Investment Highlights

• We maintain our BUY recommendation on Malaysian Pacific Industries (MPI) with a higher fair value of RM17.33/share, pegged to a higher CY21F PE of 22x (previously RM13.20/share, pegged to CY21F PE of 16x). Our PE re-rating represents a 30% discount to its local sector market-cap weighted average PE to reflect its tighter liquidity.
   
• 4QFY20 core profit exceeded expectations at RM52mil, bringing FY20 core profit to RM158mil. This is after stripping off net one-off losses amounting RM5mil as forex losses, share-based payments and provision, and write-off of inventories were offset by dividend income from short-term investments. The results exceeded both our and consensus’ forecasts by 16% due to stronger-than-expected 4Q earnings.
   
• YoY: FY20 core profit climbed 13% due to: (i) revenue rising by 5% as sales in Asia rose 11% albeit 4% lower USA and Europe sales, (ii) higher net interest income; and (iii) lower depreciation. EBITDA margins remained steady at 25% despite the impact of the Covid-19 pandemic, supported by better cost controls. Asia, the USA, and Europe contributed 64%, 14% and 22% of total revenue respectively.

• QoQ: 4QFY20 core profit more than doubled due to: (i) 8% higher revenue; (ii) lower operating costs following MPI’s costcutting initiatives; and (iii) lower effective tax rate of 11% for 4QFY20 due to one of its subsidiaries being granted a tax incentive. Asia and the USA sales edged up 10% and 11% respectively while sales to Europe fell by 1%.

• Outlook: The group remains cautious on uncertainties relating to the Covid-19 pandemic and ongoing US-China conflict which may impact the quarters ahead. As such, despite the better set of 4Q results, we keep our forecasts unchanged. MPI will continue its cost-control measures and portfolio reassessment to mitigate any negative impacts.

• 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 higher-margin 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 RM826mil as at 30 Jun 2020.

Source: AmInvest Research - 1 Sept 2020