Investment Highlights

• We maintain our BUY recommendation on Malaysian Pacific Industries (MPI) and fair value of RM12.53/share pegged to a CY20F PE of 14x. We keep our forecasts unchanged.

• MPI’s 1QFY20 results came in within our expectations at RM40mil. This is after adjusting for RM3mil one-off losses mainly from forex losses and provisions & write-offs for inventories. The results account for 24% of our full-year forecasts and 27% of consensus’ estimates.

• 1QFY20 core profit declined 5% in tandem with declining revenue, but was partially offset by cost savings and lower taxation. Revenue fell 11% due to the US-China trade dispute causing customers to hold back orders. Asia, the USA and Europe saw revenue declines of 8%, 23% and 8% respectively.

• EBITDA margins improved by 8ppts YoY and 3ppts QoQ, which we believe, was due to MPI’s portfolio rationalization initiative as well as its move to embrace Industrial 4.0 through digitalization initiatives and automation efforts in its facilities leading to cost savings.
   
• On a QoQ basis, core profit went up 14% amid improved utilization rates achieved from a 7% rise in revenue due to higher sales across all regions. Revenue in Asia, the USA and Europe rose by 6%, 7% and 8% respectively.
• MPI’s cash pile as at 30 Sep 2019, stood at a massive RM761mil. The group is on the lookout for potential M&A opportunities such as in the electronic manufacturing services (EMS) and materials space which could prove synergistic for the group.

• Moving ahead, we anticipate MPI’s earnings to be supported by: (1) its production of silicon carbide power products for a US customer specializing in power electronics used in high-end electric vehicles, and (2) commencement of operations for new customers in its Suzhou plant, which we have already factored into our earnings previously.

• We continue to like MPI due to its: 1) new product portfolio that focuses on higher-margin specialized market, 2) leading position in ultra-thin MLP and increased R&D in the MEMS space riding on the Internet of Things (IOT) wave, particularly perceptible in the automotive and industrial segments; and 3) a strong net cash position which allows it to look into meaningful M&A opportunities. Maintain BUY.

Source: AmInvest Research - 27 Nov 2019