TA Sector Research

Malaysian Pacific Industries Berhad - Sustained QoQ Recovery

sectoranalyst
Publish date: Thu, 16 Nov 2023, 10:29 AM

Review

  • In 1QFY24, MPI stayed profitable for the 2nd consecutive quarter as it reported a net profit of RM16.5mn (+103.0% QoQ, -68.7% YoY) on revenue of RM513.2mn (+6.4% QoQ, -9.0% YoY). The YoY earnings decline reflects softer global semiconductor demand alongside inventory correction and weaker end-market electronics demand amid macroeconomic headwinds. On a brighter note, QoQ earnings growth marked recovery for the 2nd consecutive quarter due to higher loadings and the stronger USD versus Ringgit.
  • While 1QFY24’s net profit accounted for only 8.6% and 9.7% of ours and consensus full-year estimates, we deem results to be within expectations as we anticipate QoQ earnings recovery to sustain and pick up further in 2HFY24 alongside the recovery in global semiconductor demand.
  • Meanwhile, MPI declared a 1st interim dividend of 10.0sen (1QFY23: 10.0sen).

Impact

  • We maintain our earnings forecast.

Outlook

  • Barring near-term headwinds, we remain optimistic about MPI’s mediumto-longer-term prospects, anchored by its strengthening product portfolio and automotive-centric strategy. Over the past five years (FY18 to FY23), the % of group revenue from the automotive segment had grown from 29% to 43%. MPI has targets for the automotive segment to contribute over 50% of group revenue alongside drivers, including electrification, advanced driver-assistance systems, autonomous driving, safety, and connectivity trends. Meanwhile, excitement could also come from potential acquisitions. This is backed by MPI’s war chest with its net cash of RM871.9mn (+8.8% QoQ, +3.7% YoY) as at end-1QFY24.

Valuation & Recommendation

  • In all, we maintain our Buy recommendation on MPI with an unchanged TP of RM32.15 based on a PE multiple of 26.0x CY24F EPS. We like MPI for its automotive-centric strategy as it seeks to capitalise on the promising prospects for content gains within vehicles, catalysed by the global transition to electric vehicles and autonomous driving, among others.
  • Key downside risks include weaker-than-expected loadings, geopolitical tensions weighing on economic growth and disrupting supply chains, a strengthening of the Ringgit against the USD, and a surge in commodity prices.

Source: TA Research - 16 Nov 2023

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