Investment Highlights

• We maintain HOLD on Malaysian Pacific Industries (MPI) with a higher fair value of RM36.05/share, pegged to a CY22F PE of 21x (previously RM28.99/share) after raising our FY21F-FY23F forecasts by 21-24% to account for expectations of robust earnings growth ahead. We have also adjusted for a +3% premium to reflect a 4-star ESG rating as appraised by us (Exhibit 3).

• Key takeaways from MPI’s 2QFY21 conference call:

• Results summary: 1HFY21 core profit rose 40% YoY due to an 18% increase in revenue across all of its enduser market segments (Exhibit 2). Furthermore, MPI’s disciplined cost control measures and investments in automation and Industry 4.0 helped to enhance profitability. The top 3 gainers by end-user market on a YoY basis were: (i) industrial – revenue grew 24% due to higher demand of data centres and servers; (ii) automotive – increased 17% and remains the group’s largest revenue contributor at 33% contribution. Long-term growth will be driven by electrification; safety and connectivity trends; and (iii) consumer/communications due to demand related to 5G and Internet of Things (IoT) where there is a stronger need for advanced packaging solutions. Meanwhile, PC/notebook sales rose by 17% due to more demand for remote work and learning requirements amid the Covid-19 pandemic.

• Capacity expansion: MPI plans to expand both its Suzhou and Ipoh operations as all its facilities are currently running at full or near-full capacities. The group is looking to embark on the 2nd phase of expansion for its 2nd level at its Suzhou factory by July 2021 as well as locate a new site by FY23. As for its Ipoh operations, the group is planning to utilize an additional building to become its production facility, where facilitation is targeted to be completed by end-CY21.

Capex will also be needed to purchase more equipment at each site in order to increase productivity. MPI did not disclose the amount of capex required for both expansions. We maintain our capex assumptions as we have already factored in higher FY21F capex. The expansion plans are in line with the group’s strategy to invest hugely in MEMS sensors, 5G testing and silicon carbide technology.

• Outlook: MPI’s pipeline remains intact and strong although it has shifted by a couple quarters amid the Covid-19 pandemic. PC/notebook revenue is expected to normalize, whereas automotive and industrial segments will continue to be key focus segments ahead.

• We continue to like MPI but opine that the stock is fairly valued at the current share price. The group’s positive prospects arise from: (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; (iii) its move towards producing silicon carbide power products with applications in EVs, servers, and renewable energy; and (iv) its strong net cash position of RM918mil as at 31 Dec 2020 which allows for strategic investments and M&A opportunities.

Source: AmInvest Research - 2 Mar 2021