Investment Highlights

• We maintain our HOLD recommendation on Malaysian Pacific Industries (MPI). We keep our forecasts and fair value unchanged at RM36.05/share, pegged to a CY22F PE of 21x after making no price adjustments to reflect a 3-star ESG rating as appraised by us (Exhibit 3).
• MPI’s 3QFY21 results were in line with our expectations, recording a core profit of RM71mil which brings 9MFY21 core profit to RM189mil. This is after excluding an RM8mil exceptional gain mainly from gross dividend income from short term investments and forex gains which were partially offset by provision and write-off of inventories and share-based payments. The results accounted for 72% and 75% of our and consensus full-year estimates respectively, while 9M results for the past 3 years accounted for 67%–79% of full-year forecasts.
• YoY: 9MFY21 core profit soared by 77% due to:

(i) 25% higher revenue as sales rose across its geographical segments but mainly from a 25% increase in sales in Asia which was boosted by higher contribution from its Carsem Suzhou operations. Meanwhile, sales from the USA and Europe climbed 33% and 22% respectively;

(ii) a 2.6-ppt improvement in EBITDA margins which we believe is from better operational efficiency due to investments in Industry 4.0 and better cost savings; and

(iii) a lower effective tax rate of 10% (vs. 17% in 1HFY20).

• QoQ: 3QFY21 core profit expanded 15% in tandem with a 9% rise in revenue as sales rose by 7%, 10% and 13% in Asia, the USA, and Europe respectively.

• Outlook: Despite Covid-19 uncertainties and prospects of an uneven recovery of the global economy, the group believes that the semiconductor industry will show resilience and growth in FY21. We believe MPI’s pipeline continues to remain intact.

• 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 RM927mil as at 31 Mar 2021 which allows for strategic investments and M&A opportunities.

Source: AmInvest Research - 31 May 2021