Investment Highlights

• We keep our BUY recommendation on Malaysian Pacific Industries (MPI) with unchanged forecasts and fair value of RM12.06/share, pegged to an FY21F PE of 15x.

• MPI’s 3QFY20 core profit of RM21mil was in line with expectations, bringing 9MFY20 core profit to RM106mil. This is after stripping off net one-off losses amounting RM2mil mainly as forex losses and provision & write-off of inventories were partially offset by gross dividend income from short-term investments. The results accounted for 78% of our full-year estimates and 74% of consensus’ estimates.
• YoY: 9MFY20 core profit fell 3% due to the exclusion of larger exceptional loss in 9MFY19 of RM11mil (vs. RM2mil loss in 9MFY20) amid larger forex losses and provision & write-off of inventories despite higher dividend income from investments. Otherwise, PBT rose by 0.1% in tandem with a 2% rise in overall revenue as sales in Asia rose 7%, offsetting 10% and 6% declines in the USA and Europe respectively. In 9MFY20, Asia, the USA, and Europe contributed 65%, 14% and 23% of total revenue respectively.
• QoQ: 3QFY20 core profit plunged 56% as revenue dropped 9% due to sales across all regions being impacted by Covid-19 containment measures taken by MPI’s production facilities in Ipoh and Suzhou (China) e.g. travel restrictions, etc.

• Outlook: Effective 29 April 2020, companies that have received the Ministry of International Trade and Industry’s approval to operate during the MCO were allowed to operate at 100% workforce capacity without restriction to working hours – which also include MPI. This bodes well for its Ipoh plant which contributes 70% of group revenue. Meanwhile, its Suzhou operations have returned to its preCovid-19 utilization rate of 104% after China eased its lockdown measures. However, the group shared that its order visibility has not been spared from uncertainties in demand relating to Covid-19 which is expected to affect its subsequent quarters. Since we have already factored in an overall weak 2H, we make no changes to earnings forecasts.

• We continue to like MPI despite short-term headwinds relating to Covid-19, expecting recovery from FY21F onwards. MPI’s mid-to-long-term prospects are positive due to: (i) its portfolio rationalization strategy that focuses on highermargin specialized projects; (ii) its leading market position in the ultra-thin MLP and increased R&D in MEMS sensors riding on the IoT wave; (iii) its move towards producing silicon carbide power products with applications in EVs, and (iv) its strong net cash position of RM809mil as at 31 March 2020.

Source: AmInvest Research - 21 May 2020