Investment Highlights

• We reiterate our BUY recommendation on Malaysian Pacific Industries (MPI) with a higher fair value of RM12.53/share (previously RM10.68/share), representing a 17% upside. We raise our FY20F–FY22F earnings by 11%–13% to account for more job wins and improving margins. Our valuation is based on 14x CY20F rolledforward PE.

• We visited MPI’s plant in Ipoh recently. Our conviction on MPI’s prospects were further strengthened after learning that the company secured a new US customer that specialises in power electronics used in high-end electric vehicles (EV).

• Judging from the US customers’ portfolio, we believe that these power electronics are built with silicon carbide. When used in drive inverter of EVs, it allows for higher temperature tolerance and lower power loss compared with ordinary silicon. Such improvements translate into longer driving range and shorter charging times, alleviating the two main concerns of an EV.

• In anticipation of higher demand for its power electronics, the US customer is outsourcing the test and assembly tasks to MPI in order cope with production.

• MPI has installed 2 lines for the silicon carbide power products and is slated to commence operation in November 2019. Upon full ramp-up to 6 lines, it will likely contribute circa 10%–15% of group revenue. These will be operating in the Ipoh plant.

• The company’s Suzhou plant that was running at almost full utilisation rate 2 months back has received the additional equipment needed. Operations for new customers have commenced and contributions will be reflected in the coming quarters. Revenue contribution from Suzhou to the group is expected to rise significantly to 50% from 30%.

• With its massive cash pile of RM713 mil, MPI is still on the hunt for potential M&A. The company hinted that acquiring players involved in the electronic manufacturing services (EMS) and materials space could be synergistic.

• The company reiterated that necessary measures have been taken to ensure its reinstatement into Bursa Malaysia’s syariah-compliant list by end-Nov 2019.

• We continue to like MPI because of its new product portfolio that focuses on higher-margin specialised market, particularly in the growing automotive and industrial segments

Source: AmInvest Research - 1 Nov 2019