PETALING JAYA: MI Technovation Bhd is open to exploring mergers and acquisitions (M&A) to diversify into automotive semiconductor applications.

       The company this week announced that it was raising RM271mil via a private placement. Of this amount, it plans to put aside RM187mil or 69% of the proceeds for M&A and/or investments that will be related to the semiconductor equipment and semiconductor materials business units.

       This will give the company exposure beyond mobile devices into the automotive segment, which would have required an extended gestation period had it chosen an organic route, said CGS-CIMB in a report.

       “We think this is an exciting opportunity for MI Technovation to diversify its exposure, ’’ it said.

       No doubt it is too early to assess the potential earnings impact but the research house said the company is in discussions to explore potential acquisition and/or investment opportunities that are expected to create synergies with its existing portfolio.

       It said one of the potential M&A targets is involved in semiconductor materials used for automotive semiconductor applications.

       The report said the company believes this would be a complementary portfolio for its recently-acquired Accurus Scientific, which is involved in supplying semiconductor materials such as solder sphere.

       There is no change to its earnings forecasts and the research house retains its “add’’ rating to the stock at an unchanged target price of RM5.20 a share.

       This is based on a 40 times financial year 2020 price-to-earnings ratio.

       The research house said its earnings accretive acquisitions, new equipment launches and a weaker ringgit versus US dollar are the potential catalysts.

       However, a decline in semiconductor industry capital expenditure, delays in components’ lead time and lower smartphone demand are the key downside risks.

       MI Technovation plans to issue up to 82 million new shares, representing 10% of the total shares issued, via a private placement exercise.

       Apart from the 69% of proceeds planned for M&A, the remaining 29% or RM79mil will be allocated for working capital and to pare down borrowings related to the construction of the new manufacturing facility for Accurus Scientific China, amounting to RM15mil.

       It needs Bursa Malaysia’s approval to proceed with the exercise and expects to complete the private placement exercise within three months.