased use company is c.22%. of recycled materials, contingent on customer approval; . Three independent directors have served more than ii) increased efficiency of water and electric usage. nine years from date of appointments. Frencken states . Opportunities - Frencken’s proprietary eco-PVD coating that their independence is not in any way affected by technology is more environmentally friendly than their length of service. traditional PVD methods. Frencken is optimistic of long- . Professional background of independent directors term prospects for this offering. includes law, accounting, consultancy and electronics engineering. . Key management/ directors’ compensation accounted for 3.6%/1.2% of total employee compensation in 2019. Material S issues (2018: 3.2%/ 1%) . Related-party transactions were immaterial (<1% of . Employee health and safety risks. Frencken benchmarks profit). its occupational safety and health practices against . Auditor is Deloitte & Touche LLP which was appointed industry best practices. E.g. the Bangi (Malaysia) plant is in 2014. in compliance with Agilent Supplier Environmental, Health . Former non-independent non-executive chairman Mr. and Safety and Social Responsibility guidelines. Larry Low resigned in 2016 and pared his stake from . No Covid-19 cases as at May-20. Employee safety remains 8.14% to 4.74% in 2018. Mr. Low is the father of fugitive of paramount importance for Frencken with proper Jho Low. However, this development has no impact to mitigation measures implemented. the governance nor operations of the company as . In 2019, Frencken’s injury rate was 0.078%. current management and board are independent of Mr. . Employees underwent an average of 8.9 hours of training Low. in 2019 across topics such as environmental management, . health and safety, HR, and quality management. . Male employees account for 70.9% of the workforce. Socioeconomic risks. To ensure smooth business operations, Frencken i) adheres to all applicable laws and regulations and ii) upholds strong ethical standards. This safeguards trust with stakeholders and avoids liability due to non-compliance.

November 21, 2020 30

Frencken Group Ltd

FYE 31 Dec FY18A FY19A FY20E FY21E FY22E Key Metrics P/E (reported) (x) 7.0 6.4 10.6 8.8 7.9 Core P/E (x) 5.2 8.4 10.6 8.8 7.9 Core FD P/E (x) 5.2 8.4 10.6 8.8 8.0 P/BV (x) 0.7 1.3 1.4 1.2 1.1 P/NTA (x) 0.7 1.3 1.4 1.2 1.1 Net dividend yield (%) 5.1 3.2 2.8 3.4 3.8 FCF yield (%) 2.8 22.4 6.6 8.7 4.0 EV/EBITDA (x) 2.5 4.0 4.8 3.8 3.5 EV/EBIT (x) 4.0 5.5 6.7 5.2 4.7

INCOME STATEMENT (SGD m) Revenue 625.8 659.2 619.0 691.9 713.0 Gross profit 101.7 111.4 103.9 119.4 125.8 EBITDA 71.4 80.5 75.2 87.4 95.6 Depreciation (26.4) (21.1) (21.2) (22.4) (23.9) Amortisation 0.0 0.0 0.0 0.0 0.0 EBIT 45.1 59.4 54.0 65.0 71.6 Net interest income /(exp) (1.0) (1.3) (0.9) (0.9) (0.9) Associates & JV 0.0 0.0 0.0 0.0 0.0 Exceptionals (3.9) (4.2) 0.0 0.0 0.0 Other pretax income 0.0 0.0 0.0 0.0 0.0 Pretax profit 40.2 53.9 53.1 64.1 70.7 Income tax (9.8) (11.3) (11.1) (13.5) (14.8) Minorities (0.3) (0.2) (0.2) (0.2) (0.2) Discontinued operations 0.0 0.0 0.0 0.0 0.0 Reported net profit 30.0 42.4 41.7 50.4 55.7 Core net profit 33.9 46.5 41.7 50.4 55.7

BALANCE SHEET (SGD m) Cash & Short Term Investments 67.1 122.4 138.8 162.1 162.9 Accounts receivable 115.9 97.6 102.5 113.6 120.8 Inventory 144.6 140.7 127.5 161.1 160.6 Property, Plant & Equip (net) 97.4 92.1 95.9 98.4 99.5 Intangible assets 19.7 17.5 17.5 17.5 17.5 Investment in Associates & JVs 0.0 0.0 0.0 0.0 0.0 Other assets 19.1 35.9 35.9 35.9 35.9 Total assets 463.7 506.2 518.1 588.7 597.2 ST interest bearing debt 67.5 53.1 53.1 53.1 53.1 Accounts payable 79.2 87.8 70.3 105.4 74.8 LT interest bearing debt 1.2 0.2 0.2 0.2 0.2 Other liabilities 48.0 67.0 67.0 67.0 67.0 Total Liabilities 196.2 208.0 190.5 225.7 195.0 Shareholders Equity 264.9 295.4 324.6 359.9 398.8 Minority Interest 2.6 2.8 3.0 3.2 3.4 Total shareholder equity 267.5 298.2 327.6 363.1 402.2 Total liabilities and equity 463.7 506.2 518.1 588.7 597.2

CASH FLOW (SGD m) Pretax profit 40.2 53.9 53.1 64.1 70.7 Depreciation & amortisation 26.4 21.1 21.2 22.4 23.9 Adj net interest (income)/exp 0.0 0.0 0.0 0.0 0.0 Change in working capital (28.3) 33.6 (9.2) (9.7) (37.3) Cash taxes paid (7.4) (9.4) (11.1) (13.5) (14.8) Other operating cash flow 3.9 4.2 0.0 0.0 0.0 Cash flow from operations 34.7 103.4 54.0 63.4 42.5 Capex (29.8) (15.8) (25.0) (25.0) (25.0) Free cash flow 4.9 87.5 29.0 38.4 17.5 Dividends paid (10.1) (9.1) (12.5) (15.1) (16.7) Equity raised / (purchased) 0.9 0.6 0.0 0.0 0.0 Change in Debt 5.1 (15.5) 0.0 0.0 0.0 Other invest/financing cash flow (1.1) 6.4 0.0 0.0 0.0 Effect of exch rate changes 0.0 0.0 0.0 0.0 0.0 Net cash flow (0.2) 69.9 16.4 23.3 0.8

November 21, 2020 31

Frencken Group Ltd

FYE 31 Dec FY18A FY19A FY20E FY21E FY22E Key Ratios Growth ratios (%) Revenue growth 21.5 5.3 (6.1) 11.8 3.0 EBITDA growth 16.5 12.6 (6.6) 16.3 9.3 EBIT growth 48.8 31.7 (9.0) 20.3 10.2 Pretax growth 0.2 34.2 (1.5) 20.7 10.4 Reported net profit growth (9.3) 41.1 (1.5) 20.8 10.4 Core net profit growth 47.7 37.1 (10.3) 20.8 10.4

Profitability ratios (%) EBITDA margin 11.4 12.2 12.1 12.6 13.4 EBIT margin 7.2 9.0 8.7 9.4 10.0 Pretax profit margin 6.4 8.2 8.6 9.3 9.9 Payout ratio 29.9 30.0 30.0 30.0 30.0

DuPont analysis Net profit margin (%) 4.8 6.4 6.7 7.3 7.8 Revenue/Assets (x) 1.3 1.3 1.2 1.2 1.2 Assets/Equity (x) 1.8 1.7 1.6 1.6 1.5 ROAE (%) 11.7 15.1 13.5 14.7 14.7 ROAA (%) 7.7 9.6 8.2 9.1 9.4

Liquidity & Efficiency Cash conversion cycle 101.9 97.2 96.7 91.7 102.6 Days receivable outstanding 62.2 58.3 58.2 56.2 59.2 Days inventory outstanding 88.2 93.8 93.7 90.7 98.6 Days payables outstanding 48.5 54.9 55.2 55.2 55.2 Dividend cover (x) 3.3 3.3 3.3 3.3 3.3 Current ratio (x) 1.8 2.0 2.2 2.2 2.6

Leverage & Expense Analysis Asset/Liability (x) 2.4 2.4 2.7 2.6 3.1 Net gearing (%) (incl perps) 0.6 net cash net cash net cash net cash Net gearing (%) (excl. perps) 0.6 net cash net cash net cash net cash Net interest cover (x) 45.2 45.9 59.7 71.8 79.1 Debt/EBITDA (x) 1.0 0.7 0.7 0.6 0.6 Capex/revenue (%) 4.8 2.4 4.0 3.6 3.5 Net debt/ (net cash) 1.6 (69.2) (85.6) (108.9) (109.7) Source: Company; Maybank

November 21, 2020 32

1.01

November 21, 2020

UMS Holdings (UMSH SP) BUY Share Price SGD 1.01 The upswing continues 12m Price Target SGD 1.41 (+43%)

Previous Price Target SGD 1.41

Proxy to global semi cap upcycle; BUY Company Description UMS manufactures high precision components and We see UMS as a proxy to the global semiconductor equipment spending modules found in front-end semiconductor equipment upswing through its key customer Applied Materials (AMAT). AMAT is upbeat about its FY21E prospects, as chipmakers continue to forge ahead with their technology roadmaps. Maintain BUY with ROE-g/COE-g TP of

SGD1.41 (2.4x FY21E P/B). Statistics 52w high/low (SGD) 1.18/0.57 AI: A “trillion-dollar inflection” 3m avg turnover (USDm) 3.8 Free float (%) 69.2 UMS has been supplying to AMAT since 1999. Around half of its Issued shares (m) 536 semiconductor revenue is composed of the wafer transfer modules for Market capitalisation SGD541.8M Technology Endura, the most widely used deposition platform globally, while the USD403M other half are components for AMAT’s other semiconductor platforms. As Major shareholders: such, we see UMS as a good proxy to the global fab equipment spending LUONG ANDY 20.7% cycle. AMAT is optimistic of its FY21 prospects on the back of sustained UMS Holdings Bhd. 6.8%

logic-foundry spending and the recovery of memory spending. AMAT Dimensional Fund Advisors LP 0.7%

views AI as a “trillion-dollar” inflection that it is well positioned to Price Performance

capitalise, given its core expertise in materials engineering. 1.20 360

1.10 320 Upswing continues in FY21 1.00 280 Singapore We expect FY20-21 EPS growth of 46%/25% respectively, on the back of 0.90 240 the upcycle in semiconductor equipment spending. UMS is conserving 0.80 200 cash to capture near-term growth opportunities – which may require capacity expansion if such opportunities materialise. This could be in the 0.70 160 form of a new customer, which we believe provides growth and 0.60 120 diversification in the long-run, if it pans out. 0.50 80 Nov-18 Feb-19 May-19 Aug-19 Nov-19 Feb-20 May-20 Aug-20

Risks UMS Holdings - (LHS, SGD) UMS Holdings / Straits Times Index - (RHS, %) Key risks to our forecasts include: i) unexpectedly strong inventory -1M -3M -12M adjustment cycle, which may temper the pace of global semiconductor Absolute (%) 0 1 10 equipment spending; ii) our own overestimation of the duration and Relative to index (%) (10) (9) 27 quantum of the current earnings upcycle; and iii) continued/intensifying Source: FactSet

US-China technology tensions that may incrementally impact US semiconductor equipment exports to Chinese chipmakers.

FYE Dec (SGD m) FY18A FY19A FY20E FY21E FY22A Revenue 128 132 168 189 207 EBITDA 51 40 58 74 78 Core net profit 43 34 49 61 65 Core EPS (cts) 8.0 6.3 9.1 11.4 12.2 Core EPS growth (%) (16.2) (22.1) 46.0 24.5 7.2 Net DPS (cts) 4.5 4.0 4.0 3.0 3.0 Core P/E (x) 7.1 16.5 11.1 8.9 8.3 P/BV (x) 1.3 2.3 2.0 1.7 1.5 Net dividend yield (%) 7.9 3.9 4.0 3.0 3.0 ROAE (%) 19.4 13.8 19.0 20.7 19.1 ROAA (%) 16.1 11.9 15.9 17.5 16.5 EV/EBITDA (x) 6.1 13.2 8.8 6.3 5.6 Net gearing (%) (incl perps) 2.7 net cash net cash net cash net cash Consensus net profit - - 47 52 - MKE vs. Consensus (%) - - 3.6 15.8 - ESG Tear Sheet Insert Gene Lih Lai, CFA [email protected] (65) 6231 5832

THIS REPORT HAS BEEN PREPARED BY MAYBANK KIM ENG RESEARCH SEE PAGE 73 FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS UMS Holdings

Value Proposition Price Drivers

. Precision metals engineering firm – specialises in Historical share price trend

assembling modules and precision engineering for SGD components for front-end semiconductor equipment. 1.60 350 1.40 . Has entrenched relationship with key customer Applied 300 1.20 5 250 Materials, which in turn has an estimated 19% of WFE 1.00 200 market share in 2018. 0.80 150 . Through associate JEP, UMS is expanding precision metals 0.60 2 100 engineering to non-semiconductor sectors such as 0.40 3 4 aerospace, which sees tailwinds from outsourcing trends. 0.20 1 50 1

0.00 0

Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20 Jan-16 UMS Du Pont ROE

% x UMSH SP - Price UMSH SP/ FSSTI - (RHS) 40 1.40 35 1.20 Source: Company, Maybank Kim Eng 30 1.00 25 0.80 20 0.60 15 10 0.40 1. Endura contract renewed for three years (2020 expiry) 5 17.8 11.8 25.7 19.4 14.2 19.0 20.7 19.1 0.20 2. Insider purchases from CEO Andy Luong and financial 0 0.00 controller Stanley Loh. 2015 2016 2017 2018 2019E 2020E 2021E 2022E 3. 1Q18 revenue fell 11% YoY following six consecutive ROE Net margin quarters of YoY increases. Asset Turnover (RHS) Leverage ratio (RHS) 4. AMAT spots optimistic tone for FY20 while UMS affirms it is seeing stable order volumes from AMAT.

Source: Company, Maybank Kim Eng 5. AMAT, alongside peers, reaffirm positive FY20 expectations; UMS highlights semiconductor market has bottomed.

Financial Metrics Swing Factors

. PATMI growth of 45% in FY20E, driven by sustained Upside investments from logic and foundry end-customers, and recovery from memory end-customers. . Earlier-than-expected recovery in investments from . UMS has a strong track record of maintaining a net cash memory semiconductor players. balance sheet to tide through cycles. . Better-than-expected contributions from Kalf . We forecast capex to be near depreciation levels. FCF and Engineering, Starke and JEP. balance sheet are expected to support dividends over . Better-than-expected cost control, which in turn forecast period. supports margins.

EPS, FCF per share and DPS Downside SGD 0.14 . Further deterioration in US-China trade relations 0.12 resulting in delayed semiconductor equipment spending. 0.10 . Weaker-than-expected margins due to negative operating leverage if volume falls. 0.08 . Lower-than-expected dividends may spook yield 0.06 investors. UMS has a quarterly dividend policy and a track 0.04 record of strong cash flow generation. 0.02 0.00 2015 2016 2017 2018 2019 2020E 2021E 2022E EPS FCF per share DPS

Source: Company, Maybank Kim Eng

[email protected]

November 21, 2020 34

UMS Holdings

ESG [email protected] Business Model & Industry Issues

. Based on stakeholders’ feedback, governance, economic performance, product compliance and customer privacy and satisfaction are the most important factors to both UMS and stakeholders. Waste management, water conservation and energy efficiency are among factors that are less material. . Risks exposure include: i) socioeconomic: employees’ wellbeing and equal opportunities; ii) governance: conflicts of interest; and iii) environmental: fines for non-compliance of environmental laws and regulations. . In 2019, UMS did not incur any significant fines related to environmental laws, and there were no reported incidences of discrimination, whistleblowing, bribery or corruption. . Human capital is a key input in driving UMS’ capabilities vs. competitors. UMS believes in talent management to nurture employees, provide equal opportunities, and recognise and reward achievements to boost retention.

Material E issues Key G metrics and issues

. UMS’ environmental exposure is through energy, water . The board has five directors, of which one is the and inputs. In 2019, UMS did not incur any significant fines founder, executive chairman and CEO (Andy Luong), for non-compliance with environmental laws and and three are independent, non-executive (60%). One regulations. is an executive director who is also UMS’ financial . For its manufacturing process, UMS’ target for energy controller (Stanley Loh). intensity is ≤0.13 KWH/revenue. In 2019, UMS’ . The audit, nominating, and remuneration committees performance was 0.178. are chaired by independent directors. . UMS has taken steps to control water flow in its special . Workshops on business ethics, anti-bribery compliance process lines, and have switched to NEWater from PUB and enterprise risk management are held to educate water. It has a water intensity target of ≤0.0012 employees on good corporate governance. Guidance is m3/revenue. In 2019, UMS’ performance was 0.0014. also provided for common ethical issues such as . Hazardous waste largely consists of chemicals and oily conflicts of interest and confidential information. water removed from production processes. These are . In 2019, UMS did not receive any whistleblowing report disposed of in compliance with regulations. Where regarding the company, and there were no cases of possible, all retrieved metal chip and scraps, as well as bribery or corruption. packaging are recycled. . In 2019, key management personnel accounted for . Most delivery trucks are incompliance with EURO V nearly a-third of employee benefits expense. standard. . In 2012, UMS adopted a policy to declare dividends every quarter. The form and frequency depends on UMS’ economic performance and financial position, as well as current and future needs. Material S issues . In 2019, there were related-party transactions involving Sure Achieve Consultant, of which the wife of . UMS’ workforce is 522 strong across Singapore and Mr Luong is a director. There were also transactions Malaysia as at end-2019. UMS is an equal-opportunity with Kalf Engineering in which Mr Luong and Mr Loh employer and values talent retention. Outstanding have an interest. All transactions were based on employees are rewarded for achievements. normal commercial terms and are not prejudicial to . UMS adopts a localisation strategy for overseas operations UMS and minority shareholders. to ensure on-the-ground teams have a good grasp of local socio-political and cultural sensitivities. In 2019, locals accounted for 44% of employees based in Malaysia and 90% of managerial positions. 26% of managerial employees are female. . In 2019, there were no reports of discrimination or exploitative labour practices.

November 21, 2020 35

UMS Holdings

FYE 31 Dec FY18A FY19A FY20E FY21E FY22A Key Metrics P/E (reported) (x) 11.0 11.6 11.1 8.9 8.3 Core P/E (x) 7.1 16.5 11.1 8.9 8.3 P/BV (x) 1.3 2.3 2.0 1.7 1.5 P/NTA (x) 1.3 2.3 2.0 1.7 1.5 Net dividend yield (%) 7.9 3.9 4.0 3.0 3.0 FCF yield (%) 3.7 8.8 5.0 11.2 7.9 EV/EBITDA (x) 6.1 13.2 8.8 6.3 5.6 EV/EBIT (x) 6.9 15.9 10.1 7.1 6.3

INCOME STATEMENT (SGD m) Revenue 127.9 131.9 168.5 189.4 207.4 Gross profit 77.0 69.8 90.5 106.1 112.0 EBITDA 51.1 40.4 58.4 74.3 78.4 Depreciation (5.7) (6.9) (7.6) (8.1) (8.3) Amortisation 0.0 0.0 0.0 0.0 0.0 EBIT 45.4 33.5 50.8 66.2 70.0 Net interest income /(exp) (0.4) (0.6) (0.2) (0.2) (0.2) Associates & JV 0.5 2.6 2.0 1.0 2.0 Exceptionals 0.0 (1.0) 0.0 0.0 0.0 Other pretax income 0.0 0.0 0.0 0.0 0.0 Pretax profit 45.5 34.5 52.6 67.0 71.8 Income tax (2.9) (2.2) (4.2) (6.7) (7.2) Minorities 0.4 0.3 0.3 0.3 0.3 Discontinued operations 0.0 0.0 0.0 0.0 0.0 Reported net profit 43.1 32.6 48.7 60.6 65.0 Core net profit 43.1 33.6 48.7 60.6 65.0

BALANCE SHEET (SGD m) Cash & Short Term Investments 18.9 34.4 43.7 87.7 114.2 Accounts receivable 15.1 22.1 33.3 32.1 37.2 Inventory 70.4 51.7 63.6 68.8 88.0 Property, Plant & Equip (net) 53.4 52.3 54.7 51.6 48.2 Intangible assets 82.2 81.2 81.2 81.2 81.2 Investment in Associates & JVs 29.5 39.4 41.4 42.4 44.4 Other assets 5.4 6.1 6.1 6.1 6.1 Total assets 275.0 287.2 324.0 369.8 419.5 ST interest bearing debt 21.7 9.3 13.0 13.0 13.0 Accounts payable 14.1 18.8 26.5 28.3 29.2 LT interest bearing debt 3.4 3.6 3.6 3.4 3.4 Other liabilities 5.0 11.0 9.0 9.0 9.0 Total Liabilities 44.6 42.3 52.1 53.6 54.6 Shareholders Equity 228.6 243.3 270.7 315.3 364.3 Minority Interest 1.9 1.6 1.3 0.9 0.6 Total shareholder equity 230.5 244.9 271.9 316.2 364.9 Total liabilities and equity 275.0 287.2 324.0 369.8 419.5

CASH FLOW (SGD m) Pretax profit 45.5 34.5 52.6 67.0 71.8 Depreciation & amortisation 5.7 6.9 7.6 8.1 8.3 Adj net interest (income)/exp 0.0 0.0 0.0 0.0 0.0 Change in working capital (16.5) 18.1 (17.0) (2.2) (23.4) Cash taxes paid (2.6) (2.3) (4.2) (6.7) (7.2) Other operating cash flow 0.0 0.0 0.0 0.0 0.0 Cash flow from operations 31.5 54.5 37.0 65.2 47.6 Capex (20.3) (5.8) (10.0) (5.0) (5.0) Free cash flow 11.3 48.7 27.0 60.2 42.6 Dividends paid (29.5) (18.8) (21.3) (16.0) (16.0) Equity raised / (purchased) 0.0 0.0 0.0 0.0 0.0 Change in Debt 3.0 (12.2) 3.7 (0.2) 0.0 Other invest/financing cash flow (26.1) (3.3) 0.0 0.0 0.0 Effect of exch rate changes 0.7 (0.0) 0.0 0.0 0.0 Net cash flow (40.6) 14.4 9.3 44.0 26.6

November 21, 2020 36

UMS Holdings

FYE 31 Dec FY18A FY19A FY20E FY21E FY22A Key Ratios Growth ratios (%) Revenue growth (21.3) 3.1 27.7 12.5 9.5 EBITDA growth (14.3) (20.9) 44.6 27.2 5.5 EBIT growth (17.9) (26.2) 51.5 30.4 5.8 Pretax growth (17.6) (24.3) 52.6 27.4 7.2 Reported net profit growth (16.2) (24.4) 49.6 24.5 7.2 Core net profit growth (16.2) (22.1) 45.2 24.5 7.2

Profitability ratios (%) EBITDA margin 39.9 30.6 34.7 39.2 37.8 EBIT margin 35.5 25.4 30.1 34.9 33.8 Pretax profit margin 35.6 26.1 31.2 35.4 34.6 Payout ratio 56.0 65.9 43.8 26.4 24.6

DuPont analysis Net profit margin (%) 33.7 24.7 28.9 32.0 31.3 Revenue/Assets (x) 0.5 0.5 0.5 0.5 0.5 Assets/Equity (x) 1.2 1.2 1.2 1.2 1.2 ROAE (%) 19.4 13.8 19.0 20.7 19.1 ROAA (%) 16.1 11.9 15.9 17.5 16.5

Liquidity & Efficiency Cash conversion cycle 364.9 309.7 220.9 229.8 247.6 Days receivable outstanding 54.3 50.8 59.2 62.1 60.2 Days inventory outstanding 424.4 354.3 266.3 286.0 295.9 Days payables outstanding 113.8 95.3 104.5 118.4 108.5 Dividend cover (x) 1.8 1.5 2.3 3.8 4.1 Current ratio (x) 2.7 3.3 3.3 4.3 5.3

Leverage & Expense Analysis Asset/Liability (x) 6.2 6.8 6.2 6.9 7.7 Net gearing (%) (incl perps) 2.7 net cash net cash net cash net cash Net gearing (%) (excl. perps) 2.7 net cash net cash net cash net cash Net interest cover (x) 113.2 52.9 nm nm nm Debt/EBITDA (x) 0.5 0.3 0.3 0.2 0.2 Capex/revenue (%) 15.8 4.4 5.9 2.6 2.4 Net debt/ (net cash) 6.2 (21.4) (27.1) (71.3) (97.8) Source: Company; Maybank

November 21, 2020 37

0.58

November 21, 2020

Valuetronics (VALUE SP) HOLD Share Price SGD 0.58 Waiting mode 12m Price Target SGD 0.58 (+4%)

Previous Price Target SGD 0.58

Earnings recovery delayed: HOLD, prefer VMS Company Description Valuetronics is a HK based electronics manufacturing Plans by certain customers to switch US allocations to other supplies in services provider with two facilities in China. North America/ ASEAN have been delayed due to Covid-19. This has in turn postponed VALUE’s earnings recovery – a key rerating catalyst, in our view. Maintain HOLD and TP of SGD 0.58 as we see the stock is fairly

valued in the next 12 months. We prefer Venture (VMS SP, BUY, TP Statistics SGD23.27) as we believe it is at the cusp of an earnings upgrade cycle. 52w high/low (SGD) 0.85/0.46 3m avg turnover (USDm) 0.5 Customers switching over to be fully felt in FY22E Free float (%) 70.7 Disruptions caused by Covid-19 have delayed automotive and PCBA Issued shares (m) 436 customers’ plans to switch US allocations to other suppliers from VALUE Market capitalisation SGD252.7M Technology from 1HFY21 to 2HFY21. As such, the full effect of the allocation losses USD188M would not be felt until FY22E, which will in turn delay earnings recovery. Major shareholders: In our view, visible signs of earnings recovery is a key rerating catalyst, TSE CHONG HING 17.5% CHOW KOK KIT 7.4% as these are indicators that present headwinds have passed. VALUE HSBC Global Asset Management (Hong Kong) 5.0% expects prospects beyond FY21 to be highly uncertain, due to Covid-19 Price Performance and US-China trade tensions. Vietnam is a long-term growth driver 0.85 165 0.80 155

We forecast earnings to bottom in FY22E before growth resumes in 0.75 145

Singapore FY23E. We expect construction of the Vietnam plant to be completed in 0.70 135

CY22. VALUE sees this plant as a long-term growth driver. VALUE has been 0.65 125 expeditiously expanding its Vietnam capacity to cater to the needs of 0.60 115 customers who want to diversify production to Vietnam from China. 0.55 105 However, we believe the slope of VALUE’s recovery will be uncertain, as 0.50 95 this depends on winning new customers to rebuild its revenue base, and 0.45 85 the profile of projects secured. Nov-18 Feb-19 May-19 Aug-19 Nov-19 Feb-20 May-20 Aug-20 Valuation and risks Valuetronics - (LHS, SGD) Valuetronics / Straits Times Index - (RHS, %) We believe the stock is fairly valued in the next 12 months based on its -1M -3M -12M earnings trajectory. We applied 10x blended FY21-22E P/E to VALUE, or Absolute (%) 0 1 (25) nearly 0.5 SD above its 5-year mean. We believe this is appropriate as Relative to index (%) (10) (9) (14) risks of further allocation losses are a lot lower than three years ago Source: FactSet

when the US-China trade war first began. Yet, this is at a discount vs peers like Venture (15x) and Hi-P (12x), which have either gained or maintained allocations. Key risk to our earnings is further allocation loss if currently undecided customers choose to switch away from VALUE. FYE Mar (HKD m) FY19A FY20A FY21E FY22E FY23E Revenue 2,829 2,354 1,996 1,839 1,952 EBITDA 284 251 223 213 234 Core net profit 213 179 159 130 139 Core FDEPS (HKD) 0.49 0.41 0.36 0.30 0.32 Core FDEPS growth(%) 3.1 (16.1) (11.5) (17.7) 6.8 Net DPS (HKD) 0.25 0.20 0.15 0.12 0.16 Core FD P/E (x) 8.0 6.7 9.2 11.2 10.5 P/BV (x) 1.5 1.0 1.1 1.0 1.0 Net dividend yield (%) 6.3 7.2 4.5 3.6 4.8 ROAE (%) 18.0 15.0 12.4 9.6 9.7 ROAA (%) 10.7 8.9 7.9 6.4 6.5 EV/EBITDA (x) 2.7 0.5 2.1 1.8 1.7 Net gearing (%) (incl perps) net cash net cash net cash net cash net cash ESG Consensus net profit - - 159 130 134 Tear Sheet Insert MKE vs. Consensus (%) - - (0.6) 0.0 4.2

Gene Lih Lai, CFA [email protected] (65) 6231 5832

THIS REPORT HAS BEEN PREPARED BY MAYBANK KIM ENG RESEARCH SEE PAGE 73 FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS Valuetronics

Value Proposition Price Drivers

. An EMS company that manufactures products such as IOT Historical share price trend bulbs and in-car connectivity modules, which are in the early part of their product life cycles. SGD 1.20 400 3 350 . For certain high-mix, low-volume projects, VALUE receives 1.00 300 lump-sum pricing, which tend to have better margins. 0.80 250 1 High-mix products make up half of revenues. 0.60 200 150 0.40 4 . Strengths are design-for-manufacturing and flexibility in 100 0.20 2 5 1 adapting to timing and production needs of customers. 50

0.00 0

Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20 . Consistently delivered double-digit ROEs. Jan-15

VALUE SP - Price VALUE SP/ FSSTI - (RHS) Decade-long double-digit ROEs Source: Company, Maybank Kim Eng, FactSet % x 40 2.5 35 2.0 30 1. IOT lighting began contributing to revenue. 25 1.5 20 2. Net profit increased 70% YoY in 3QFY17 due to IOT 1.0 15 lighting demand and operating leverage. 10 0.5 5 35 17 17 29 25 14 22 19 14 17 20 18 15 12 10 10 3. Automotive contracts powered fourth consecutive

0 0.0

FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E FY08 quarter of growth in ICE. 4. Surprise quarterly earnings miss by key lighting customer. ROE Net margin 5. Sell-off due to Covid-19 outbreak in China. Asset Turnover (RHS) Leverage ratio (RHS)

Source: Company, Maybank Kim Eng

Financial Metrics Swing Factors

. We expect uncertainties due to Covid-19 to result in Upside demand softness in end markets in FY21E, causing earnings decline. . Higher-than-expected growth of IOT bulbs and in-car . Acquired SMT machines in 1HFY18 to cater to new and connectivity modules. existing customers. . New customer acquisitions in ICE. . No debts and has cash of HKD1.1b as of FY20 to support . Operating leverage from increased production. dividends, Vietnam expansion and M&A.

EPS, FCF per share, DPS Downside

HKDcts 100 . Weaker-than-expected end-demand for products that are industry specific or are customers of VALUE. Adverse 80 economic factors would also be negative for VALUE. 60 . Cost increases for labour and materials. . Unforeseen pricing erosion for key products. 40

20

0 2013 2014 2015 2016 2017 2018 2019 2020 2021E2022E2023E -20

Core EPS FCF per share DPS

Source: Company, Maybank Kim Eng

[email protected]

November 21, 2020 39

Valuetronics

ESG [email protected] Business Model & Industry Issues

. In the electronics supply chain VALUE is exposed to risks including corruption and conflicts of interests, workplace safety and fair employment, and environmental issues. . In FY20, VALUE continued to comply with applicable environmental rules and regulations, anti-competitive behaviour laws, and requirements on health and safety. There were no significant fines or non-monetary sanctions for non-compliance with these policies. There were also no reported incidents of corruption. . VALUE’s top 100 suppliers are assessed annually on compliance with relevant environmental laws and regulations. The top 100 suppliers are also required to comply with VALUE’s strict no-child-labour policy.

Material E issues Key G metrics and issues

. VALUE has achieved ISO 14000 accreditation for . VALUE’s board consists of five directors, of which two environmental management since 2008 for its China are executives and the remaining three are non- operation. ISO 14000 is based on a plan-do-check-act executives and independent (60%). methodology to support environmental protection, . The audit, nominating and remunerating committees preventing pollution, minimising waste, and reducing are chaired by independent directors. energy and material use. . Key management compensation accounted for 16% of . For its leased factory in Vietnam, VALUE intends to obtain total employee compensation in FY20 (FY19: 17%). accreditation by 2021. . VALUE does not tolerate corruption in any form. All . Recyclable waste is processed by qualified third-party staff, apart from production-line workers, must sign an recycling firms. anti-corruption declaration upon joining the company. . VALUE encourages suppliers to be accredited with ISO VALUE has dedicated whistleblowing hotlines and any 14000. VALUE assesses its top 100 suppliers annually on report is immediately escalated to senior management. environmental compliance. Most comply with There were no reported incidents of corruption in environmental laws and regulations FY20. . VALUE complied with anti-competitive behaviour laws in FY20, and also has procedures in place to avoid conflicts of interest. VALUE also has measures to protect confidential information for both internal and Material S issues external stakeholders. . Policies on whistleblowing and anti-corruption are . VALUE is an equal-opportunities employer. In FY20, there regularly reviewed to ensure they are effective. was no reported incident of discrimination. . Worker distribution by gender is 42% male and 58% female. . VALUE has a strict no-child-labour policy and it expects the same from its suppliers. Its top 100 suppliers comply with this policy. . From an occupational health and safety perspective, there were no fatal industrial accidents in FY20. Employees are given regular training on on-job skills and workplace safety, and specialised training tailored to the individual’s career advancement. Average hours of training per employee were 18 hours in FY20.

November 21, 2020 40

Valuetronics

FYE 31 Mar FY19A FY20A FY21E FY22E FY23E Key Metrics P/E (reported) (x) 9.0 9.4 9.2 11.2 10.4 Core P/E (x) 8.0 6.7 9.2 11.2 10.4 Core FD P/E (x) 8.0 6.7 9.2 11.2 10.5 P/BV (x) 1.5 1.0 1.1 1.0 1.0 P/NTA (x) 1.5 1.0 1.1 1.0 1.0 Net dividend yield (%) 6.3 7.2 4.5 3.6 4.8 FCF yield (%) 22.6 24.7 nm 9.9 3.6 EV/EBITDA (x) 2.7 0.5 2.1 1.8 1.7 EV/EBIT (x) 3.2 0.6 2.6 2.6 2.5

INCOME STATEMENT (HKD m) Revenue 2,828.8 2,354.4 1,996.2 1,839.2 1,951.6 Gross profit 430.3 362.8 335.6 293.5 313.9 EBITDA 283.6 250.9 222.6 212.6 233.8 Depreciation (44.9) (51.2) (41.0) (62.5) (73.8) Amortisation (0.5) (2.7) (2.7) (2.7) (2.7) EBIT 238.3 197.0 179.0 147.4 157.4 Net interest income /(exp) (0.6) (0.8) (0.8) (0.8) (0.8) Associates & JV 0.0 0.0 0.0 0.0 0.0 Exceptionals (13.6) 0.0 0.0 0.0 0.0 Other pretax income 0.0 0.0 0.0 0.0 0.0 Pretax profit 224.1 196.2 178.2 146.6 156.6 Income tax (24.6) (17.3) (19.6) (16.1) (17.2) Minorities 0.0 0.0 0.0 0.0 0.0 Discontinued operations 0.0 0.0 0.0 0.0 0.0 Reported net profit 199.5 178.9 158.6 130.5 139.3 Core net profit 213.1 178.9 158.6 130.5 139.3

BALANCE SHEET (HKD m) Cash & Short Term Investments 930.4 1,091.7 987.1 1,076.4 1,055.9 Accounts receivable 436.8 326.4 329.9 264.7 376.9 Inventory 302.0 227.9 227.0 196.5 252.2 Property, Plant & Equip (net) 209.8 201.1 310.1 382.6 358.8 Intangible assets 17.2 0.0 0.0 0.0 0.0 Investment in Associates & JVs 0.0 0.0 0.0 0.0 0.0 Other assets 117.1 166.3 166.6 167.6 168.6 Total assets 2,013.4 2,013.5 2,020.7 2,087.8 2,212.5 ST interest bearing debt 0.0 0.0 0.0 0.0 0.0 Accounts payable 391.5 291.2 272.9 260.7 313.6 LT interest bearing debt 0.0 0.0 0.0 0.0 0.0 Other liabilities 463.0 491.0 423.0 424.0 426.0 Total Liabilities 854.1 781.9 695.8 684.6 739.5 Shareholders Equity 1,159.3 1,231.6 1,324.9 1,403.2 1,472.9 Minority Interest 0.0 0.0 0.0 0.0 0.0 Total shareholder equity 1,159.3 1,231.6 1,324.9 1,403.2 1,472.9 Total liabilities and equity 2,013.4 2,013.5 2,020.7 2,087.8 2,212.5

CASH FLOW (HKD m) Pretax profit 224.1 196.2 178.2 146.6 156.6 Depreciation & amortisation 45.4 53.9 43.6 65.2 76.5 Adj net interest (income)/exp 0.0 0.0 0.0 0.0 0.0 Change in working capital 173.7 109.0 (87.9) 83.5 (114.0) Cash taxes paid (13.0) (18.3) (19.6) (16.1) (17.2) Other operating cash flow 0.0 0.0 0.0 0.0 0.0 Cash flow from operations 430.1 340.8 114.3 279.2 101.8 Capex (45.1) (42.5) (150.0) (135.0) (50.0) Free cash flow 385.0 298.3 (35.7) 144.2 51.8 Dividends paid (108.3) (112.8) (65.3) (52.2) (69.6) Equity raised / (purchased) 0.2 0.2 0.0 0.0 0.0 Change in Debt 0.0 0.0 0.0 0.0 0.0 Other invest/financing cash flow (17.5) (63.0) 34.9 (2.7) (2.7) Effect of exch rate changes 0.0 0.0 0.0 0.0 0.0 Net cash flow 259.4 122.7 (66.0) 89.3 (20.5)

November 21, 2020 41

Valuetronics

FYE 31 Mar FY19A FY20A FY21E FY22E FY23E Key Ratios Growth ratios (%) Revenue growth (0.9) (16.8) (15.2) (7.9) 6.1 EBITDA growth 5.7 (11.5) (11.3) (4.5) 10.0 EBIT growth 3.4 (17.3) (9.1) (17.6) 6.7 Pretax growth (2.5) (12.4) (9.2) (17.7) 6.8 Reported net profit growth (2.6) (10.3) (11.4) (17.7) 6.8 Core net profit growth 4.1 (16.0) (11.4) (17.7) 6.8

Profitability ratios (%) EBITDA margin 10.0 10.7 11.2 11.6 12.0 EBIT margin 8.4 8.4 9.0 8.0 8.1 Pretax profit margin 7.9 8.3 8.9 8.0 8.0 Payout ratio 54.1 48.5 41.1 40.0 50.0

DuPont analysis Net profit margin (%) 7.1 7.6 7.9 7.1 7.1 Revenue/Assets (x) 1.4 1.2 1.0 0.9 0.9 Assets/Equity (x) 1.7 1.6 1.5 1.5 1.5 ROAE (%) 18.0 15.0 12.4 9.6 9.7 ROAA (%) 10.7 8.9 7.9 6.4 6.5

Liquidity & Efficiency Cash conversion cycle 50.9 44.5 47.3 45.4 45.4 Days receivable outstanding 64.9 58.3 59.2 58.2 59.2 Days inventory outstanding 51.6 47.9 49.3 49.3 49.3 Days payables outstanding 65.6 61.7 61.2 62.1 63.1 Dividend cover (x) 1.8 2.1 2.4 2.5 2.0 Current ratio (x) 2.0 2.2 2.3 2.3 2.3

Leverage & Expense Analysis Asset/Liability (x) 2.4 2.6 2.9 3.0 3.0 Net gearing (%) (incl perps) net cash net cash net cash net cash net cash Net gearing (%) (excl. perps) net cash net cash net cash net cash net cash Net interest cover (x) nm nm nm nm nm Debt/EBITDA (x) 0.0 0.0 0.0 0.0 0.0 Capex/revenue (%) 1.6 1.8 7.5 7.3 2.6 Net debt/ (net cash) (930.4) (1,091.7) (987.1) (1,076.4) (1,055.9) Source: Company; Maybank

November 21, 2020 42

19.06

November 21, 2020

Venture (VMS SP) BUY Share Price SGD 19.06 Earnings inflection 12m Price Target SGD 23.27 (+26%)

Previous Price Target SGD 23.27

Earnings momentum building in FY21; BUY Company Description Venture is an EMS and ODM provider with We believe recovering end-markets and customers’ buoyant mood manufacturing facilities in Singapore, Malaysia, and towards new products and pipeline create favourable conditions for an China. earnings upgrade cycle in FY21E as VMS launches new products across several domains. Potential upside drivers include stronger than expected

momentum and positive margin surprise from deepening engagement Statistics with customers, in our view. Maintain BUY with TP of SGD23.27 (18.5x 52w high/low (SGD) 21.10/12.52 FY21E P/E). 3m avg turnover (USDm) 17.1 Free float (%) 91.0 Earnings upgrade cycle from new products Issued shares (m) 291

We believe VMS is at the cusp of an earnings upgrade cycle as it expects Market capitalisation SGD5.5B Technology a breadth of new products to be released from its R&D labs into USD4.1B manufacturing across several fast growing domains throughout 2021. Major shareholders: WONG NGIT LIONG 7.0% End-markets are also recovering, and customers are broadly optimistic Schroder Investment Management (Singapor 4.9% about new products and pipeline, which we believe signals positive end- The Vanguard Group, Inc. 2.5% market receptivity. Current bright spots include the return of elective Price Performance surgeries, 5G deployment, increased focus on R&D to protect against future health threats, and government spending. 22.0 190 21.0 180 Areas of upside 20.0 170

19.0 160 Singapore We project EPS to grow 23% in FY21E, propelled by recovering end- 18.0 150 markets and the launch of new products. We see i) our own 17.0 140 underestimation of momentum and ii) room for margin upside as 16.0 130 15.0 120 potential upside drivers. In particular, we view that margins could 14.0 110 positively surprise because some of the products launched are in the 13.0 100 medical technology and life science domains, where VMS has a good 12.0 90 Nov-18 Feb-19 May-19 Aug-19 Nov-19 Feb-20 May-20 Aug-20 track record of delivering value add and has continually deepened relationships with customers. Venture - (LHS, SGD) Venture / Straits Times Index - (RHS, %) Valuation and risks -1M -3M -12M Absolute (%) (8) (7) 22 Our TP is based on 18.5x FY21E P/E, or 1.5 SD above 4-year mean. This Relative to index (%) (17) (16) 40 was where VMS traded during the 2H17-1H18 earnings upgrade cycle. Source: FactSet Key risks to our view include i) slower than expected recovery in end markets; ii) large customers’ M&As disrupting VMS’ sales to these customers; iii) unexpectedly strong recovery in industries worse affected by Covid-19 than VMS, thereby causing VMS’ valuations to mean revert.

FYE Dec (SGD m) FY18A FY19A FY20E FY21E FY22E Revenue 3,485 3,633 2,907 3,430 3,773 EBITDA 456 448 372 451 504 Core net profit 369 362 297 364 409 Core FDEPS (cts) 127.4 124.9 101.7 124.7 140.0 Core FDEPS growth(%) 1.4 (2.0) (18.6) 22.7 12.3 Net DPS (cts) 70.0 70.0 75.0 75.0 75.0 Core FD P/E (x) 10.9 13.0 18.7 15.3 13.6 P/BV (x) 1.7 1.9 2.1 2.0 1.9 Net dividend yield (%) 5.0 4.3 3.9 3.9 3.9 ROAE (%) 16.3 14.9 11.7 13.7 14.5 ROAA (%) 11.6 11.2 9.2 10.9 11.5 EV/EBITDA (x) 7.2 8.8 12.6 10.3 9.0 Net gearing (%) (incl perps) net cash net cash net cash net cash net cash ESG Consensus net profit - - 301 352 380 Tear Sheet Insert MKE vs. Consensus (%) - - (1.4) 3.4 7.4

Gene Lih Lai, CFA [email protected] (65) 6231 5832

THIS REPORT HAS BEEN PREPARED BY MAYBANK KIM ENG RESEARCH SEE PAGE 73 FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS Venture

Value Proposition Price Drivers

. VMS is an EMS company that has been consistently creating Historical share price trend value for its customers. Able to design complex industrial products and reduce time-to-market. SGD 4 35.00 400 . Facing pricing pressure and increased competition. 30.00 350 However, margins are still industry leading. 300 25.00 . Good diversification with >100 active customers, many of 2 250 20.00 them blue chips. 1 200 15.00 . Good exposure to test & measurement, and life-science 150 10.00 1 customers, still largely underpenetrated due to regulatory 5 100

requirements and high specs. 5.00 3 50

0.00 0

Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20 Oct-20 Jan-15 Industry-leading profitability and productivity

12 VMS SP - Price VMS SP/ FSSTI - (RHS)

Source: Company, FactSet, Maybank Kim Eng 10 Venture

8 1. Street raised TPs for the first time in two years following 6 strong 3Q/4Q16 earnings. 2. Strong 2Q17. Increasing market familiarity with the 4 Plexus potential of VMS emanating from Illumina and cloud / 5G Sanmina 2 network spending. Profitability (pretax margin Profitability %) Jabil Celestica Benchmark 3. CEO Wong Ngit Liong bought 400,000 shares at SGD15.26. Flex 0 (5,000) - 5,000 10,000 15,000 20,000 25,000 4. Strong 3Q17; management raised net-margin guidance. Productivity (USD profit per worker) 5. Short-seller report alleging weaker-than-expected Philip Source: Bloomberg, Companies Morris IQOS device growth would have knock-on effects on VMS.

Financial Metrics Swing Factors

. We are expecting earnings to decline 19% YoY in FY20 due Upside to supply and demand shocks as a result of Covid-19. . Operating margins should be steady from more products . Better-than-expected reception for high-growth with higher R&D content and cost control. products. . Net cash since 2008. Healthy FCF levels in FY20-22E could . Stronger US / global economy. provide dividend support. . Moderate USD strength as the revenue of VMS is entirely in USD. New level of profitability SGDm % 1,200 16 Downside 14 1,000 12 10 . M&A among customers, and acquisitions of customers by 800 8 competitors could disrupt orders. 6 600 4 . Excessive USD strength may erode customers’ 400 2 competitiveness. Excessive USD weakness may weaken its 0 SGD earnings. 200 -2 -4 . Holding more inventories at its major hubs due to higher

0 -6

3Q13 1Q14 3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 1Q18 3Q18 1Q19 3Q19 1Q20 1Q13 customer demand. This would tie up working capital.

Revenue Net margin (RHS)

Source: Company

[email protected]

November 21, 2020 44

Venture

ESG [email protected] Business Model & Industry Issues

. Venture’s business in electronics manufacturing exposes it to risks including labour (fair employment, labour exploitation), conflict of interest, and environmental within the organisation and along the supply chain. Venture has not faced any significant fines, non-monetary sanctions or reports regarding these key exposures in 2019. . Venture sees economic performance as a key material factor of sustainability. This is in turn driven by constant empowering of employees, pursuit for excellence with customers, and commitment towards environmental and social responsibility. . Venture is consistently recognised by suppliers for its solid execution, e.g. through awards. Venture also has policies in place such as ban on conflict minerals, anti-bribery and corruption, and whistle-blower protection.

Material E issues Key G metrics and issues

. Venture’s environmental exposure is mainly through . The board consist of eight directors, of which one is an power, water and materials. Venture has had zero executive chairman and CEO (Founder, Mr. Wong Ngit significant fines or non-monetary sanctions related to Liong). The remaining directors are all independent environmental laws in 2019. and non-executive (88%). . All of its operational sites are also certified to ISO14001 . The audit, nominating and remuneration committees for Environmental Management Systems. are all chaired by independent directors. . Electricity intensity by revenue has improved 1.6% to . Three independent directors have served more than 36.9MWh/SGD’000 in 2019. nine years from date of appointments. The Board . Water consumption intensity by revenue was flat at 0.24 concurred with the Nominating Committee’s views that m3/SGD’000 in 2019. these three directors continue to be independent. . To manage and mitigate emissions of harmful substances, . Professional background of independent directors Venture complies with the Restriction of Hazardous includes accounting, engineering and technology. Substances (RoHS) directive, and only uses RoHS-certified . Key management (incl. directors) compensation equipment. accounted for 5.7% of total employee compensation in . All operational sites have management systems to prevent 2019. (2018: 5.1%). pollution from hazardous effluents, air impurities, . Auditors are Deloitte & Touche LLP, appointed in 2015. wastewater discharge and noise. . Venture has zero-tolerance towards fraud and corruption, and has policies on anti-bribery and corruption and whistle-blower protection. There are no public legal cases regarding corruption/ termination of Material S issues contracts, business partners or suppliers relating to corruption in 2019. . As at 31 Dec-19, Venture employed over 12,000 . Venture’s IT department regularly improves employees. 41.4% of the workforce is male, and 58.6% are infrastructure and systems to safeguard confidential female. information. In 2019, there was a data . Venture is an equal-opportunities employer. There remain compartmentalisation project to segregate high risks for worker exploitation by third-party suppliers. confidential data and a test was done to find potential Venture bans all forms of labour exploitation, and has put vulnerabilities. In 2019, there were no substantiated in place safeguards against this. complaints concerning breaches of customer privacy or . In 2019, each employee benefitted from an average of loss of customer data. 186 hours of formal training. Topics span across technical . In recognition of its execution excellence, Venture and non-technical skills. frequently won awards from customers. In 2019, some . Venture has a stance against conflict minerals. Venture’s awards include “Best Performance Supplier Award”, Conflict Minerals Policy is modelled after the Responsible “Platinum Supplier Award” and “Preferred Supplier Business Alliance against the use of conflict minerals. Award”. There were no incidences of non-compliance of Venture’s policy in 2019. No contracts or suppliers were terminated due to the presence of conflict minerals in their supply chain.

November 21, 2020 45

Venture

FYE 31 Dec FY18A FY19A FY20E FY21E FY22E Key Metrics P/E (reported) (x) 15.5 12.8 18.6 15.2 13.5 Core P/E (x) 10.8 12.9 18.6 15.2 13.5 Core FD P/E (x) 10.9 13.0 18.7 15.3 13.6 P/BV (x) 1.7 1.9 2.1 2.0 1.9 P/NTA (x) 1.7 1.9 2.1 2.0 1.9 Net dividend yield (%) 5.0 4.3 3.9 3.9 3.9 FCF yield (%) 4.3 5.0 6.3 4.9 5.7 EV/EBITDA (x) 7.2 8.8 12.6 10.3 9.0 EV/EBIT (x) 7.8 9.7 14.0 11.2 9.7

INCOME STATEMENT (SGD m) Revenue 3,484.6 3,633.4 2,906.7 3,430.0 3,773.0 Gross profit 953.8 906.8 755.8 891.8 981.0 EBITDA 455.5 448.2 371.8 451.1 504.4 Depreciation (30.7) (38.7) (34.7) (35.8) (37.0) Amortisation (1.1) (1.0) (1.0) (1.0) (1.0) EBIT 423.7 408.5 336.2 414.3 466.4 Net interest income /(exp) 8.2 10.5 9.0 9.0 9.0 Associates & JV (0.1) 0.0 0.0 0.0 0.0 Exceptionals 0.0 0.0 0.0 0.0 0.0 Other pretax income 0.0 0.0 0.0 0.0 0.0 Pretax profit 431.9 419.0 345.1 423.3 475.3 Income tax (62.9) (56.6) (48.3) (59.3) (66.5) Minorities (0.2) (0.3) (0.2) (0.2) (0.2) Discontinued operations 0.0 0.0 0.0 0.0 0.0 Reported net profit 368.8 362.1 296.6 363.8 408.6 Core net profit 368.8 362.1 296.6 363.8 408.6

BALANCE SHEET (SGD m) Cash & Short Term Investments 712.8 714.5 825.7 876.7 973.0 Accounts receivable 735.9 898.9 693.8 790.9 821.6 Inventory 808.2 706.2 743.6 855.8 903.5 Property, Plant & Equip (net) 230.7 231.7 226.1 224.1 224.5 Intangible assets 639.9 667.5 667.5 667.5 667.5 Investment in Associates & JVs 0.7 0.8 0.8 0.8 0.8 Other assets 76.4 54.7 46.2 46.2 46.2 Total assets 3,204.6 3,274.2 3,203.7 3,462.1 3,637.1 ST interest bearing debt 1.8 1.1 1.1 1.1 1.1 Accounts payable 529.0 490.3 417.2 528.5 511.8 LT interest bearing debt 0.0 0.0 0.0 0.0 0.0 Other liabilities 322.0 284.0 207.0 207.0 207.0 Total Liabilities 852.5 775.7 625.2 736.5 719.8 Shareholders Equity 2,349.9 2,496.2 2,575.9 2,722.7 2,914.3 Minority Interest 2.2 2.4 2.6 2.8 3.0 Total shareholder equity 2,352.1 2,498.6 2,578.5 2,725.5 2,917.3 Total liabilities and equity 3,204.6 3,274.2 3,203.7 3,462.1 3,637.1

CASH FLOW (SGD m) Pretax profit 431.9 419.0 345.1 423.3 475.3 Depreciation & amortisation 31.8 39.7 35.7 36.8 38.0 Adj net interest (income)/exp 0.0 0.0 0.0 0.0 0.0 Change in working capital (170.9) (125.8) 43.1 (98.1) (95.1) Cash taxes paid (56.3) (61.7) (48.3) (59.3) (66.5) Other operating cash flow 0.0 0.0 0.0 0.0 0.0 Cash flow from operations 236.6 271.1 375.5 302.7 351.7 Capex (63.6) (39.7) (29.0) (33.8) (37.4) Free cash flow 173.0 231.4 346.5 268.9 314.3 Dividends paid (230.0) (201.9) (216.9) (216.9) (216.9) Equity raised / (purchased) 41.5 7.9 0.0 0.0 0.0 Change in Debt (29.0) (0.7) 0.0 0.0 0.0 Other invest/financing cash flow 3.8 (35.9) (18.3) (1.0) (1.0) Effect of exch rate changes 0.0 0.0 0.0 0.0 0.0 Net cash flow (40.7) 0.6 111.3 51.0 96.3

November 21, 2020 46

Venture

FYE 31 Dec FY18A FY19A FY20E FY21E FY22E Key Ratios Growth ratios (%) Revenue growth (13.0) 4.3 (20.0) 18.0 10.0 EBITDA growth (0.8) (1.6) (17.0) 21.3 11.8 EBIT growth (0.7) (3.6) (17.7) 23.2 12.6 Pretax growth (2.4) (3.0) (17.6) 22.6 12.3 Reported net profit growth (0.8) (1.8) (18.1) 22.7 12.3 Core net profit growth 2.3 (1.8) (18.1) 22.7 12.3

Profitability ratios (%) EBITDA margin 13.1 12.3 12.8 13.2 13.4 EBIT margin 12.2 11.2 11.6 12.1 12.4 Pretax profit margin 12.4 11.5 11.9 12.3 12.6 Payout ratio 54.4 55.7 73.1 59.6 53.1

DuPont analysis Net profit margin (%) 10.6 10.0 10.2 10.6 10.8 Revenue/Assets (x) 1.1 1.1 0.9 1.0 1.0 Assets/Equity (x) 1.4 1.3 1.2 1.3 1.2 ROAE (%) 16.3 14.9 11.7 13.7 14.5 ROAA (%) 11.6 11.2 9.2 10.9 11.5

Liquidity & Efficiency Cash conversion cycle 105.1 113.7 144.0 124.3 123.3 Days receivable outstanding 77.6 81.0 98.6 77.9 76.9 Days inventory outstanding 107.2 100.0 121.3 113.4 113.4 Days payables outstanding 79.7 67.3 75.9 67.1 67.1 Dividend cover (x) 1.8 1.8 1.4 1.7 1.9 Current ratio (x) 2.7 3.1 3.7 3.5 3.8

Leverage & Expense Analysis Asset/Liability (x) 3.8 4.2 5.1 4.7 5.1 Net gearing (%) (incl perps) net cash net cash net cash net cash net cash Net gearing (%) (excl. perps) net cash net cash net cash net cash net cash Net interest cover (x) na na na na na Debt/EBITDA (x) 0.0 0.0 0.0 0.0 0.0 Capex/revenue (%) 1.8 1.1 1.0 1.0 1.0 Net debt/ (net cash) (711.0) (713.4) (824.7) (875.6) (972.0) Source: Company; Maybank

November 21, 2020 47

2.87

November 21, 2020

Globetronics Technology (GTB MK) BUY [Prior:SELL] Share Price MYR 2.87 Heightening senses; U/G to 12m Price Target MYR 3.30 (+17%)

BUY Previous Price Target MYR 1.95 Shariah Compliant Shariah

Worst is over, prospects improving Company Description Largest OSAT partner for Epson's quartz crystal and U/G to BUY from SELL, as we believe the worst will be over in FY20E and timing devices growth prospects will improve from 1HFY21 onwards. GTB’s earnings and near to medium-term growth remains underpinned by its sensor and lighting products, and new customers/products. Taking into consideration

our expected sector re-rating/upcycle and gradual recovery in the Statistics volume of selected products, we base our TP at 32x FY21E PER, +0.5SD 52w high/low (MYR) 3.01/1.35 of PER mean – bringing our TP to a higher MYR3.30 (+MYR1.82). 3m avg turnover (USDm) 1.5 Investment thesis and outlook Free float (%) 69.9 Issued shares (m) 669 Globetronics capitalises on the growing usage of smart devices (i.e. Market capitalisation MYR1.9B Technology premium 5G smartphones and wearables), increasing adoption of USD470M Internet of Things and automotive lighting. We believe near-term Major shareholders: earnings will be largely supported by stable and optimal volume loading Employees Provident Fund 14.2% of its sensor products, while growth catalysts would be derived from new General Produce Agency Sdn. Bhd. 8.6% Public Mutual Bhd. 5.6%

products/customers. We understand that by 1H21, GTB is expecting to commence mass production of gas sensors (new product) and next- Price Performance generation gesture sensors. Meanwhile, normalisation in the volume of laser light products could also entail favourable revenue contributions. 3.20 170 3.00 160

Malaysia We understand that on-boarding of new products (work in progress for a handful) and optimal volume loading of laser light products could 2.80 150 2.60 140 potentially make up about ¼ to GTB’s revenue going forward. 2.40 130 Earnings assumptions ‘mildly conservative’ 2.20 120 2.00 110 Our earnings forecasts are unchanged. We are mildly conservative in our 1.80 100 near-term assumptions at this juncture, which are mainly backed by 1.60 90 recovery in the volume of selected products (i.e. sensors segment 1.40 80 1.20 70 accounts for 62-63% of our FY21-22E revenue), and contributions from Nov-18 Feb-19 May-19 Aug-19 Nov-19 Feb-20 May-20 Aug-20 some new products. Globetronics - (LHS, MYR) Globetronics / Kuala Lumpur Composite Index - (RHS, %) Higher target valuation to reflect ‘upcycle’ -1M -3M -12M Our revised TP of MYR3.30 (+MYR1.82), is based on a higher, re-rated 32x Absolute (%) (3) (1) 37 FY21E PER (+0.5SD of PER mean), up from 19x FY21E PER at -1SD. We Relative to index (%) (8) (2) 38 raised our target PER to reflect our expected sector re-rating (i.e. Source: FactSet heading into an upcycle) and as we anticipate improvements in GTB’s near to medium-term earnings outlook.

FYE Dec (MYR m) FY18A FY19A FY20E FY21E FY22E Revenue 328 216 266 316 316 EBITDA 110 81 90 106 106 Core net profit 73 46 54 68 69 Core EPS (sen) 11.0 6.9 8.1 10.2 10.3 Core EPS growth (%) 44.8 (37.4) 18.2 25.8 1.1 Net DPS (sen) 9.0 5.5 6.5 8.2 8.3 Core P/E (x) 15.9 33.9 35.3 28.1 27.8 P/BV (x) 3.9 5.2 6.2 6.0 5.7 Net dividend yield (%) 5.1 2.4 2.3 2.8 2.9 ROAE (%) 24.1 15.0 18.0 21.7 21.0 ROAA (%) 19.0 12.9 15.8 19.1 18.6 EV/EBITDA (x) 9.8 17.6 19.8 16.8 16.6 Net gearing (%) (incl perps) net cash net cash net cash net cash net cash ESG Consensus net profit - - 54 70 83 Tear Sheet Insert MKE vs. Consensus (%) - - 1.1 (2.9) (16.8)

Kevin Wong [email protected] (603) 2082 6824

THIS REPORT HAS BEEN PREPARED BY MAYBANK KIM ENG RESEARCH SEE PAGE 73 FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS

Globetronics Technology

Value Proposition Price Drivers

. Largest outsourced EMS player for Epson Toyocom for Historical share price trend Quartz Crystal and Timing devices. Also exclusive EMS 3.50 150 vendor for Swiss customer in micro-optics system. 3.00 3 130 . Products in high demand due to rapid adoption of multi- 1 2 function sensors in smart devices, namely from a leading 2.50 110 US-based brand. 2.00 90 . Forward earnings growth hinges on new product rollouts 1.50 70 for sensor division and potential growth in customers. 1.00 50 . Product has high intellectual content. Business is highly 1 0.50 30 cash generative with low capex requirement which allows Nov-15 Nov-16 Nov-17 Nov-18 Nov-19 for decent dividend payout (>80%) Globetronics - (LHS, MYR) Globetronics / Kuala Lumpur Composite Index - (RHS, %)

Net cash and FCF Source: Company, Maybank Kim Eng Net cash/share FCF/share 30.0 25.0 25.0 1. Weak earnings due to drop in deliveries and orders. 21.3 21.2 22.4 20.0 2. In-line with soft global demand which lead to lower 14.4 14.1 revenue (lower volume loading) for Globetronics. 15.0 12.0 9.7 8.8 10.0 7.6 3. Short-term market weakness due to the COVID-19 5.9 pandemic and Malaysia’s Movement Control Order. 5.0

0.0 2017A 2018A 2019A 2020E 2021E 2022E -5.0

-10.0 -10.6 -15.0 Source: Company, Maybank Kim Eng

Financial Metrics Swing Factors

. Profitability of Globetronics is largely dependent on sales Upside volume of end customers’ smart devices. Medium-term demand hinges on the rate of adoption for multi-function . MYR’s further weakness against USD has a positive sensors in smart devices. revenue impact . USD/MYR would influence profit margins (~2/3 of revenue . New customer wins for its sensor and LED/SSL divisions and COGs are denominated in USD). which are currently the key driver segments for the . New product rollout for existing and potential clients – a company. wild card. . Increase in utilisation and capacity rates. This would . Stronger contribution by the sensor and LED/SSL divisions come from new and existing customers’ orders. should sustain net margin above 20% level. There are still marginal earnings contributions from its traditional products & services related to IC/SOIC. Downside

Core net profit . Drastic fall in end-client’s smartphone shipment will hamper orders for sensor products and weaken Core net profit (LHS) Core net profit margin (RHS) MYR'm % Globetronics’ earnings. 80 22.4 25.0 21.2 21.6 21.9 . Downturn/down cycle of the technology hardware sector. 70 20.4 20.0 . Has high customer concentration risks (about half of 16.6 60 revenue). Significant drop in orders from these customers 50 15.0 40 would affect Globetronics’ profits. 73 68 69 30 10.0 51 54 20 46 5.0 10

0 0.0

FY19E FY21E FY22E FY20E FY17A FY18A Source: Company, Maybank Kim Eng

[email protected]

November 21, 2020 49

Globetronics Technology

ESG [email protected] Business Model & Industry Issues

. As a multinational provider in a variety of product and services, Globetronics is naturally exposed to environmental, workplace safety, and socio-economic risks. In FY19, the Group may have had heightened incidences of workplace safety, but have also recorded zero substantiated cases of corruption and legal compliance issues. . Globetronics has several new energy-efficient, environmentally-conscious, products using the latest technologies in its pipeline. In our view, this signals a strong competitive edge for Globetronics in the industry, going forward. . There were significant related party transactions, but only with its associate and several subsidiaries – on property rental, dividend income and provision of services. Meanwhile, the founder/Executive Chairman holds less than 10% in the company – low, in our view. Meanwhile, share options to Executive Directors and senior management was 28%, below the 50% threshold. Overall, we see limited corporate governance risks for Globetronics.

Material E issues Key G metrics and issues

. In FY19, Globetronics recorded 12,980kg of waste . The board has 9 directors with 2 Non-Independent disposals (-7.3% YoY), and reused and recycled 127,243kg Executive Directors of which one is the Founder and of recyclable wastes and 163.1kg batteries. Executive Chairman, 5 Independent Non-Executive . Globetronics introduced several energy-saving initiatives Directors, and 2 Non-Independent Non-Executive such as (i) energy-efficient wafer sawing processes that Directors. saved 29,963m3 of water in FY19, (ii) installation on solar . The board is of diverse background with 22% women

panels that led to a reduction of 216,000kg of CO2 representation, and 22% board members above the age emissions in FY19, (iii) energy-efficient chiller and air of 70 and 56% between the ages of 61-69. compressor systems, (iv) preventive maintenance of . Against the Group’s FY19 net profit of MYR44.7m, facilities equipment, and (v) scheduled shutdown of remuneration for the Chairman and each member operations. were: 0.26% for the Board and ≤0.04% for each . Globetronics implemented a ban on plastic straws and a committee. near-total ban on one-time plastics, and planted trees . Globetronics was audited by KPMG Plt in FY19.

around their factories to reduce CO2 emissions. . The audit & risk management, remuneration, . All their Penang manufacturing factories are certified to nominating, and their Employee Share Option Scheme ISO 14001, in accordance to local regulations. (ESOS) committees are chaired by Independent Non- Executive Directors. . Ng Kweng Chong, the major shareholder, founder and Material S issues Executive Chairman holds direct interests in c.7.0m shares (1.0%) and deemed interests in 36.0m shares . Globetronics value diversity, which can be seen in their (5.4%) of the company - via Ng Kweng Chong Holdings multi-national workforce of 1,300 employees ranging Sdn Bhd, Wiserite Sdn Bhd, and Glencare Sdn Bhd. across 4 countries, with 77%/31%/22% of women . Mr Ng Kok Khuan, a Non-Independent Non-Executive representation in workforce/management/board levels. director and the nephew of Mr Ng Kweng Chong, holds Foreign labour contributed 40-50% to its total workforce. 0.1m direct and 0.2 deemed interests in the shares of . They emphasise on (i) freely chosen labour, (ii) avoidance the company (<0.1% each). of child labour, (iii) non-discrimination in recruitment, and . Dato’ Heng Huck Lee, the CEO of Globetronics holds (iv) policies against sexual harassment, fraud, bribery, and 1.8m direct (0.3%) and 0.2m deemed interests (<0.1%) corruption with proper reporting channels. in the shares of the company. . In FY19, there were 8 factory accidents, 3 fire incidents . 2 Independent Non-Executive Directors, Ong Huey Min and 3 near-miss accidents - but recorded no and Yeow Teck Chai holds minimal direct and indirect fatalities/permanent injuries. interests of less than 200,000 shares respectively. . They invested a total of 185 training programs and . Allocation of share options to Executive Directors and MYR257k for employees’ training to upgrade the people’s senior management was at 28% as at 31 Dec 2019. competency levels with regards to new products and . Globetronics recorded significant related party technologies. transaction in FY19 amounting to MYR52.1m for the . They actively contributed in various employee welfare Company and MYR2.4m for the Group through activities, and 6 different education and community-based transactions with their associates and subsidiaries. partnership and sponsorship projects in FY19. Elsewhere, there were no controversial transactions.

November 21, 2020 50

Globetronics Technology

Fig 1: Globetronics 12M forward PER band Fig 2: Globetronics 12M forward P/BV band

(x) (x) 80.0 8.0 70.0 7.0 60.0 +1SD: 5.9 6.0 50.0 +1SD: 36.2 Mean: 4.8 40.0 5.0 -1SD: 3.7 30.0 Mean: 27.6 4.0 20.0 3.0 10.0 -1SD: 19.0 2.0 - Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19

Source: Bloomberg, Maybank Kim Eng Source: Bloomberg, Maybank Kim Eng

Risk statement

There are several risk factors for our earnings estimates, target price and rating for GTB. A sharp downturn in the global markets for electronics, especially smartphones, will affect the demand for sensors and other components that GTB is producing for its key clients. Additionally, forex volatility, especially USD/MYR, will also affect GTB’s earnings, as ~60%/70% of the Group’s revenue/COGS is denominated in USD.

November 21, 2020 51

Globetronics Technology

FYE 31 Dec FY18A FY19A FY20E FY21E FY22E Key Metrics P/E (reported) (x) 22.1 28.1 35.3 28.1 27.8 Core P/E (x) 15.9 33.9 35.3 28.1 27.8 P/BV (x) 3.9 5.2 6.2 6.0 5.7 P/NTA (x) 3.9 5.2 6.2 6.0 5.7 Net dividend yield (%) 5.1 2.4 2.3 2.8 2.9 FCF yield (%) 6.8 6.0 2.0 3.1 3.8 EV/EBITDA (x) 9.8 17.6 19.8 16.8 16.6 EV/EBIT (x) 14.7 33.1 34.4 26.4 25.6

INCOME STATEMENT (MYR m) Revenue 328.0 216.3 265.9 316.1 316.1 Gross profit 111.5 73.8 85.7 108.4 109.5 EBITDA 109.9 80.7 89.7 105.6 105.6 Depreciation (37.0) (37.8) (37.9) (38.6) (37.4) Amortisation 0.0 0.0 0.0 0.0 0.0 EBIT 72.9 42.8 51.7 67.0 68.2 Net interest income /(exp) 1.9 3.1 3.8 3.8 4.0 Associates & JV 0.0 0.1 0.1 0.1 0.1 Exceptionals (3.3) (1.2) 0.0 0.0 0.0 Other pretax income 0.0 0.0 0.0 0.0 0.0 Pretax profit 74.8 46.0 55.7 71.0 72.3 Income tax (4.7) (1.3) (1.4) (2.6) (3.2) Minorities 0.0 0.0 0.0 0.0 0.0 Discontinued operations 0.0 0.0 0.0 0.0 0.0 Reported net profit 70.1 44.7 54.3 68.3 69.1 Core net profit 73.4 46.0 54.3 68.3 69.1

BALANCE SHEET (MYR m) Cash & Short Term Investments 121.0 146.2 145.9 153.7 174.9 Accounts receivable 74.5 41.3 49.8 58.6 58.6 Inventory 12.6 8.3 10.4 12.0 11.9 Reinsurance assets 0.0 0.0 0.0 0.0 0.0 Property, Plant & Equip (net) 145.4 118.5 120.6 117.0 109.6 Intangible assets 0.0 0.0 0.0 0.0 0.0 Investment in Associates & JVs 0.0 0.0 0.0 0.0 0.0 Other assets 22.5 23.4 23.5 23.6 23.7 Total assets 376.1 337.8 350.2 364.9 378.6 ST interest bearing debt 20.8 4.1 4.1 4.1 4.1 Accounts payable 45.9 34.8 36.3 37.3 37.3 Insurance contract liabilities 0.0 0.0 0.0 0.0 0.0 LT interest bearing debt 4.2 0.0 0.0 0.0 0.0 Other liabilities 4.0 2.0 2.0 2.0 2.0 Total Liabilities 74.9 41.0 42.5 43.6 43.5 Shareholders Equity 301.1 296.8 307.7 321.3 335.1 Minority Interest 0.0 0.0 0.0 0.0 0.0 Total shareholder equity 301.1 296.8 307.7 321.3 335.1 Total liabilities and equity 376.1 337.8 350.2 364.9 378.6

CASH FLOW (MYR m) Pretax profit 74.8 46.0 55.7 71.0 72.3 Depreciation & amortisation 37.0 37.8 37.9 38.6 37.4 Adj net interest (income)/exp (1.9) (3.1) (3.8) (3.8) (4.0) Change in working capital 9.2 26.2 (9.0) (9.3) 0.0 Cash taxes paid (5.3) (0.5) (1.4) (2.6) (3.2) Other operating cash flow 2.0 (0.6) (0.1) (0.1) (0.1) Cash flow from operations 115.9 106.0 79.3 93.7 102.4 Capex (35.9) (11.9) (40.0) (35.0) (30.0) Free cash flow 80.0 94.1 39.3 58.7 72.4 Dividends paid (57.2) (50.2) (43.4) (54.7) (55.3) Equity raised / (purchased) 0.6 0.0 0.0 0.0 0.0 Change in Debt (20.8) (20.3) 0.0 0.0 0.0 Other invest/financing cash flow 1.7 1.7 3.8 3.8 4.0 Effect of exch rate changes 0.0 0.0 0.0 0.0 0.0 Net cash flow 4.3 25.3 (0.4) 7.8 21.2

November 21, 2020 52

Globetronics Technology

FYE 31 Dec FY18A FY19A FY20E FY21E FY22E Key Ratios Growth ratios (%) Revenue growth 7.7 (34.0) 22.9 18.9 (0.0) EBITDA growth 32.7 (26.6) 11.1 17.8 (0.0) EBIT growth 34.2 (41.2) 20.8 29.6 1.7 Pretax growth 33.8 (38.4) 20.9 27.5 1.9 Reported net profit growth 37.1 (36.2) 21.5 25.8 1.1 Core net profit growth 44.8 (37.4) 18.2 25.8 1.1

Profitability ratios (%) EBITDA margin 33.5 37.3 33.7 33.4 33.4 EBIT margin 22.2 19.8 19.5 21.2 21.6 Pretax profit margin 22.8 21.3 20.9 22.4 22.9 Payout ratio 85.8 82.2 80.0 80.0 80.0

DuPont analysis Net profit margin (%) 21.4 20.7 20.4 21.6 21.9 Revenue/Assets (x) 0.9 0.6 0.8 0.9 0.8 Assets/Equity (x) 1.2 1.1 1.1 1.1 1.1 ROAE (%) 24.1 15.0 18.0 21.7 21.0 ROAA (%) 19.0 12.9 15.8 19.1 18.6

Liquidity & Efficiency Cash conversion cycle 28.4 21.0 9.4 17.3 22.5 Days receivable outstanding 92.8 96.4 61.7 61.7 66.8 Days inventory outstanding 21.7 26.4 18.6 19.3 20.8 Days payables outstanding 86.0 101.9 71.0 63.8 65.1 Dividend cover (x) 1.2 1.2 1.3 1.3 1.2 Current ratio (x) 3.1 5.1 5.1 5.4 5.9

Leverage & Expense Analysis Asset/Liability (x) 5.0 8.2 8.2 8.4 8.7 Net gearing (%) (incl perps) net cash net cash net cash net cash net cash Net gearing (%) (excl. perps) net cash net cash net cash net cash net cash Net interest cover (x) na na na na na Debt/EBITDA (x) 0.2 0.1 0.0 0.0 0.0 Capex/revenue (%) 10.9 5.5 15.0 11.1 9.5 Net debt/ (net cash) (96.1) (142.1) (141.7) (149.6) (170.8) Source: Company; Maybank

November 21, 2020 53

9.10

November 21, 2020

Greatech Technology (GREATEC MK) HOLD [Prior:BUY] Share Price MYR 9.10 Positives largely priced in 12m Price Target MYR 8.90 (-2%)

Previous Price Target MYR 7.20 Shariah Compliant Shariah

Downgrade to HOLD; Prefer Inari Company Description A niche automation specialist with core expertise in D/G to HOLD as we believe most of its near-term positives have been customisable capital equipment for solar photovoltaic priced in at this juncture. We believe Greatech’s earnings growth industry. potentials are mainly from securing more sizeable jobs from selected industries. We raise our FY21-22E earnings by 24-28% and revise up our

TP to MYR8.90 (+MYR1.70), based on an unchanged 36x FY21E PER. Our Statistics target PER is at about +1.5SD of mean currently, premised on sizeable 52w high/low (MYR) 9.13/1.38 earnings upside. We prefer Inari (INRI MK, SP MYR2.62, BUY, TP MYR3.40) 3m avg turnover (USDm) 2.4 due to favourable growth prospects from RF. Free float (%) 20.0 Issued shares (m) 626 Investment thesis Market capitalisation MYR5.7B Technology USD1.4B Growth catalysts would come from new orders from existing and new Major shareholders: customers as Greatech is aiming for 8 new customers, on top of its TAN ENG KEE 71.8% existing 6. This would still be mainly centred on Production Line System Llh Holdings Sdn. Bhd. 3.2% (PLS) and single-use automated machine offerings across various Kenanga Investors Bhd. 3.2% industries (i.e. medical, EV battery). We also believe there are possibilities for: (i) higher PLS demand from Lordstown Motors (RIDE US, Price Performance Not Rated, SP USD26.46) to cater to increasing manufacturing needs; and 10.0 2,000

(ii) additional manufacturing facilities by First Solar (FSLR US, Not Rated, 9.0 1,800 Malaysia SP USD84.69) as several facilities were operating above 100% utilisation. 8.0 1,600 Greatech’s Aug 20 orderbook was at MYR295m. 7.0 1,400 6.0 1,200 Earnings assumptions 5.0 1,000 4.0 800 We raise our FY21/22E net profit by 24%/28% after assuming PLS order 3.0 600 wins worth MYR80m-100m pa in FY21E-22E. Our assumptions are 2.0 400 1.0 200 moderately bullish, against the backdrop of 8 targeted new customers 0.0 0 with at least two PLS tenders. Elsewhere, Greatech has a decent FY19 Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 FCF of MYR92m (15sen/share) which supports M&A activities. Greatech Tech - (LHS, MYR) Greatech Tech / Kuala Lumpur Composite Index - (RHS, %) Risks -1M -3M -12M Absolute (%) 13 44 372 Notwithstanding First Solar’s >50% contribution to Greatech’s Aug 20 Relative to index (%) 7 43 374 orderbook, we anticipate earnings risks from depletion of orderbook Source: FactSet from First Solar if the latter is not expanding/adding manufacturing facilities. Elsewhere, we anticipate limited earnings risks from other customers, such as Lordstown.

FYE Dec (MYR m) FY18A FY19A FY20E FY21E FY22E Revenue 220 216 342 522 559 EBITDA 35 60 103 173 193 Core net profit 37 57 91 154 171 Core EPS (sen) 5.9 9.2 14.5 24.6 27.3 Core EPS growth (%) 41.6 54.5 58.2 70.0 10.8 Net DPS (sen) 0.0 0.0 0.0 0.0 0.0 Core P/E (x) na 26.2 62.8 36.9 33.3 P/BV (x) na 7.7 19.9 12.9 9.3 Net dividend yield (%) na 0.0 0.0 0.0 0.0 ROAE (%) 57.5 39.4 37.7 42.4 32.5 ROAA (%) 28.8 23.1 22.8 28.7 24.0 EV/EBITDA (x) 162.1 21.7 52.8 30.5 26.6 Net gearing (%) (incl perps) net cash net cash net cash net cash net cash ESG Consensus net profit - - 81 143 169 Tear Sheet Insert MKE vs. Consensus (%) - - 11.7 7.6 1.2

Kevin Wong [email protected] (603) 2082 6824

THIS REPORT HAS BEEN PREPARED BY MAYBANK KIM ENG RESEARCH SEE PAGE 73 FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS Greatech Technology

Value Proposition Price Drivers

. Automation solution provider with a focus on selected Historical share price trend industries, such as solar, electric vehicles (EV), 10.0 2,000 medical/life science and semiconductor. Its 2 main 9.0 3 1,800 products are Production Line System (PLS) and single-use 8.0 1,600 7.0 1,400 automation machine. 6.0 1,200 . Prospects bode well with the current Industry 4.0 and 5.0 2 1,000 increasing adoption of robotics and production automation 4.0 1 800 3.0 600 systems by factory operators/owners. 2.0 400 . Wide and fragmented pool of opportunities and clienteles, 1.0 200 1 0.0 0 globally. Future job wins are backed by its portfolio of 2 Jun-19 Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 large customer in the solar and EV industries. Greatech Tech - (LHS, MYR) Greatech Tech / Kuala Lumpur Composite Index - (RHS, %)

Net cash and FCF Source: Company, Maybank Kim Eng Net cash/share FCF/share (sen) 100.0 90.4 90.0 1. Uptrend post listing in Jun 2019 – backed by attractive 80.0 valuations and earnings growth prospects. 70.0 64.4 2. Share price pull-back was in-line with the softening of 60.0 the sector during heightening of the COVID-19 pandemic. 50.0 43.6 3. Uptrend attributed to new job win and re-rating of the 40.0 31.8 30.0 26.0 tech sector in Malaysia. 20.8 20.0 14.7 9.1 10.2 11.9 10.0 0.0 2018A 2019A 2020E 2021E 2022E

Source: Company, Maybank Kim Eng

Financial Metrics Swing Factors

. Greatech’s earnings visibility are backed by its orderbook Upside value – currently remains above MYR200m. . Earnings growth are mainly determined by future job wins . Additional orders/job wins from existing and new and recurring orders – supplemented by other revenue customers. Sizeable orders come from its PLS offerings. sources such as parts and services. . Reduction in operating expenses which improves profit . Earnings growth prospects would also come from margin. anticipated demand from its existing sizeable customers. . High utilisation rate. . Margins are largely determined by product mix and COGs/operating costs. . USD/MYR would influence profit margins (over ¾ of Downside revenue is denominated in USD). Quarterly core net profit . Forex: MYR’s further strength against USD has a negative revenue impact. Core net profit (LHS) Core net profit margin (RHS) (sen) . Single customer risk: over 3/4 of its orderbook is derived 25.0 40% from 2 main customers. A depletion of the respective 35% customer’s orders would impact near to mid-term 20.0 30% earnings. . Earnings would also be affected if Greatech is unable to 15.0 25% 20% replenish its orderbook via securing new customers.

10.0 15%

10% 5.0 5%

0.0 0% 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20

Source: Company, Maybank Kim Eng

[email protected]

November 21, 2020 55

Greatech Technology

ESG [email protected] Business Model & Industry Issues

. As a leading automation solutions provider, Greatech manages its ESG exposures through energy-saving initiatives, as well as compliance with international and local regulatory requirements, i.e. environmental, and health and safety impacts of its products. . From a social perspective, Greatech ensures that its employees are well-trained and up-skilled whenever necessary. Only 4% (FY19) of its workforce were foreign employees/expatriate – we deem this as very low, within our tech sector. . The Group is looking forward to a greater degree of adaptation to sustainable growth with various product expansion and initiatives. In our view, these would sustain Greatech’s ESG-compliant operations, going forward. . Despite the Group CEO’s high stake in the company (72%), board composition is well-balanced and there were no notable governance issues in the past.

Material E issues Key G metrics and issues

. Greatech’s facilities in Penang are installed with: (i) low- . Greatech’s board comprises of 6 directors. 4 are energy lighting and related electrical equipment; and (ii) independent non-executive directors, and 2 are manufacturing line optimisation; to reduce energy executive directors. consumption. . A very experienced and gender-diversified board: all . Disposed of 28,440kg of hazardous waste with no the board members are over the age of 50, and 33.3% significant spills. are female. . In FY19, 20 employees supported an annual beach- . Tan Eng Kee, Group CEO and executive director, has a cleaning event in Penang. They collected 40kg of rubbish. substantial indirect interest in the Company with . Did not receive penalties or sanctions concerning 463,218,750 ordinary shares (c.72%). He also has shares environmental issues. in all the subsidiaries. Dato’ Seri Wong Siew Hai also . Working towards switching all operating facilities to low- has an indirect interest in the Company with 547,000 energy lighting to maximise energy saving. ordinary shares (<1%) held through his children. . 4 other board members hold shares in the company but is of a non-substantial amount of 350,000 ordinary shares or less each (<1%). Material S issues . The CEO/the board’s total remuneration of MYR1.8m/MYR2.0m for FY19 accounted for 3.5%/ 3.8% . Has a diversified workforce of 418 employees spanning of the Group’s net profit of MYR57m, respectively. across nine countries, where only 4.1% consists of foreign . Greatech was audited by Messrs BDO PLT. Greatech has employees and expatriate. also appointed Sterling Business Alignment Consulting . 75% of its workforce is below the age of 36, while 20% is as its internal auditor. between 36 and 45 and 4.8% is above 45 years old. . Greatech does not have a dividend payout policy. . A champion for women leadership. In FY19, 12.5% of the . Its 4 non-executive directors are all on the Nominating managerial positions were held by females, and 33.3% of Committee, Remuneration Committee and Audit & Risk the chief executive positions were held by women. Management Committee. . An advocate for localisation; 95.9% and 64% of Greatech’s . The Group appointed KPMG Management & Risk workforce and suppliers are Malaysians. Most of Consulting in FY19 to help implement the Enterprise Greatech’s operations are still in Malaysia. Risk Management Framework for effective risk . The Group has a low Rate of Recordable Work-Related management and internal control. Injuries at 0.51 per 200,000 work hours, with only two . Notable related party transaction in FY19 was MYR7.6m work-related injuries and zero fatality in FY19. It also has as remaining balance paid for acquisition of land. a low average monthly voluntary turnover of 1.1%. Elsewhere, there were no recurring related party . In FY19, it provided 12,000 training hours and MYR147,000 transactions. was invested to up-skill employees and promote awareness of workplace safety and health, and environmental consciousness. . The Group donated MYR209,640 and took part in community engagements in FY19.

November 21, 2020 56

Greatech Technology

Fig 1: Our forecast revenue breakdown for Greatech Division Revised revenue projection based on Initial revenue projection based on USD1/MYR4.15 USD1/MYR4.15 (MYR m) (MYR m) 2020E 2021E 2022E 2020E 2021E 2022E Single automated equipment 55.3 67.0 77.0 55.3 67.0 77.0 Production line system 180.3 337.5 362.5 180.3 257.5 262.5 Upgrading 90.0 90.0 90.0 90.0 90.0 90.0 Parts and services 16.3 27.2 29.1 16.3 22.8 23.6 Total 341.9 521.6 558.5 341.9 437.2 453.0 Source: Maybank Kim Eng

Fig 2: 12M forward PER band Fig 3: 12M forward PBV band

(x) (x) 45.0 9.0 40.0 +1SD: 37.3 8.0 +1SD: 6.5 35.0 7.0 30.0 Mean: 26.4 6.0 Mean: 4.6 25.0 5.0 20.0 -1SD: 15.5 4.0 -1SD: 2.8 15.0 3.0 10.0 2.0 5.0 1.0 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19

Source: Bloomberg, Maybank Kim Eng Source: Bloomberg, Maybank Kim Eng

Risk statement

There are several risk factors for our earnings estimates, target price and rating for Greatech. A downturn in the PV industry will affect Greatech’s earnings. Additionally, forex volatility, especially USD/MYR, will also affect Greatech’s earnings, as ~90%/30% of its revenue/COGS is denominated in USD.

November 21, 2020 57

Greatech Technology

FYE 31 Dec FY18A FY19A FY20E FY21E FY22E Key Metrics P/E (reported) (x) na 18.3 62.8 36.9 33.3 Core P/E (x) na 26.2 62.8 36.9 33.3 P/BV (x) na 7.7 19.9 12.9 9.3 P/NTA (x) na 7.7 19.9 12.9 9.3 Net dividend yield (%) na 0.0 0.0 0.0 0.0 FCF yield (%) na 6.1 1.3 2.3 2.9 EV/EBITDA (x) 162.1 21.7 52.8 30.5 26.6 EV/EBIT (x) nm 22.5 54.1 31.1 27.2

INCOME STATEMENT (MYR m) Revenue 219.6 215.9 341.9 521.6 558.5 Gross profit 45.2 72.9 124.4 207.1 228.0 EBITDA 34.8 60.1 102.7 173.4 192.8 Depreciation (2.4) (2.3) (2.4) (3.2) (4.3) Amortisation 0.0 0.0 0.0 0.0 0.0 EBIT 32.4 57.8 100.3 170.2 188.5 Net interest income /(exp) (0.5) (0.3) (0.4) (0.3) (0.2) Associates & JV 0.0 0.0 0.0 0.0 0.0 Exceptionals 0.0 0.0 0.0 0.0 0.0 Other pretax income 0.0 0.0 0.0 0.0 0.0 Pretax profit 31.9 57.6 99.9 169.9 188.3 Income tax (0.1) (5.3) (9.2) (15.6) (17.3) Minorities 0.0 0.0 0.0 0.0 0.0 Discontinued operations 0.0 0.0 0.0 0.0 0.0 Reported net profit 31.7 52.3 90.7 154.2 171.0 Core net profit 37.1 57.3 90.7 154.2 171.0

BALANCE SHEET (MYR m) Cash & Short Term Investments 65.0 217.9 292.2 422.3 585.3 Accounts receivable 47.5 30.2 47.8 72.9 78.0 Inventory 3.6 2.9 4.2 6.0 6.3 Reinsurance assets 0.0 0.0 0.0 0.0 0.0 Property, Plant & Equip (net) 35.5 37.5 50.2 67.0 72.7 Intangible assets 0.0 0.0 0.0 0.0 0.0 Investment in Associates & JVs 0.0 0.0 0.0 0.0 0.0 Other assets 0.7 56.1 56.1 56.1 56.1 Total assets 152.4 344.6 450.3 624.2 798.4 ST interest bearing debt 2.4 1.0 1.0 1.0 1.0 Accounts payable 50.7 85.3 100.3 120.0 123.2 Insurance contract liabilities 0.0 0.0 0.0 0.0 0.0 LT interest bearing debt 5.7 18.1 18.1 18.1 18.1 Other liabilities 24.0 45.0 45.0 45.0 45.0 Total Liabilities 82.5 149.1 164.0 183.7 186.9 Shareholders Equity 69.9 195.6 286.3 440.6 611.5 Minority Interest 0.0 0.0 0.0 0.0 0.0 Total shareholder equity 69.9 195.6 286.3 440.6 611.5 Total liabilities and equity 152.4 344.6 450.3 624.2 798.4

CASH FLOW (MYR m) Pretax profit 31.9 57.6 99.9 169.9 188.3 Depreciation & amortisation 2.4 2.3 2.4 3.2 4.3 Adj net interest (income)/exp 0.5 0.3 0.4 0.3 0.2 Change in working capital 19.4 23.4 (3.9) (7.3) (2.2) Cash taxes paid (0.7) 0.1 (9.2) (15.6) (17.3) Other operating cash flow 23.1 20.5 0.0 0.0 0.0 Cash flow from operations 76.1 104.1 89.2 150.1 173.0 Capex (12.0) (12.0) (15.0) (20.0) (10.0) Free cash flow 64.2 92.1 74.2 130.1 163.0 Dividends paid (5.7) 0.0 0.0 0.0 0.0 Equity raised / (purchased) 0.0 73.0 0.0 0.0 0.0 Change in Debt (0.7) 14.0 0.0 0.0 0.0 Other invest/financing cash flow (2.2) (23.4) 0.0 0.0 0.0 Effect of exch rate changes (0.0) (0.1) 2.8 0.0 0.0 Net cash flow 55.5 155.7 77.1 130.1 163.0

November 21, 2020 58

Greatech Technology

FYE 31 Dec FY18A FY19A FY20E FY21E FY22E Key Ratios Growth ratios (%) Revenue growth 133.8 (1.7) 58.3 52.6 7.1 EBITDA growth 63.7 72.8 70.9 68.8 11.2 EBIT growth 65.0 78.7 73.4 69.7 10.8 Pretax growth 65.4 80.7 73.6 70.0 10.8 Reported net profit growth 66.5 64.9 73.5 70.0 10.8 Core net profit growth 41.6 54.5 58.2 70.0 10.8

Profitability ratios (%) EBITDA margin 15.8 27.8 30.0 33.2 34.5 EBIT margin 14.7 26.8 29.3 32.6 33.7 Pretax profit margin 14.5 26.7 29.2 32.6 33.7 Payout ratio 0.0 0.0 0.0 0.0 0.0

DuPont analysis Net profit margin (%) 14.4 24.2 26.5 29.6 30.6 Revenue/Assets (x) 1.4 0.6 0.8 0.8 0.7 Assets/Equity (x) 2.2 1.8 1.6 1.4 1.3 ROAE (%) 57.5 39.4 37.7 42.4 32.5 ROAA (%) 28.8 23.1 22.8 28.7 24.0

Liquidity & Efficiency Cash conversion cycle (0.9) (98.2) (106.7) (78.6) (77.1) Days receivable outstanding 89.5 64.8 41.1 41.6 48.6 Days inventory outstanding 11.5 8.1 5.8 5.8 6.7 Days payables outstanding 101.9 171.1 153.6 126.0 132.4 Dividend cover (x) nm nm nm nm nm Current ratio (x) 1.5 2.2 2.7 3.3 4.3

Leverage & Expense Analysis Asset/Liability (x) 1.8 2.3 2.7 3.4 4.3 Net gearing (%) (incl perps) net cash net cash net cash net cash net cash Net gearing (%) (excl. perps) net cash net cash net cash net cash net cash Net interest cover (x) 63.7 nm nm nm nm Debt/EBITDA (x) 0.2 0.3 0.2 0.1 0.1 Capex/revenue (%) 5.4 5.6 4.4 3.8 1.8 Net debt/ (net cash) (56.9) (198.8) (273.0) (403.2) (566.2) Source: Company; Maybank

November 21, 2020 59

2.62

November 21, 2020

Inari Amertron (INRI MK) BUY Share Price MYR 2.62 Our preferred 5G play 12m Price Target MYR 3.40 (+33%)

Previous Price Target MYR 2.45 Shariah Compliant Shariah

Maintain BUY, raising TP to MYR3.40 Company Description Inari Amertron is the biggest semiconductor player in Inari is our preferred pick to benefit from the mass deployment of 5G M’sia and one of Broadcom’s top OSAT providers in networks and increasing sales of premium 5G smartphones. Our earnings the thriving wireless division. forecasts are unchanged at this juncture, but we raised our TP to MYR3.40 (+95sen), based on a target 36x CY21E PER (at +2SD) to reflect

the strong near-term earnings growth prospects and our expectation of a Statistics sector re-rating. We rolled forward valuation from 28x FY21E PER (at 52w high/low (MYR) 2.70/1.04 +1SD). Medium to long-term growth is supported by on-boarding of new 3m avg turnover (USDm) 7.8 products/customers and M&As. Inari is our Top Pick for the hardware Free float (%) 67.8 technology sector. Issued shares (m) 3,243

Market capitalisation MYR8.5B Technology Capacity expansion denotes strong demand USD2.1B Major shareholders: We have a strong earnings growth outlook for Inari due to its RF (radio Insas Bhd. 19.0% frequency) division. Inari has 22 SiP (system in package) assembly lines, Kumpulan Wang Persaraan 12.8%

after adding six new lines in 1QFY21 and eight in 4QFY20. This denotes a Employees Provident Fund 9.9%

favourable, sizeable demand outlook from its key RF customer Price Performance (Broadcom) and expectation of the end-customer’s strong sales of their new 5G smartphones. We believe there are also possibilities for 2.80 240

additional capacity to be installed in the near future in the P34 plant. 2.60 220 Malaysia Notably, Inari’s current RF utilisation rate is about 90-95%. 2.40 200 2.20 180 Earnings forecasts unchanged 2.00 160 1.80 140 Our FY21-23E earnings are unchanged at this juncture. Earnings growths 1.60 120 (5-80% YoY) should be mainly driven by the RF division which is projected 1.40 100 to contribute 51-53% of the Group’s FY21-23E revenue. Elsewhere, Inari 1.20 80 has a healthy FY20 net cash of 17sen/share and FCF of 7.9sen/share 1.00 60 Nov-18 Feb-19 May-19 Aug-19 Nov-19 Feb-20 May-20 Aug-20 which support future dividends and potential M&A activities. Inari Amertron - (LHS, MYR) Inari Amertron / Kuala Lumpur Composite Index - (RHS, %) Risks if 5G deployment is slower than expected -1M -3M -12M Slower-than-expected deployment of 5G networks globally and lower 5G Absolute (%) 0 25 34 smartphone sales of leading brands could represent earnings downside Relative to index (%) (5) 23 34 for Inari, as it would lead to lower demand for Inari’s RF filters. There Source: FactSet

are also potential earnings risks at its optoelectronics division, particularly if there’s a prolonged slowdown of the automotive industry.

FYE Jun (MYR m) FY19A FY20A FY21E FY22E FY23E Revenue 1,153 1,058 1,720 2,048 2,157 EBITDA 303 266 427 491 509 Core net profit 200 163 294 338 356 Core EPS (sen) 6.0 4.8 8.7 10.0 10.5 Core EPS growth (%) (27.9) (19.8) 80.4 15.0 5.4 Net DPS (sen) 5.2 4.4 7.9 9.0 9.5 Core P/E (x) 26.6 35.0 30.1 26.2 24.8 P/BV (x) 4.8 4.7 7.1 6.8 6.6 Net dividend yield (%) 3.2 2.6 3.0 3.5 3.6 ROAE (%) 17.6 13.5 24.0 26.6 27.0 ROAA (%) 15.0 11.6 19.5 21.4 21.6 EV/EBITDA (x) 16.2 19.3 19.6 17.1 16.5 Net gearing (%) (incl perps) net cash net cash net cash net cash net cash ESG Consensus net profit - - 239 302 314 Tear Sheet Insert MKE vs. Consensus (%) - - 22.7 11.7 13.3

Kevin Wong [email protected] (603) 2082 6824

THIS REPORT HAS BEEN PREPARED BY MAYBANK KIM ENG RESEARCH SEE PAGE 73 FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS Inari Amertron

Value Proposition Price Drivers

. Inari is the biggest semiconductor player in Malaysia. One Historical share price trend of Broadcom’s top OSAT providers in the thriving wireless 2.80 280 division. Owns >1,000 units of testers, the largest in SEA. 2.60 2 260 2.40 240 . Cost competitiveness and manufacturing efficiency from 3 2.20 220 economies of scale as one of Broadcom’s key OSAT vendor. 2.00 1 200 . Largely cash generative with sustainable ROE of ~25-30%. 1.80 180 1.60 160 More upside potential as Broadcom group continues to 1.40 140 outsource more of its manufacturing processes. 1.20 120 . Returns hinge on Broadcom’s orders which have good 1.00 100 1 0.80 80 visibility. Next wave of growth would come from 5G. Nov-15 Nov-16 Nov-17 Nov-18 Nov-19 . USD/MYR forex fluctuations largely dictate margins. High Inari Amertron - (LHS, MYR) single customer exposure is another risk. Inari Amertron / Kuala Lumpur Composite Index - (RHS, %)

FCF and net cash Source: Company, Maybank Kim Eng

Net cash/share FCF/share (sen) 20.0 1. Record earnings driven by growth across all key divisions 17.4 18.0 and persistent growth outlook by both key clients. 16.0 15.1 2. Sector’s down cycle in 2019 with weakness across the 13.6 13.6 14.0 12.5 12.8 supply chain. 12.0 9.9 3. Short-term market weakness due to the COVID-19 10.0 7.9 7.8 pandemic and Malaysia’s Movement Control Order. 8.0 6.0 3.4 3.6 4.0 2.6 2.0 0.0 2018A 2019A 2020A 2021E 2022E 2023E Source: Company

Financial Metrics Swing Factors

. Volume growth and ASPs for RF products (premised on Upside introduction of faster cellular network) and stable

USD/MYR are key to Inari’s earnings. . Faster-than-expected adoption of LTE-A/5G (from LTE) . EBIT margin can widen as higher orders and potential new would improve earnings visibility for Broadcom and Inari. job wins optimise utilisation of Inari’s plants in Malaysia, . Recovery of the automotive industry in the Philippines. the Philippines and China; illustrated in recent results. . Stronger-than-expected smartphone sales of top brands. . Visible quarterly growth as demand from Broadcom is projected to be up, in preparation for 5G adoption. Expect higher utilisation to meet Broadcom’s demand and new Downside clients in RF related products. . Forex: MYR’s further strength against USD has a negative Quarterly net profit revenue impact. . Drastic fall in global Tier-1 smartphone shipment will Core net profit (LHS) Core net profit margin (RHS) (MYR'm) hamper orders for Broadcom’s premium RF products and 100 30% weaken Inari’s earnings visibility. 90 25% 80 . Single customer risk: >70% of Inari’s group revenue is 70 18% 20% derived from Broadcom. In the event where Inari fails to 60 deliver to Broadcom, Inari may see its partnership 50 42.0 15% revoked. 40 10% 30 20 5% 10 0 0% 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 Source: Company

[email protected]

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Inari Amertron

ESG [email protected] Business Model & Industry Issues

. Inari is the largest listed technology company on Bursa by market capitalisation - a testament to its niche expertise in the back-end wafer processing, assembly and testing of radio frequency & optoelectronic products for a global clientele that includes Broadcom. . In our view, the company has been largely successful in complying with environmental and occupational health & safety standards. However, female and independent representation on its board has been comparatively low. Meanwhile, despite a sizeable composition of foreign labour in its workforce (c.30%), Inari continues to uphold human and labour rights, and fair treatment in managing foreign labours. . Overall, Inari is still largely well-placed to leverage on its competent management team & strong track-record to maintain its market-leading position in the industry and capitalise on the mass deployment of 5G smartphones in the years to come.

Material E issues Key G metrics and issues

. Energy consumption was approximately 365,000 GJ across . Independent directors, including the chairman, the group in FY20 (1.4% decrease from FY19). Energy currently make up 40% of the board with 4 of the 10 intensity was also lowered by 13.5% to 6.19 kWh per members. Although the composition is compliant with output unit, with a notable reduction in the Philippines. Bursa’s Main Market Listing requirements, it is not in . Company has been certified ISO 14001 since 2007 and line with the Malaysian Code on Corporate Governance strives to minimise its environmental impact via pollution- (MGCC) practise of having at least half the board prevention mechanisms. In FY20, it generated 69.7 ktCO2e comprising of independents. The company of greenhouse gas (GHG) emissions, a marginal reduction acknowledges this shortcoming and has set itself a of 1.3% vis-a-vis FY19. Emissions intensity also decreased three-year timeline to make the necessary amends. in tandem by 31.7% across the group as a whole. Of the . Only 10% or 1 of the 10 of the board members is total, direct (Scope 1) GHG emissions amounted to <1% of female-represented. Although she is the chairman of total emissions with the remaining 99.6% being indirect the board, it doesn’t negate the dearth of diverse emissions from electricity usage. perspectives that could arise from a lack of female . Achieved its waste reduction target in FY20 by either representation. The company has set itself a three- successfully recovering, recycling or reusing 90.06% of its year timeline to increase female representation to at 574 tonnes of generated waste. least 30% to be more in line with MGCC best practises. . Management is planning on installing solar photovoltaic . Average tenure of the independent board members is panels and an energy optimisation system in its premises 8.2 years (longest-serving at 10.2 years and shortest at that aim to reduce GHG emissions further by 6% and 7% 2.8 years). Leadership churn risk is low with no respectively. independent director resigning since June 2012. The board has however not adopted a policy to limit the tenure of its independent directors to nine years with 3 Material S issues of the 4 existing independent directors having served more than nine years each. . Gender inclusivity is at the forefront of management’s . All 4 board committees are chaired by independent strategic priorities with 69% of the 5,600-stong workforce directors and have an independent majority. being female. Employee turnover rate amongst women has . Director’s renumeration stands at 5.1% of FY19 net also decreased from 26.7% in FY19 to 13.7% in FY20. profit. The company’s renumeration is based on . Employee benefits (including insurance and medical performance and is benchmarked periodically against coverage) are generous by industry standards and peers to ensure compensation is fair and motivating. employees are on average, provided 10 hours of training . No material related-party transactions to date. per year in both vocational and non-technical fields. . Grant Thornton has been the external auditor for more . In terms of occupational safety & health (OSH), the group than 9 years since the company listed in 2011. reported just 5 minor workplace injuries over the past . Inari has undertaken 2 major acquisitions since listing - three years. OSH training is also mandatory for all staff. notably Amertron (Global) in 2013 for USD32m and that . Inari strives to uphold human and labour rights and fair of a 9.7% equity stake in PCL Technologies at a treatment in managing foreign labours (i.e. legal work reasonable 8.4% premium in 2016. Both acquisitions permits, at least minimum wage, prohibition of child have been value-accretive and successful in increasing labour and forced labour). Approx. 30% of Inari’s FY20 shareholder returns. workforce were foreign labours.

November 21, 2020 62

Inari Amertron

Fig 1: 12M forward PER band Fig 2: 12M forward PBV band (x) (x) 40.0 +2SD: 35.7 7.5 35.0 +1SD: 5.6 +1SD: 29.2 6.0 30.0 Mean: 4.6

25.0 Mean: 22.7 4.5 -1SD: 3.6

20.0 -1SD: 16.1 3.0 15.0 1.5 10.0

5.0 - Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19

Source: Bloomberg, Maybank Kim Eng Source: Bloomberg, Maybank Kim Eng

Risk statement

There are several risk factors for our earnings estimates, target price and rating for Inari. A sharp turn in the global markets for electronics, especially smartphones, will affect the demand for components that Inari is producing for its key clients (i.e. Broadcom and Osram). Design-in and design-out of components related to Inari’s current production will also affect revenue and earnings. Additionally, forex volatility, especially USD/MYR, will affect Inari’s earnings, as almost ~90%/70% of its revenue/COGS is denominated in USD.

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FYE 30 Jun FY19A FY20A FY21E FY22E FY23E Key Metrics P/E (reported) (x) 31.9 35.6 30.1 26.2 24.8 Core P/E (x) 26.6 35.0 30.1 26.2 24.8 P/BV (x) 4.8 4.7 7.1 6.8 6.6 P/NTA (x) 4.8 4.7 7.1 6.8 6.6 Net dividend yield (%) 3.2 2.6 3.0 3.5 3.6 FCF yield (%) 1.6 4.7 1.4 3.0 3.8 EV/EBITDA (x) 16.2 19.3 19.6 17.1 16.5 EV/EBIT (x) 23.6 31.4 25.7 21.8 20.6

INCOME STATEMENT (MYR m) Revenue 1,152.9 1,058.0 1,720.1 2,047.7 2,157.4 Gross profit 269.4 216.2 412.8 491.4 517.8 EBITDA 303.0 265.5 427.4 490.5 509.3 Depreciation (94.9) (102.4) (100.3) (104.4) (103.5) Amortisation 0.0 0.0 (0.5) (0.5) 0.5 EBIT 208.2 163.1 326.6 385.6 406.3 Net interest income /(exp) 8.0 9.8 11.3 7.3 6.7 Associates & JV 0.0 0.0 0.0 0.0 0.0 Exceptionals 0.0 0.0 0.0 0.0 0.0 Other pretax income 0.0 0.0 0.0 0.0 0.0 Pretax profit 216.2 172.9 337.9 392.9 413.1 Income tax (23.9) (15.9) (44.3) (55.3) (57.4) Minorities (0.6) (0.7) 0.0 0.0 0.0 Discontinued operations 0.0 0.0 0.0 0.0 0.0 Reported net profit 191.7 156.3 293.6 337.6 355.7 Core net profit 200.4 162.8 293.6 337.6 355.7

BALANCE SHEET (MYR m) Cash & Short Term Investments 429.7 594.6 463.8 437.6 464.3 Accounts receivable 233.0 214.4 328.1 384.7 403.6 Inventory 172.7 145.9 225.6 268.6 283.0 Reinsurance assets 0.0 0.0 0.0 0.0 0.0 Property, Plant & Equip (net) 489.5 479.4 499.1 494.6 491.1 Intangible assets 2.2 2.3 1.8 1.3 1.8 Investment in Associates & JVs 0.0 0.0 0.0 0.0 0.0 Other assets 13.2 27.6 27.6 27.6 27.6 Total assets 1,340.3 1,464.2 1,546.0 1,614.4 1,671.4 ST interest bearing debt 6.2 5.0 5.0 5.0 5.0 Accounts payable 160.8 199.2 239.8 261.0 268.0 Insurance contract liabilities 0.0 0.0 0.0 0.0 0.0 LT interest bearing debt 8.7 1.1 1.1 1.1 1.1 Other liabilities 43.0 50.0 50.0 50.0 50.0 Total Liabilities 218.4 255.2 295.9 317.0 324.1 Shareholders Equity 1,118.4 1,204.7 1,245.9 1,293.2 1,343.0 Minority Interest 3.5 4.2 4.2 4.2 4.2 Total shareholder equity 1,122.0 1,208.9 1,250.1 1,297.4 1,347.3 Total liabilities and equity 1,340.3 1,464.2 1,546.0 1,614.4 1,671.4

CASH FLOW (MYR m) Pretax profit 216.2 172.9 337.9 392.9 413.1 Depreciation & amortisation 94.9 102.4 100.8 104.9 103.0 Adj net interest (income)/exp (8.0) (9.8) (11.3) (7.3) (6.7) Change in working capital (11.6) 91.1 (152.8) (78.4) (26.2) Cash taxes paid (35.1) (21.7) (44.3) (55.3) (57.4) Other operating cash flow 6.0 2.4 0.0 0.0 0.0 Cash flow from operations 270.5 347.0 241.6 364.1 432.4 Capex (182.8) (80.8) (120.0) (100.0) (100.0) Free cash flow 87.7 266.2 121.6 264.1 332.4 Dividends paid (217.4) (140.8) (252.4) (290.3) (305.8) Equity raised / (purchased) (3.9) (1.5) 0.0 0.0 0.0 Change in Debt 30.4 41.0 0.0 0.0 0.0 Other invest/financing cash flow (2.4) (12.4) 0.0 0.0 0.0 Effect of exch rate changes 0.0 0.0 0.0 0.0 0.0 Net cash flow (105.6) 152.6 (130.8) (26.1) 26.6

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Inari Amertron

FYE 30 Jun FY19A FY20A FY21E FY22E FY23E Key Ratios Growth ratios (%) Revenue growth (16.2) (8.2) 62.6 19.0 5.4 EBITDA growth (18.4) (12.4) 61.0 14.8 3.8 EBIT growth (27.6) (21.6) 100.2 18.1 5.4 Pretax growth (26.8) (20.0) 95.4 16.3 5.1 Reported net profit growth (23.1) (18.5) 87.8 15.0 5.4 Core net profit growth (28.7) (18.8) 80.4 15.0 5.4

Profitability ratios (%) EBITDA margin 26.3 25.1 24.8 24.0 23.6 EBIT margin 18.1 15.4 19.0 18.8 18.8 Pretax profit margin 18.8 16.3 19.6 19.2 19.1 Payout ratio 89.7 94.1 90.3 90.3 90.3

DuPont analysis Net profit margin (%) 16.6 14.8 17.1 16.5 16.5 Revenue/Assets (x) 0.9 0.7 1.1 1.3 1.3 Assets/Equity (x) 1.2 1.2 1.2 1.2 1.2 ROAE (%) 17.6 13.5 24.0 26.6 27.0 ROAA (%) 15.0 11.6 19.5 21.4 21.6

Liquidity & Efficiency Cash conversion cycle 73.4 67.3 47.5 61.9 68.2 Days receivable outstanding 72.8 76.1 56.8 62.7 65.8 Days inventory outstanding 67.9 68.1 51.2 57.2 60.6 Days payables outstanding 67.2 77.0 60.4 57.9 58.1 Dividend cover (x) 1.1 1.1 1.1 1.1 1.1 Current ratio (x) 4.2 4.0 3.7 3.7 3.8

Leverage & Expense Analysis Asset/Liability (x) 6.1 5.7 5.2 5.1 5.2 Net gearing (%) (incl perps) net cash net cash net cash net cash net cash Net gearing (%) (excl. perps) net cash net cash net cash net cash net cash Net interest cover (x) na na na na na Debt/EBITDA (x) 0.0 0.0 0.0 0.0 0.0 Capex/revenue (%) 15.9 7.6 7.0 4.9 4.6 Net debt/ (net cash) (414.8) (588.4) (457.6) (431.5) (458.1) Source: Company; Maybank

November 21, 2020 65

15.06

November 21, 2020

ViTrox Corp (VITRO MK) SELL Share Price MYR 15.06 Favourable outlook, but high 12m Price Target MYR 11.60 (-22%)

valuations Previous Price Target MYR 8.80 Shariah Compliant Shariah

Maintain SELL; Prefer Inari – Top Pick Statistics 52w high/low (MYR) 15.48/6.61 We expect ViTrox’s earnings to remain resilient and supported by the 3m avg turnover (USDm) 0.9 rising global semiconductor industry. In tandem with our sector upgrade Free float (%) 31.1 and our expectation of sector upcycle, we raise our TP to MYR11.60 Issued shares (m) 471 (from MYR8.80), based on a higher 37x FY21E PER. Nevertheless, due to Market capitalisation MYR7.1B

lofty valuations, maintain SELL on ViTrox. We prefer Inari (INRI MK, SP USD1.7B 2.62, BUY, TP MYR3.40) due to favourable growth prospects from RF. Major shareholders: CHU JENN WENG 27.0% Investment thesis and outlook SIAW KOK TONG 19.1% ViTrox’s commendable earnings track record was attributed to its broad YEOH SHIH HOONG 10.3%

portfolio, which spans across multiple industries and a myriad of past Technology Price Performance and current customers globally. We have a favourable outlook for ViTrox, based on: (i) our expected upcycle of the global semiconductor industry, 16.0 280 which would be positive for its MVS products; and (ii) gradual mass 15.0 260 deployment of 5G networks and rising demand for 5G-related devices 14.0 240 13.0 220 which, in turn, would lead to stronger demand for its ABI equipment. 12.0 200 Elsewhere, we also expect deliveries to remain commendable in the 11.0 180 upcoming quarters, partly attributed to pent-up demand/orders due to 10.0 160 9.0 140 the pandemic in 1H20. As at end-3Q20, the book-to-bill ratio was a 8.0 120 Malaysia healthy 1.1x. 7.0 100 6.0 80 5.0 60 Earnings assumptions Nov-18 Feb-19 May-19 Aug-19 Nov-19 Feb-20 May-20 Aug-20 We maintain our earnings forecasts where near-term earnings forecasts ViTrox Corp - (LHS, MYR) ViTrox Corp / Kuala Lumpur Composite Index - (RHS, %) are largely supported by rising sales volume and demand in its MVI and -1M -3M -12M AVBI segments. As highlighted above, we are also assuming higher Absolute (%) 9 25 92 deliveries in FY21E (net profit +30% YoY) due to the backlog of orders in FY20. ViTrox has a commendable net cash position of 40sen/share (end- Relative to index (%) 3 23 93 Source: FactSet 3Q20) which supports potential expansions and/or M&A. Valuations Our revised TP of MYR11.60, is based on a higher, re-rated 37x FY21E PER, +1SD of mean (from 28x at +0.5SD). However, maintain SELL on ViTrox. Notwithstanding its decent earnings outlook and ATE’s premium valuation above OSATs’ (i.e more resilient earnings), ViTrox’s valuations remain expensive in our view, currently at 48x FY21E PER (approximately +2SD) vs the average of 35x for our universe (MY semiconductor).

FYE Dec (MYR m) FY18A FY19A FY20E FY21E FY22E Revenue 395 340 417 529 544 EBITDA 118 94 121 158 162 Core net profit 107 71 114 148 152 Core EPS (sen) 22.7 15.1 24.2 31.4 32.1 Core EPS growth (%) 30.6 (33.4) 60.4 29.8 2.3 Net DPS (sen) 5.8 4.4 6.2 8.1 8.3 Core P/E (x) 27.8 52.5 62.3 48.0 46.9 P/BV (x) 7.2 7.8 12.5 10.5 9.0 Net dividend yield (%) 0.9 0.6 0.4 0.5 0.5 ROAE (%) 28.4 15.6 21.8 23.8 20.7 ROAA (%) 20.1 12.0 16.6 17.7 15.5 EV/EBITDA (x) 24.4 38.2 57.8 44.2 42.6 Net gearing (%) (incl perps) net cash net cash net cash net cash net cash ESG Consensus net profit - - 110 140 165 Tear Sheet Insert MKE vs. Consensus (%) - - 4.3 5.9 (7.9)

Kevin Wong [email protected] (603) 2082 6824

THIS REPORT HAS BEEN PREPARED BY MAYBANK KIM ENG RESEARCH SEE PAGE 73 FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS ViTrox Corp

Value Proposition Price Drivers

. As a manufacturer of automated test equipment, ViTrox Historical share price trend has a wide, global portfolio of past and present customers 16.0 1,600 across various industries. This entails a low customer 14.0 1,400 concentration risks and comparatively more resilient 12.0 3 1,200 2 earnings in the tech supply chain. 10.0 1,000 8.0 800 . ViTrox benefits from a growing global semiconductor 1 market, via their 2 key segments – Machine Vision System 6.0 600 4.0 400 (MVS) and Automated Board Inspection (ABI). 2.0 200 . Earnings growth prospects derive from a growing 1 0.0 0 semiconductor supply-chain, such as front-end processes Nov-15 Nov-16 Nov-17 Nov-18 Nov-19 (i.e. MVS products) and outsourced assembly and ViTrox Corp - (LHS, MYR) test/OSAT (i.e. ABS products). ViTrox Corp / Kuala Lumpur Composite Index - (RHS, %)

. USD/MYR forex fluctuations largely dictate margins. Source: Company, Maybank Kim Eng Net cash and FCF

Net cash/share FCF/share 1. Attributed to earnings growth and stability, and (sen) 60.0 improving prospects.

49.1 2. Continuation of price and valuations uptrend, with minor 50.0 correlation with the global semiconductor upcycles and

40.0 downcycles. 32.6 30.2 30.7 3. Share price pull-back was in-line with the softening of 30.0 24.3 the sector during heightening of the COVID-19 pandemic. 19.5 19.6 20.0 16.0 9.5 10.0 6.2 4.3 4.1

0.0 2017A 2018A 2019A 2020F 2021F 2022F Source: Company, Maybank Kim Eng

Financial Metrics Swing Factors

. Key revenue parameters/metrics are primarily on delivery Upside of orders/equipment, i.e. volume and ASPs. . Earnings and profitability margins would also be dictated . Stronger-than-expected growth of the global by product mix and operating costs. USD/MYR would also semiconductor supply chain which drives demand for influence profit margins (over ¾ of revenue is their products. denominated in USD). . Expansion of production facilities – denoting a strong . We expect earnings to be driven by key countries with demand ahead. strong presence in the semiconductor supply chain, i.e. . Stronger-than-expected revenue from selected sectors, China, Taiwan and the United States. e.g. telecommunications, automotive, consumer and . Book-to-bill ratio remains between 1.0x-1.3x – denoting a computing. healthy level with manageable productions.

Quarterly core net profit Downside

Core net profit (LHS) Core net profit margin (RHS) (sen) . Forex: MYR’s further strength against USD has a negative 35.0 30.0% revenue impact. 23.7% 30.0 25.0% . Weaker-than-expected revenue from key sectors/ 25.0 20.0% countries. 20.0 . Weaker demand as indicated by low book-to-bill (<0.9x) 15.0% 15.0 29.3 10.0% 10.0

5.0 5.0%

0.0 0.0% 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 Source: Company, Maybank Kim Eng

[email protected]

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ViTrox Corp

ESG [email protected] Business Model & Industry Issues

. ViTrox has been at the forefront of vision inspection and solutions for the semiconductor and electronic packaging industry. It has 20 years of experience in the industry and an expansive customer base spanning 17 countries. Its products, critical in detecting micro-defects, are used by major chip and circuit board manufacturers in their production lines. . The company has a commendable track record of increasing shareholder value since its inception and has been keen to emulate Google in creating a healthy and inclusive working environment for its employees – a mission that culminated into the opening of its state-of-the-art Batu Kawan facility in 2018. . In our view, the company has thus far gone above and beyond to ensure strict compliance with the various environmental, occupational safety & health and corporate governance requirements. With a management team that’s driven to create shareholder value, maintain customer satisfaction and ensure the best working environment for its employees, ViTrox is arguably well-placed to maintain its position as one of the market leaders in the industry.

Material E issues Key G metrics and issues

. Took the proactive step of splitting its Environmental . Independent directors currently form 57.1% of the Policy from the combined Environmental Safety & Health Board with 4 of the 7 members (FY19: 62.5% of 8 Policy on 1st September 2019. All relevant environmental members), including the Chairman - composition is in permits have also been obtained and maintained, with line with the desired Malaysian Code on Corporate reporting requirements strictly adhered too. Governance practise of having at least half the Board . Scheduled waste: For FY19, company was well within the comprising of independents. limits as outlined in the Environmental Quality Regulations . Average tenure amongst the independent Board 2005 of the Environmental Quality Act 1974. members is 11.8 years (longest-serving at 15.3 years . Installed a 458kW industrial-scale solar photovoltaic and shortest at 2.6 years). Leadership churn risk is very system at its Batu Kawan factory in August 2018 that low with only a single independent director who had generated 720,519 kWh in FY19 - this amounted to served for 10 years retiring on 1 Aug 2020. The board approximately RM250k of energy savings and is the has not adopted a policy to limit the tenure of its equivalent of 500 tonnes of carbon emission offsets. independent directors to 9 years with 3 of the 4 . Introduced various green initiatives for its employees such existing independent directors having cumulatively as V-Carpooling (involving 260 employees), V-Farm (on- served more than 12 years each. campus program to produce pesticide-free vegetables, . All 4 board committees are chaired by independent herbs, and fruits for employee consumption, with the directors. Both key board committees – audit & excesses donated to charity), and the lauded V-Meal nomination, comprise solely of independents while the program that utilises the V-Farm produce to provide free remuneration committee is comprised of an and nutritious vegetarian lunches to all employees 4 days independent majority (2 of 3 members). The ESOS a week (76k meals prepared in FY19). committee is the only board committee that has a non- independent majority (3 of 5 members). . 28.6% or 2 of 7 of the Board are female (up from 25% Material S issues following the resignation of a male non-independent director in Aug 2020). All key senior management are . Occupational safety & health: Notwithstanding the male. increased in headcount by 11.4% in FY19 (FY18: 709 . Director’s renumeration stands at 2.4% and 1.5% of personnel), management succeeded in slashing total group-wide employee compensation and FY19 net impermanent disability incidents by 92.3% to just 1 (FY18: profit respectively. 13) with lost workdays also decreasing by 85.6% (FY19: 2, . Crowe Malaysia (formerly Crowe Horwath) has been the FY18: 13). external auditor for 13 years (since 2007). . Training: Management invested in increasing the number . No related party transaction of note since listing. of internal employee training sessions by 67.1% to 132 in . No notable controversial nor value-dilutive merger & FY19 (FY18: 79 sessions). To ensure its employees’ acquisition since listing. continuous development, soft-skills training was also prioritised in FY19 with the number of sessions increasing by 32.3% y-o-y to 127 (FY18: 96). . CSR: Contributed RM203k in FY19 to 15 initiatives (including RM20k raised for the Buddhist Tzu Chi Society of Malaysia).

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ViTrox Corp

Fig 1: ViTrox Corp’s quarterly revenues Fig 2: ViTrox Corp’s book-to-bill ratio

MYR m (x) 1.6 140 124 111 1.5 120 105102 96 1.4 95 90 97 100 84 89 89 1.3 78 77 70 1.2 1.1 80 64 67 56 57 58 1.1 60 48 43 39 40 1.0 33 40 0.9 20 0.8 0.7

0 0.6

4Q14 2Q15 4Q15 3Q16 1Q17 3Q17 1Q18 3Q18 1Q19 3Q19 2Q20 1Q15 3Q15 1Q16 2Q16 4Q16 2Q17 4Q17 2Q18 4Q18 2Q19 4Q19 1Q20 3Q20

Jul-16 Jul-19 Jul-17 Jul-18

Apr-17 Apr-18 Apr-19 Apr-16 Apr-20

Jan-16 Jan-20 Jan-17 Jan-18 Jan-19

Oct-17 Oct-18 Oct-15 Oct-16 Oct-19

Source: Bursa Source: Company

Fig 3: ViTrox Corp’s 12M fwd PER band Fig 4: ViTrox Corp’s 12M fwd PBV band

(x) (x) 45.0 9.0 40.0 +1SD: 37.3 8.0 +1SD: 6.5 35.0 7.0 30.0 Mean: 26.4 6.0 Mean: 4.6 25.0 5.0 20.0 -1SD: 15.5 4.0 -1SD: 2.8 15.0 3.0 10.0 2.0 5.0 1.0 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19

Source: Bloomberg, Maybank Kim Eng Source: Bloomberg, Maybank Kim Eng

Risk statement

There are several risk factors for our earnings estimates, target price and rating for ViTrox. A sharp downturn in the global markets for electronics will affect the capex spending for OSAT and EMS players involved and this will result in softer demand for ViTrox’ inspection equipment. Additionally, forex volatility, especially USD/MYR, will also affect ViTrox’s earnings, as almost ~90%/30% of its revenue/ COGS is denominated in USD.

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FYE 31 Dec FY18A FY19A FY20E FY21E FY22E Key Metrics P/E (reported) (x) 29.0 48.8 62.3 48.0 46.9 Core P/E (x) 27.8 52.5 62.3 48.0 46.9 P/BV (x) 7.2 7.8 12.5 10.5 9.0 P/NTA (x) 7.2 7.8 12.5 10.5 9.0 Net dividend yield (%) 0.9 0.6 0.4 0.5 0.5 FCF yield (%) 0.6 1.7 0.4 0.6 1.6 EV/EBITDA (x) 24.4 38.2 57.8 44.2 42.6 EV/EBIT (x) 26.1 42.3 60.4 46.0 44.6

INCOME STATEMENT (MYR m) Revenue 394.7 339.6 416.6 529.5 544.1 Gross profit 262.2 221.0 279.1 357.4 367.2 EBITDA 118.0 94.3 120.6 157.6 161.8 Depreciation (6.8) (6.8) (4.4) (5.5) (6.6) Amortisation (0.7) (0.7) (0.7) (0.7) (0.7) EBIT 110.5 85.2 115.5 151.4 154.5 Net interest income /(exp) 3.0 2.9 2.5 2.0 2.3 Associates & JV (0.1) 0.5 2.0 2.0 3.0 Exceptionals 0.0 0.0 0.0 0.0 0.0 Other pretax income 0.0 0.0 0.0 0.0 0.0 Pretax profit 113.4 71.5 120.0 155.4 159.8 Income tax (7.6) (1.8) (5.6) (6.9) (8.0) Minorities 0.0 0.0 0.0 0.0 0.0 Discontinued operations 0.0 0.0 0.0 0.0 0.0 Reported net profit 105.7 69.7 114.3 148.4 151.9 Core net profit 107.0 71.3 114.3 148.4 151.9

BALANCE SHEET (MYR m) Cash & Short Term Investments 148.7 191.6 218.0 250.6 351.9 Accounts receivable 156.7 126.4 191.0 241.1 247.6 Inventory 103.7 111.5 140.9 176.3 181.2 Property, Plant & Equip (net) 155.1 99.1 124.7 149.3 171.7 Intangible assets 0.0 0.0 0.0 0.0 0.0 Investment in Associates & JVs 0.0 0.0 0.0 0.0 0.0 Other assets 11.8 88.1 90.1 92.1 95.1 Total assets 576.1 616.7 764.8 909.4 1,047.4 ST interest bearing debt 3.1 7.3 7.3 7.3 7.3 Accounts payable 83.9 68.3 92.1 101.8 103.2 LT interest bearing debt 53.1 41.4 65.4 89.4 112.6 Other liabilities 22.0 17.0 33.0 33.0 34.0 Total Liabilities 162.6 134.3 197.5 232.0 257.2 Shareholders Equity 413.5 482.4 567.3 677.5 790.2 Minority Interest 0.0 0.0 0.0 0.0 0.0 Total shareholder equity 413.5 482.4 567.3 677.5 790.2 Total liabilities and equity 576.1 616.7 764.8 909.4 1,047.4

CASH FLOW (MYR m) Pretax profit 113.4 71.5 120.0 155.4 159.8 Depreciation & amortisation 7.5 7.5 5.1 6.2 7.3 Adj net interest (income)/exp (3.0) (2.9) (2.5) (2.0) (2.3) Change in working capital (65.1) 0.1 (55.5) (75.8) (10.0) Cash taxes paid (6.2) (4.0) (5.6) (6.9) (8.0) Other operating cash flow (0.3) 1.0 (2.0) (2.0) (3.0) Cash flow from operations 46.3 73.3 59.4 74.8 143.8 Capex (27.8) (10.5) (30.0) (30.0) (29.0) Free cash flow 18.5 62.8 29.4 44.8 114.8 Dividends paid (21.2) (27.1) (29.4) (38.2) (39.1) Equity raised / (purchased) 0.0 0.0 0.0 0.0 0.0 Change in Debt (2.2) (6.1) 24.0 24.0 23.2 Other invest/financing cash flow 4.6 2.8 2.5 2.0 2.3 Effect of exch rate changes (0.5) 0.0 0.0 0.0 0.0 Net cash flow (0.8) 32.5 26.4 32.6 101.2

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FYE 31 Dec FY18A FY19A FY20E FY21E FY22E Key Ratios Growth ratios (%) Revenue growth 20.5 (14.0) 22.7 27.1 2.8 EBITDA growth 30.1 (20.1) 27.9 30.7 2.7 EBIT growth 31.5 (22.9) 35.5 31.0 2.1 Pretax growth 31.0 (36.9) 67.7 29.5 2.9 Reported net profit growth 27.4 (34.1) 64.0 29.8 2.3 Core net profit growth 30.6 (33.4) 60.4 29.8 2.3

Profitability ratios (%) EBITDA margin 29.9 27.8 28.9 29.8 29.7 EBIT margin 28.0 25.1 27.7 28.6 28.4 Pretax profit margin 28.7 21.1 28.8 29.3 29.4 Payout ratio 25.7 30.0 25.8 25.8 25.8

DuPont analysis Net profit margin (%) 26.8 20.5 27.4 28.0 27.9 Revenue/Assets (x) 0.7 0.6 0.5 0.6 0.5 Assets/Equity (x) 1.4 1.3 1.3 1.3 1.3 ROAE (%) 28.4 15.6 21.8 23.8 20.7 ROAA (%) 20.1 12.0 16.6 17.7 15.5

Liquidity & Efficiency Cash conversion cycle 139.2 245.7 257.6 275.9 316.9 Days receivable outstanding 128.0 150.0 137.1 146.9 161.7 Days inventory outstanding 238.4 326.6 330.4 331.8 363.9 Days payables outstanding 227.3 230.9 209.9 202.8 208.7 Dividend cover (x) 3.9 3.3 3.9 3.9 3.9 Current ratio (x) 4.0 4.9 5.0 5.5 6.4

Leverage & Expense Analysis Asset/Liability (x) 3.5 4.6 3.9 3.9 4.1 Net gearing (%) (incl perps) net cash net cash net cash net cash net cash Net gearing (%) (excl. perps) net cash net cash net cash net cash net cash Net interest cover (x) na na na na na Debt/EBITDA (x) 0.5 0.5 0.6 0.6 0.7 Capex/revenue (%) 7.0 3.1 7.2 5.7 5.3 Net debt/ (net cash) (92.5) (142.9) (145.3) (153.9) (231.9) Source: Company; Maybank

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Research Offices

ECONOMICS REGIONAL EQUITIES SINGAPORE THAILAND

Suhaimi ILIAS Anand PATHMAKANTHAN Thilan WICKRAMASINGHE Head of Research Maria LAPIZ Head of Institutional Research Chief Economist Head of Regional Equity Research (65) 6231 5840 [email protected] Dir (66) 2257 0250 | (66) 2658 6300 ext 1399 Malaysia | Philippines | Global (603) 2297 8783 • Banking & Finance - Regional [email protected] (603) 2297 8682 [email protected] • Consumer • Strategy • Consumer • Materials • Services [email protected] WONG Chew Hann, CA CHUA Su Tye Jesada TECHAHUSDIN, CFA CHUA Hak Bin Head of ASEAN Equity Research (65) 6231 5842 [email protected] (66) 2658 6300 ext 1395 Regional Thematic Macroeconomist (603) 2297 8686 • REITs - Regional [email protected] (65) 6231 5830 [email protected] • Banking & Finance [email protected] LAI Gene Lih, CFA ONG Seng Yeow (65) 6231 5832 [email protected] Kaushal LADHA, CFA LEE Ju Ye Research, Technology & Innovation • Technology • Healthcare (66) 2658 6300 ext 1392 Singapore | Thailand | Indonesia (65) 6231 5839 [email protected] (65) 6231 5844 [email protected] Kareen CHAN • Oil & Gas – Regional [email protected] (65) 6231 5926 [email protected] • Petrochemicals - Regional MALAYSIA • Transport Linda LIU Vanida GEISLER, CPA Singapore | Vietnam Anand PATHMAKANTHAN Head of Research TAN Chin Poh Head of Retail Research (66) 2658 6300 ext 1394 (65) 6231 5847 (603) 2297 8783 (65) 6231 5928 [email protected] [email protected] [email protected] [email protected] • Property • Strategy Eric ONG Dr Zamros DZULKAFLI (65) 6231 5924 [email protected] Yuwanee PROMMAPORN (603) 2082 6818 Desmond CH’NG, BFP, FCA • Retail Research (66) 2658 6300 ext 1393 [email protected] (603) 2297 8680 Yuwanee.P @maybank-ke.co.th [email protected] Matthew SHIM • Services Ramesh LANKANATHAN • Banking & Finance (65) 6231 5929 (603) 2297 8685 [email protected] Ekachai TARAPORNTIP Head of Retail Research [email protected] LIAW Thong Jung • Retail Research (66) 2658 5000 ext 1530 (603) 2297 8688 [email protected] [email protected] William POH • Oil & Gas Services- Regional INDIA (603) 2297 8683 • Automotive Surachai PRAMUALCHAROENKIT [email protected] Jigar SHAH Head of Research (66) 2658 5000 ext 1470 ONG Chee Ting, CA (91) 22 4223 2632 [email protected] [email protected] FX (603) 2297 8678 [email protected] • Strategy • Oil & Gas • Automobile • Cement • Auto • Conmat • Contractor • Steel • Plantations - Regional Saktiandi SUPAAT Neerav DALAL Suttatip PEERASUB Head of FX Research YIN Shao Yang, CPA (91) 22 4223 2606 [email protected] (66) 2658 5000 ext 1430 (65) 6320 1379 (603) 2297 8916 [email protected] • Software Technology • Telcos [email protected] [email protected] • Gaming – Regional • Food & Beverage • Commerce • Media • Aviation Kshitiz PRASAD Christopher WONG (91) 22 4223 2607 Jaroonpan WATTANAWONG (65) 6320 1347 TAN Chi Wei, CFA [email protected] (66) 2658 5000 ext 1404 [email protected] (603) 2297 8690 [email protected] • Banks [email protected] • Power • Telcos • Transportation • Small cap TAN Yanxi Vikram RAMALINGAM (65) 6320 1378 WONG Wei Sum, CFA (91) 22 4223 2607 Thanatphat SUKSRICHAVALIT [email protected] (603) 2297 8679 [email protected] [email protected] (66) 2658 5000 ext 1401 • Property • Automobile • Media [email protected] Fiona LIM • Media • Electronics (65) 6320 1374 LEE Yen Ling INDONESIA [email protected] (603) 2297 8691 [email protected] Isnaputra ISKANDAR Head of Research Wijit ARAYAPISIT • Glove • Ports • Shipping • Healthcare (62) 21 8066 8680 (66) 2658 5000 ext 1450 STRATEGY • Petrochemicals [email protected] [email protected] • Strategy • Metals & Mining • Cement • Strategist Anand PATHMAKANTHAN Kevin WONG • Autos • Consumer • Utility ASEAN (603) 2082 6824 [email protected] Theerasate PROMPONG (603) 2297 8783 • REITs • Technology Rahmi MARINA (66) 2658 5000 ext 1400 [email protected] (62) 21 8066 8689 [email protected] Jade TAM [email protected] • Equity Portfolio Strategist FIXED INCOME (603) 2297 8687 [email protected] • Banking & Finance • Consumer Staples & Discretionary Apiwat TAVESIRIVATE Winson PHOON, ACA Aurellia SETIABUDI (66) 2658 5000 ext 1310 (65) 6812 8807 TEE Sze Chiah Head of Retail Research (62) 21 8066 8691 [email protected] [email protected] (603) 2082 6858 [email protected] [email protected] • Chartist and TFEX • Property SE THO Mun Yi Nik Ihsan RAJA ABDULLAH, MSTA, CFTe VIETNAM (603) 2074 7606 (603) 2297 8694 Willy GOUTAMA [email protected] [email protected] (62) 21 8066 8500 Quan Trong Thanh • Chartist [email protected] (84 28) 44 555 888 ext 8184

• Consumer [email protected] Amirah AZMI • Banks (603) 2082 8769 [email protected] PHILIPPINES • Retail Research Hoang Huy, CFA Jacqui De JESUS (84 28) 44 555 888 ext 8181 (63) 2 8849 8844 [email protected] [email protected] • Strategy • Strategy • Conglomerates Le Nguyen Nhat Chuyen Romel LIBO-ON (84 28) 44 555 888 ext 8082 (63) 2 8849 8844 [email protected] [email protected] • Oil & Gas • Property Nguyen Thi Sony Tra Mi Fredrick De GUZMAN (84 28) 44 555 888 ext 8084 (63) 2 8849 8847 [email protected] [email protected] • Consumer • Consumer Tyler Manh Dung Nguyen Bernadine B BAUTISTA (84 28) 44 555 888 ext 8180 (63) 2 8849 8847 [email protected] [email protected] • Utilities • Property • Utilities Nguyen Thi Ngan Tuyen Rachelleen RODRIGUEZ Head of Retail Research (63) 2 8849 8843 (84 28) 44 555 888 ext 8081 [email protected] [email protected] • Banking & Finance • Food & Beverage • Oil & Gas • Banking

Nguyen Thanh Lam (84 28) 44 555 888 ext 8086 [email protected] • Technical Analysis

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APPENDIX I: TERMS FOR PROVISION OF REPORT, DISCLAIMERS AND DISCLOSURES

DISCLAIMERS This research report is prepared for general circulation and for information purposes only and under no circumstances should it be considered or intended as an offer to sell or a solicitation of an offer to buy the securities referred to herein. Investors should note that values of such securities, if any, may fluctuate and that each secu rity’s price or value may rise or fall. Opinions or recommendations contained herein are in form of technical ratings and fundamental ratings. Technical ratings may differ from fundamental ratings as technical valuations apply different methodologies and are purely based on price and volume-related information extracted from the relevant jurisdiction’s stock exchange in the equity analysis. Accordingly, investors’ returns may be less than the original sum invested. Past performance is not necessarily a guide to future performance. This report is not intended to provide personal investment advice and does not take into account the specific investment objectives, the financial situation and the particular needs of persons who may receive or read this report. I nvestors should therefore seek financial, legal and other advice regarding the appropriateness of investing in any securities or the investment strategies discussed or recommended in this report. The information contained herein has been obtained from sources believed to be reliable but such sources have not been independently verified by Maybank Investment Bank Berhad, its subsidiary and affiliates (collectively, “MKE”) and consequently no representation is made as to the accuracy or completeness of this re port by MKE and it should not be relied upon as such. 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MBKET reserves the rights to disseminate MBKET Retail Research reports to institutional investors who have requested to receive it. If you are an authorised recipient, you hereby tacitly acknowledge that the research reports from MBKET Retail Research are first pr oduced in Thai and there is a time lag in the release of the translated English version. The disclosure of the survey result of the Thai Institute of Directors Association (“IOD”) regarding corporate governance is made pursuant to the policy of the Office of the Securities and Exchange Commission. The survey of the IOD is based on the information of a company listed on the Stock Exchange of Thailand and the market for Alternative Investment disclosed to the public and able to be accessed by a general public investor. The result, therefore, is from the perspective of a third party. It is not an evaluation of operation and is not based on inside information. The survey result is as of the date appearing in the Corporate Governance Report of Thai Listed Companies. As a result, the survey may be changed after that date. MBKET does not confirm nor certify the accuracy of such survey result. The disclosure of the Anti-Corruption Progress Indicators of a listed company on the Stock Exchange of Thailand, which is assessed by Thaipat Institute, is made in order to comply with the policy and sustainable development plan for the listed companies of the Office of the Securities and Exchange Commission. Tha ipat Institute made this assessment based on the information received from the listed company, as stipulated in the form for the assessment of Anti-corruption which refers to the Annual Registration Statement (Form 56-1), Annual Report (Form 56-2), or other relevant documents or reports of such listed company. The assessment result is therefore made from the perspective of Thaipat Institute that is a third party. It is not an assessment of operation and is not based on any inside information. Since this assessment is only the assessment result as of the date a ppearing in the assessment result, it may be changed after that date or when there is any change to the relevant information. Nevertheless, MBKET does not confirm, verify, or certify the ac curacy and completeness of the assessment result. US This third-party research report is distributed in the United States (“US”) to Major US Institutional Investors (as defined in Rule 15a-6 under the Securities Exchange Act of 1934, as amended) only by Maybank Kim Eng Securities USA Inc (“Maybank KESUSA”), a broker-dealer registered in the US (registered under Section 15 of the Securities Exchange Act of 1934, as amended). All responsibility for the distribution of this report by Maybank KESUSA in the US shall be borne by Maybank KESUSA. 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UK This document is being distributed by Maybank Kim Eng Securities (London) Ltd (“Maybank KESL”) which is authorized and regula ted, by the Financial Conduct Authority and is for Informational Purposes only. This document is not intended for distribution to anyone defined as a Retail Client under the Financial Services and Markets Act 2000 within the UK. Any inclusion of a third party link is for the recipients convenience only, and that the firm does not take any responsibility for its comments or accuracy, and that access to such links is at the individuals own risk. Nothing in this report should be considered as constituting legal, accounting or tax advice, and that f or accurate guidance recipients should consult with their own independent tax advisers. DISCLOSURES

Legal Entities Disclosures Malaysia: This report is issued and distributed in Malaysia by Maybank Investment Bank Berhad (15938- H) which is a Participating Organization of Bursa Malaysia Berhad and a holder of Capital Markets and Services License issued by the Securities Commission in Malaysia. Singapore: This report is distributed in Singapore by Maybank KERPL (Co. Reg No 198700034E) which is regulated by the Monetary Authority of Singapore. Indonesia: PT Maybank Kim Eng Securities (“PTMKES”) (Reg. No. KEP-251/PM/1992) is a member of the Indonesia Stock Exchange and is regulated by the Financial Services Authority (Indonesia). Thailand: MBKET (Reg. No.0107545000314) is a member of the Stock Exchange of Thailand and is regulated by the Ministry of Finance and the Securities and Exchange Commission. Philippines: Maybank ATRKES (Reg. No.01-2004-00019) is a member of the Philippines Stock Exchange and is regulated by the Securities and Exchange Commission. Vietnam: Maybank Kim Eng Securities Limited (License Number: 117/GP-UBCK) is licensed under the State Securities Commission of Vietnam. Hong Kong: KESHK (Central Entity No AAD284) is regulated by the Securities and Futures Commission. India: Kim Eng Securities India Private Limited (“KESI”) is a participant of the National Stock Exchange of India Limited and the Bombay Stock Exchange and is regulated by Securities and Exchange Board of India (“SEBI”) (Reg. No. INZ000010538). KESI is also registered with SEBI as Category 1 Merchant Banker (Reg. No. INM 000011708) and as Research Analyst (Reg No: INH000000057) US: Maybank KESUSA is a member of/ and is authorized and regulated by the FINRA – Broker ID 27861. UK: Maybank KESL (Reg No 2377538) is authorized and regulated by the Financial Conduct Authority.

Disclosure of Interest Malaysia: MKE and its Representatives may from time to time have positions or be materially interested in the securities referred to he rein and may further act as market maker or may have assumed an underwriting commitment or deal with such securities and may also perform or seek to perform investment banking services, advisory and other services for or relating to those companies.

Singapore: As of 21 November 2020, Maybank KERPL and the covering analyst do not have any interest in any companies recommended in this research report.

Thailand: MBKET may have a business relationship with or may possibly be an issuer of derivative warrants on the securities /companies mentioned in the research report. Therefore, Investors should exercise their own judgment before making any investment decisions. MBKET, its associates, directors, connected parties and/or employees may from time to time h ave interests and/or underwriting commitments in the securities mentioned in this report.

Hong Kong: As of 21 November 2020, KESHK and the authoring analyst do not have any interest in any companies recommended in this research report.

India: As of 21 November 2020, and at the end of the month immediately preceding the date of publication of the research report, KESI, authoring analyst or their associate / relative does not hold any financial interest or any actual or beneficial ownership in any shares or having any conflict of interest in the subject companies except as otherwise disclosed in the research report. In the past twelve months KESI and authoring analyst or their associate did not receive any compensation or other benefits from the subje ct companies or third party in connection with the research report on any account what so ever except as otherwise disclosed in the research report.

MKE may have, within the last three years, served as manager or co-manager of a public offering of securities for, or currently may make a primary market in issues of, any or all of the entities mentioned in this report or may be providing, or have provided within the previous 12 months, significant advice or investment services in relation to the inves tment concerned or a related investment and may receive compensation for the services provided from the companies covered in this report.

OTHERS Analyst Certification of Independence The views expressed in this research report accurately reflect the analyst’s personal views about any and all of the subject securities or issuers; and no part of the research analyst’s compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in the report. Reminder Structured securities are complex instruments, typically involve a high degree of risk and are intended for sale only to soph isticated investors who are capable of understanding and assuming the risks involved. The market value of any structured security may be affected by changes in economic, financial an d political factors (including, but not limited to, spot and forward interest and exchange rates), time to maturity, market conditions and volatility and the credit quality of any issuer or reference issuer. Any investor interested in purchasing a structured product should conduct its own analysis of the product and consult with its own professional advisers as to the risks involved in making such a purchase. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior consent of MKE.

Definition of Ratings Maybank Kim Eng Research uses the following rating system BUY Return is expected to be above 10% in the next 12 months (including dividends) HOLD Return is expected to be between 0% to 10% in the next 12 months (including dividends) SELL Return is expected to be below 0% in the next 12 months (including dividends) Applicability of Ratings The respective analyst maintains a coverage universe of stocks, the list of which may be adjusted according to needs. Investment ratings are only applicable to the stocks which form part of the coverage universe. Reports on companies which are not part of the coverage do not carry investment ratings as we do not actively follow developments in these companies.

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 Malaysia  Singapore  London  New York Maybank Investment Bank Berhad Maybank Kim Eng Securities Pte Ltd Maybank Kim Eng Securities Maybank Kim Eng Securities USA (A Participating Organisation of Maybank Kim Eng Research Pte Ltd (London) Ltd Inc Bursa Malaysia Securities Berhad) 50 North Canal Road PNB House 400 Park Avenue, 11th Floor 33rd Floor, Menara Maybank, Singapore 059304 77 Queen Victoria Street New York, New York 10022, 100 Jalan Tun Perak, London EC4V 4AY, UK U.S.A. 50050 Kuala Lumpur Tel: (65) 6336 9090 Tel: (603) 2059 1888; Tel: (44) 20 7332 0221 Tel: (212) 688 8886 Fax: (603) 2078 4194 Fax: (44) 20 7332 0302 Fax: (212) 688 3500

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 Philippines  Thailand  Vietnam  Saudi Arabia Maybank ATR Kim Eng Securities Inc. Maybank Kim Eng Securities Maybank Kim Eng Securities Limited In association with 17/F, Tower One & Exchange Plaza (Thailand) Public Company Limited 4A-15+16 Floor Vincom Center Dong Anfaal Capital Ayala Triangle, Ayala Avenue 999/9 The Offices at Central World, Khoi, 72 Le Thanh Ton St. District 1 Ground Floor, KANOO Building Makati City, Philippines 1200 20th - 21st Floor, Ho Chi Minh City, Vietnam No.1 - Al-Faisaliyah,Madina Road, Rama 1 Road Pathumwan, P.O.Box 126575 Jeddah 21352 Tel: (63) 2 8849 8888 Bangkok 10330, Thailand Tel : (84) 844 555 888 Kingdom of Saudi Arabia Fax: (63) 2 8848 5738 Fax : (84) 8 38 271 030 Tel: (66) 2 658 6817 (sales) Tel: (966) 920023423 Tel: (66) 2 658 6801 (research)

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Indonesia London Iwan Atmadjaja Greg Smith [email protected] [email protected] (62) 21 8066 8555 Tel: (44) 207-332-0221

New York India James Lynch Sanjay Makhija [email protected] [email protected] Tel: (212) 688 8886 Tel: (91)-22-6623-2629

Philippines Keith Roy [email protected] Tel: (63) 2 848-5288

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