Highlights

M’sian Pacific Industries - Within Expectations

Date: 18/08/2017

Source  :  KENANGA
Stock  :  MPI       Price Target  :  15.70      |      Price Call  :  BUY
        Last Price  :  13.30      |      Upside/Downside  :  +2.40 (18.05%)
 


FY17 CNP came in line and so was the absence of DPS for the quarter. The group’s new products positioning as well as strategic exposure in different segments augur well for the current industry up-cycle. Post model updates as well as our positive takes from its Analyst Day, we increased our FY18E earnings by 6% to mainly account for higher earnings contribution from new sensors packaging in Automotive segment. All in, our TP has been raised to RM15.70. Maintain OP.

FY17 results within. The group reported 4Q17 CNP of RM40.8m (- 10% QoQ, +1% YoY), bringing its FY17 CNP to RM183.3m (+22%) which made up 101%/102% of our/consensus’ full-year estimates. Absence of DPS for the quarter was also expected. For FY17, the group declared a total net DPS of 27.0 sen which was also within our expectation.

YoY, FY17 revenue grew by 6%, (expanded from 9M17 growth of 3%) driven by much better 4Q17 sales (+13%). While we have yet to obtain the detailed breakdown in terms of market segments, we believe that the higher overall sales were predominantly driven by the continuous strong sales in the Smartphone segment amid the recent flagship smartphone launchings as evidenced in the 9M17 as well as higher sales from Automotive segment following the gradual production from its new sensors packaging. At the operating level, with better gross profit registered (+27%, which we believe was due to better operational efficiency and better product mixes) coupled with much higher “other operating income” of RM9.8m recorded in FY17 (vs –RM10.5m in FY16, which we believe to be driven mainly by forex gains), EBIT soared by 27%. QoQ, despite USD revenue growth of 1%, 4Q17 revenue in MYR terms recorded weaker growth of -2% on weaker USD vs MYR. With lower EBIT profitability which we believe was dragged by unfavourable product mixes as well as lower interest income and higher finance costs, PBT dropped by 15%.

Poised well to capture the high wave. The overall industry continued to show improvement as the global semiconductor sales in June 2017 increased by 23.6%, marking the eleventh consecutive YoY growth which is still showing uptrend momentum. Management is looking at a more optimistic top-line growth in USD terms of 5.5-7.5% in FY18, which will be driven by new products and strategic positioning in both high growth (Communication) and defensive (Automotive and Industry) segments. We believe this is highly possible considering the new products roadmap (advance packaging and testing, new thermal materials); not to mention the commencement of production for advanced sensors starting from 3Q17 that has already passed the stringent qualification stage. Besides top-line growth strategy, the group is also investing in higher automation (with better yield and higher efficiency), which will eventually evolve into Industrial 4.0.

Maintain OUTPERFORM with a higher TP of RM15.70. Post model updates as well as our positive takes from the Analyst Day, we increased our FY18E earnings by 6% to mainly account for higher earnings contribution from new sensors packaging in Automotive segment. All in, our TP has been raised to RM15.70 (from RM14.85), still based on 15.0x FY18E PER. We maintain our POSITIVE conviction on the medium-term prospect of the group given the greater visibility of its products and technology roadmaps coupled with the right positioning in balancing its products portfolio.

Source: Kenanga Research - 18 Aug 2017

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